10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2006

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to            

Commission file number 333-135172

CRC HEALTH CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	73-1650429
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
20400 Stevens Creek Boulevard, Suite 600, Cupertino,California	95014
(Address of principal executive offices)	(Zip code)

(877) 272-8668

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨    No  x

The Company is privately held. There is no trading in the common equity and therefore an aggregate market value based on sales or bid and asked prices is not determinable.

The total number of shares of the registrant’s common stock, par value of $0.001 per share, outstanding as of March 30, 2007 was 1,000.

Documents incorporated by reference: None

CRC HEALTH CORPORATION

INDEX

		Page
	PART I
Item 1.	Business	1
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	23
Item 3.	Legal Proceedings	25
Item 4.	Submission of Matters to a Vote of Security Holders	25
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk	40
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	90
Item 9A.	Controls and Procedures	90
Item 9B.	Other Information	90
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	91
Item 11.	Executive Compensation	94
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	102
Item 13.	Certain Relationships and Related Transactions, and Director Independence	105
Item 14.	Principal Accountant Fees and Services	107
	PART IV
Item 15.	Exhibits, Financial Statements Schedules	108
Signatures

Forward-Looking Statements

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this Annual Report, includes or may include “forward-looking statements.” All statements included herein, other than statements of historical fact, may constitute forward-looking statements. In some cases you can identify forward-looking statements by terminology such as “may,” “should” or “could.” Generally, the words “anticipates,” “believes,” “expects,” “intends,” “estimates,” “projects,” “plans” and similar expressions identify forward-looking statements. Although CRC Health Corporation (“CRC”) believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, among others, the following factors: changes in government reimbursement for CRC’s services; our substantial indebtedness, changes in applicable regulations or a government investigation or assertion that CRC has violated applicable regulations, attempts by local residents to force our closure or relocation, the potentially difficult, unsuccessful or costly integration of recently acquired operations and future acquisitions; the potentially difficult, unsuccessful or costly opening and operating of new treatment programs; the possibility that commercial payors for CRC’s services may undertake future cost containment initiatives; the limited number of national suppliers of methadone used in CRC’s outpatient treatment clinics; the failure to maintain established relationships or cultivate new relationships with patient referral sources; shortages in qualified healthcare workers; natural disasters such as hurricanes, earthquakes and floods; competition that limits CRC’s ability to grow; the potentially costly implementation of new information systems to comply with federal and state initiatives relating to patient privacy, security of medical information and electronic transactions; the potentially costly implementation of accounting and other management systems and resources in response to financial reporting and other requirements; the loss of key members of CRC’s management; claims asserted against CRC or lack of adequate available insurance; and certain restrictive covenants in CRC’s debt documents and other risks that are described herein, including but not limited to the items discussed in “Risk Factors” in Item 1A of Part I of this Annual Report, and that are otherwise described from time to time in CRC’s Securities and Exchange Commission filings after this Annual Report. CRC assumes no obligation and does not intend to update these forward-looking statements.

PART I

ITEM 1. Business.

Overview

We are a leading provider of substance abuse treatment services and youth treatment services in the United States. We also provide treatment services for other addiction diseases and behavioral disorders such as eating disorders. We deliver our substance abuse and behavioral disorder treatment services through our residential and outpatient treatment programs, which we refer to as our residential and outpatient treatment divisions. We deliver our youth treatment services through our residential schools, wilderness programs and weight loss programs, which we refer to as our youth treatment division. As of December 31, 2006, we operated 105 residential and outpatient treatment facilities in 23 states and treated approximately 24,000 patients per day, which we believe makes us the largest and most geographically diversified for-profit provider of substance abuse treatment. As of December 31, 2006, our youth treatment division operated programs at 32 facilities in 12 states and 1 facility in the United Kingdom and during the 2006 calendar year enrolled 4,478 new students from families in every state of the United States and from 32 foreign countries. Since our inception in 1995, we believe that we have developed a reputation for providing outstanding services and care and as a result have become a provider of choice throughout the communities we serve.

All references in this report to the “Company,” “we,” “our,” and “us” mean, unless the context indicates otherwise, CRC Health Corporation and its subsidiaries on a consolidated basis.

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Major Recent Developments

On November 17, 2006, we completed the acquisition of Aspen Education Group, Inc., which we refer to as Aspen Acquisition. Aspen Education Group provides educational services to youth who have demonstrated behavioral issues that have interfered with their performance in school and life. Aspen Education Group operates 32 programs in 12 states in the U.S. and 1 program in the U.K. Its offerings include therapeutic boarding schools, experiential outdoor education programs, weight-loss residential schools and summer weight loss camps. We purchased Aspen Education Group for approximately $279.5 million in total purchase consideration, including acquisition related expenses.

In connection with the Aspen Acquisition, we incurred approximately $175.5 million of additional indebtedness under our term loan facility and simultaneously paid down a net amount of approximately $25.4 million of indebtedness under our revolving loan facility, each of which are part of our amended and restated senior secured credit facility. Our amended and restated senior secured credit facility provides for senior secured financing of up to $519.3 million, consisting of: (1) a $419.3 million term loan facility with a final maturity date of February 6, 2013; and (2) a $100.0 million revolving credit facility with a final maturity date of February 6, 2012, including a letter of credit sub-facility and a swingline loan sub-facility. To fund the Aspen Acquisition, our parent company, CRC Health Group, Inc. also entered into a seven-year payment-in-kind (“PIK”) senior unsecured loan in a principal amount of $105.0 million (issued at 1% original issue discount for total proceeds of $104.0 million), which will accrue interest at a rate per annum, reset bi-annually, equal to 6-month LIBOR plus a spread which is initially 7.00%. This senior unsecured loan is not guaranteed by CRC or any of its subsidiaries.

In connection with the consummation of the Aspen Acquisition and following the consummation of such acquisition, Mr. Sainer joined our Board of Directors as a new board member. Mr. Sainer is the president of Aspen Education Group and co-founded Aspen Education Group in 1998.

Industry Overview

Addiction Diseases and Behavioral Disorders

Addiction is a chronic disease that adversely affects the lives of millions of Americans. One of the most common and serious addictions is substance abuse, which encompasses the abuse of alcohol and drugs. Without treatment, substance abuse can lead to depression, problems at home or work, and in some cases, physical injury or death. In 2001, expenditures for treatment of substance abuse in the United States totaled $18.3 billion. In 2004, 23.5 million persons aged 12 or older needed treatment for an alcohol or drug use problem, but only 2.3 million, or 10% of those afflicted, received treatment in inpatient or outpatient facilities. The prevalence of substance abuse continues to grow as evidenced by the fact that, in 2004, the number of individuals needing treatment for substance abuse grew 5.9% over 2003 reported levels. This growth has been due to several factors including the declining cost of illegal drugs, the availability of new formulations of existing drugs and the increasing abuse of prescription painkillers. There is also evidence of increasing alcohol use. Between 1995 and 2001, the number of binge drinking episodes per person increased 35%. The Substance Abuse and Mental Health Services Administration estimated that in 2004 approximately 55 million Americans aged 12 and older (22.8% of the U.S. population) participated in binge alcohol use, defined as five or more drinks on one occasion, in the past month. Approximately 16.7 million Americans, or 7.0% of the U.S. population, are considered to be heavy drinkers, defined as binge drinking five or more times per month. Furthermore, there is increasing recognition by private and public payors that failure to deliver early treatment for substance abuse and other behavioral issues generally results in higher acute-care hospital costs and can compound the negative effects of these issues over time. Treatment providers for the large and growing behavioral healthcare market, at both the adult and adolescent levels, are highly fragmented, with services to the adult population provided by over 13,000 different facilities of which only 26% are operated by for-profit organizations, and with services to the adolescent population provided primarily by single-site competitors and a handful of competitors of significantly lesser size. Due in part to the regulatory and land use hurdles of opening new substance abuse treatment facilities, we believe that supply of residential substance abuse treatment and therapeutic education services is constrained in the United States as evidenced by high industry-wide utilization rates.

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Addiction is a complex, neurologically based, life-long disease that can encompass a broad range of activities from use of illegal substances to compulsive eating. While the initial behavior of addiction manifests itself through conscious choices, such behavior can develop into a long-term neurological disorder.

There is no uniform treatment protocol for all substance abuse patients. Effective treatment includes a combination of medical, psychological and social treatment programs. These programs may be provided in residential and outpatient treatment facilities.

Other addiction diseases and behavioral disorders include eating disorders, pain management, sexual compulsivity, compulsive gambling, mood disorders and emotional trauma. Among these diseases, eating disorders and chronic pain management represent large underserved treatment markets. These segments are highly fragmented with no national provider.

Therapeutic Education for Adolescents

According to the National Survey on Drug Use and Health, in 2003, nearly nine million adolescents or 36% of the population engaged in at least one delinquent behavior such as drug or alcohol abuse, academic difficulty, violence or stealing, and approximately 2.2 million adolescents, or 9% of the population had at least one major depressive episode. While the majority of adolescents successfully cope with these issues on their own, there are a growing number of adolescents who need help and support to successfully transition to a productive adulthood. Other developmental challenges faced by adolescents include learning disabilities, such as attention deficit hyperactivity disorder and obesity. According to the National Resource Center on Attention Deficit Hyperactivity Disorder, this condition affects 3% to 7% of school-age children, who in relation to their peers have higher rates of psychiatric and behavioral disorders. The National Health and Nutrition Examination Survey reports that approximately 16% of the population between the ages of 6 and 19 are overweight.

Historically, treatment options for struggling or underachieving youth were limited to counseling or placement in a highly structured hospital setting. More recently, however, parents, health professionals and public officials have been increasingly turning to the preventative care that can be provided by therapeutic education programs designed to modify adolescent behavior and assist the transition to a successful and productive adulthood. Therapeutic education programs offer individualized curricula that combine counseling, education and therapeutic treatment in residential and outdoor locations that provide a stable environment for students and provide measurable benefits to adolescents who have not benefited from counseling alone.

Our Business

We deliver our services through our residential, outpatient and youth treatment divisions, each of which is a separate reporting segment.

Residential Treatment Division

Our residential treatment division provides treatment services both on an inpatient and outpatient basis to patients suffering from chronic addiction diseases and related behavioral disorders. This division operated 28 inpatient and 18 outpatient facilities in twelve states as of December 31, 2006. On average, our inpatient residential facilities have been operating for over 18 years and have established strong relationships with referral sources and have longstanding ties to the local community, through among other things, the presence in those communities of successfully treated patients and their families. As of December 31, 2006, we had 1,724 available beds in our facilities and treated approximately 1,400 patients per day. Each of our residential facilities is accredited by either JCAHO or CARF, with the exception of The Life Healing Center, Montecatini, Carolina House and Center for Hope of the Sierras, which, due to the nature of their payor profiles, would not necessarily benefit from accreditation.

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The majority of our residential treatment services are provided to patients who abuse addictive substances such as alcohol, illicit drugs or chemicals. Some of our facilities also treat other addictions and behavioral disorders such as eating disorders, chronic pain management, sexual compulsivity, compulsive gambling, mood disorders and emotional trauma.

Our treatment facilities provide detoxification, counseling programs, education, lectures and group therapy. The goal of inpatient treatment is to assess and evaluate the medical, psychological and emotional needs of the patient and to address these needs in the treatment process. Following this assessment, an individualized treatment program is designed to provide a foundation for a lifelong recovery process. Our facilities emphasize abstinence and the importance of social involvement, and utilize twelve step programs.

Our inpatient services are provided to both adult and adolescent patients in a peaceful setting that is removed from the pressures, pace and temptations of a patient’s everyday life. Our inpatient facilities house and care for patients over an extended period (21 days on average) and typically treat patients from a broadly defined regional market.

Our outpatient programs are conducted at either free-standing facilities (primarily located in urban areas and convenient for the patient) or in a designated space at our inpatient facilities. This level of care is mainly intended to provide the patient with a longer treatment period, as efficacy of treatment is believed to be closely tied to length of time spent in treatment.

Our treatment facilities deliver care at various levels of intensity which allows us to facilitate effective treatment. We treat medically stable adult and adolescent patients at any stage in the lifecycle of their disease. Upon admission, a patient enters an appropriate stage in our continuum of care depending on the patient’s diagnosis, the level and acuity of the disease and related treatment requirements. The patient may enter into one or a combination of four levels of treatment, detoxification, inpatient, partial inpatient or outpatient, depending on the patient’s needs.

Other Service; Eating Disorders; Chronic Pain Managements. Several other related behavioral diseases, in addition to substance abuse, represent large underserved markets to which our residential treatment services may be provided. The treatment model used at our residential facilities to treat substance abuse can also be applied to treat other compulsive behaviors such as eating disorders and chronic pain management. Our Sierra Tucson, Center for Hope of the Sierras, Montecatini, Carolina House and The Life Healing Center facilities provide treatment for eating disorders and our Twelve Oaks, Galax and Sierra Tucson treatment facilities provide treatment for chronic pain management.

Referral Base and Marketing for Residential Treatment Services. We receive a large number of patient referrals generated from our several thousand referral sources. Patients are referred to our residential facilities by healthcare practitioners, public programs, other treatment facilities, managed care organizations, unions and word of mouth from previously treated patients and their families, among others. We devote significant resources to establishing strong relationships with a broad array of potential referral sources at the local and national level. No single referral source resulted in a significant portion of our revenues.

We engage in local marketing, direct-to-consumer internet marketing, coordinate intra-facility referrals and develop programs and content targeted at key referral sources on a national basis. In 2004, we created our National Resource Center, NRC, a centralized call center located at our corporate headquarters, to respond to inquiries from our online marketing efforts and to facilitate cross-referrals.

Payor Mix for Residential Treatment Services. We generate our revenues from three primary sources: self payors, commercial payors such as managed care organizations and unions and government programs. We believe our strong relationships with third party payors and our industry experience allow us to obtain new contracts for new and acquired facilities which creates an opportunity to increase the number of patients that we treat.

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Staffing and Local Management Structure for Residential Treatment Services. A typical residential facility is managed by an executive director experienced in substance abuse treatment services. Our executive directors have on average over 22 years of experience in healthcare and over ten years tenure at the treatment center they currently manage. The executive director is supported by a facility staff that consists of physicians, nurses, counselors, marketing professionals, reimbursement specialists, administrative and facility maintenance employees.

Outpatient Treatment Division

We provided outpatient treatment services at 59 clinics located in 18 states as of December 31, 2006. Our clinics, which typically range in size from 3,000 to 7,000 square feet, are generally located within light commercial districts, often within strip malls or medical office buildings. As of December 31, 2006, our clinics treated on average approximately 24,000 patients on a daily basis. Each of our outpatient treatment clinics is accredited by either JCAHO or CARF.

Our outpatient treatment programs provide substance abuse treatment services. During the 2006 calendar year, substantially all of our services were provided to individuals addicted to heroin and other opiates, including prescription painkillers such as oxycodone. In 2006, 24 of our 59 outpatient treatment clinics were certified to provide at least one additional comprehensive outpatient substance abuse treatment service, which we refer to as our COSAT services. Our treatment services include medication assisted treatment, counseling, laboratory work, physical examinations and ongoing monitoring of patients. COSAT services add outpatient detoxification and intensive outpatient services for individuals addicted to or abusing any drug or alcohol. The goal of our outpatient treatment program is to assess and evaluate the medical, psychological and emotional needs of a patient and address these needs in the treatment process. Following a thorough assessment and the development of an individualized treatment plan, the treatment process provides a foundation for a lifelong recovery process.

The first step undertaken at any of our outpatient treatment facility is an assessment of the condition and treatment needs of the patient. A qualified counselor performs a complete psychosocial assessment. In addition, a physician completes a physical examination to ensure that there are no immediate health concerns. Both assessments also diagnose and identify the current addiction. After these screening steps are completed, the patient is admitted to the program.

Substantially all of our patients addicted to heroin and other opiates are treated with methadone, but a small percentage of our patients are treated with other medications such as buprenorphine. Patients usually visit an outpatient treatment facility once a day for about ten minutes in order to receive their medication. During the beginning of their treatment program, patients receive weekly counseling and as they successfully progress in the treatment protocol, they continue to receive a minimum of 50 minutes of counseling each month. This mandatory minimum duration of counseling may vary from state to state. Following the initial administration of medication, patients go through an induction phase where medication dosage is systematically modified until an appropriate dosage, a level where the euphoric effects of opiates are blocked, is reached. As patients progress with treatment and meet certain goals in their individualized treatment plan and certain federal criteria related to time in treatment, they become eligible for up to 30 days of take-home doses of medication, eliminating the need for daily visits to the clinic. The length of treatment differs from patient to patient, but typically ranges from one to three years.

COSAT services broaden the array of services offered at our clinics and increase our potential patient base by providing services to individuals with problems with all drugs and alcohol, not just opiates. Outpatient detoxification is a program where medication is administered to counter physical withdrawal symptoms. Patients are monitored daily by nurses and other medical personnel at the clinic. This program allows patients to remain in their home environment in the evening. Intensive outpatient is a 12-16 week program of three, three hour sessions per week. An individual treatment plan is developed for each patient.

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Referral Base and Marketing of Outpatient Treatment. Patients are referred to our outpatient treatment facilities through a number of different sources, including emergency departments, judicial officials, social workers, police departments and individual word of mouth. We believe that our strong local reputation, convenient facility locations, strict adherence to patient selection criteria and treatment procedures make us an attractive choice for referral sources and patients. We engage in local marketing and direct-to-consumer marketing.

Payor Mix for Outpatient Treatment. A substantial portion of our patient revenues from our outpatient treatment division were from self pay patients, typically in the form of cash and in advance of treatment or at the time of treatment. The remaining revenues were derived from state and local healthcare assistance programs such as Medicaid. Although we have a negligible amount of revenues from commercial payors for services provided by our outpatient treatment division, these payors have recently begun to reimburse for methadone maintenance programs and we expect this trend to continue in the future. We are currently active seeking commercial payor contracts for our COSAT services.

Staffing for Outpatient Treatment. A typical program is run by a clinic director experienced in substance abuse treatment services. A clinic director is supported by a staff that consists of a medical director, nurses, counselors and administrative employees.

Youth Treatment Division—Aspen Education Group

Our youth treatment division provides a wide variety of therapeutic and educational programs through settings and solutions that match individual needs with the appropriate learning and therapeutic environment. We operate 32 programs in 12 states and one program in the United Kingdom as of December 31, 2006, with services ranging from short-term intervention programs to longer-term residential treatment. Our programs are offered in boarding schools, residential treatment centers, outdoor experiential education programs, the nation’s first residential school focusing on the growing problem of pediatric obesity, and clinically-based weight loss summer camps. These programs exist at the intersection of education and therapy for adolescents who have demonstrated behavioral or learning challenges that are interfering with their performance in school and in life such as substance abuse, academic underachievement, anger and aggressive behavior, family conflict, special learning needs, depression and obesity. Since most of the targeted customer base for these programs face a wide range of interrelated academic, emotional, and behavioral disorders, our ability to offer a seamless continuum of care for a multitude of problems is an important competitive differentiator for us. Approximately one half of our youth treatment programs are accredited by an educational accreditation program, such as the Northwest Association of Accredited Schools, while only a small number of our youth programs are accredited by JCAHO because they would not necessarily benefit from accreditation due to the high level of private pay or do not meet the clinical intensity of services usually found in a JCAHO approved program.

Residential programs. We operate 16 residential programs in eight states. These programs are operated in traditional boarding school environments where a unique educational plan is crafted for each student that combines group therapy, individual counseling and specialized therapeutic experiences, such as equine therapy, which are designed to build the student’s personal and emotional skills. Quarterly parent seminars and family resolution conferences play an important role in building mutually respectful and responsible relationships and preparing the student to face the real world challenges they face upon completion of the program. Each of our residential programs follows an accredited middle school, high school or college preparatory curriculum over a length of stay ranging from three to 24 months with an average duration of approximately ten months. Admissions are accepted year-round, subject to capacity, and campus sizes range from 40-160 students at both single gender and co-ed campuses.

• Residential Treatment Centers. We have five residential treatment centers. These programs offer a highly structured environment with 24 hours-per-day supervision that emphasizes therapeutic programming and a strong peer environment to help students overcome self-defeating behaviors and acquire and practice positive behaviors.

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• Therapeutic Boarding Schools. Eight of our residential programs are therapeutic boarding schools. These programs focus on educating adolescents who are struggling with behavioral, emotional, or academic issues by fostering personal growth, healthy self-expression and service to others.

• Special Learning Needs. Three of our residential programs are special learning needs programs. These programs are tailored to students with attention deficit hyperactivity disorder, learning disabilities or acute emotional issues, and offer structured education in an intimate academic environment that emphasizes personalized student attention and development of organizational and social skills.

Outdoor programs. We operate ten outdoor programs in six states. Outdoor programs emphasize student exposure to, and interaction with, natural environments and are based on either a base camp format, where students are housed in fixed structures between camping expeditions, or a format that utilizes an expedition-only format. These programs are designed for adolescents who have typically undergone an acute personal crisis and require immediate intervention in a short-term, high-impact therapeutic program that emphasizes experiential learning and individualized counseling as a catalyst for positive behavioral change. Students enrolled in an outdoor program experience the challenges living and working together outdoors as a means of identifying and working through internal conflicts and emotional obstacles that have kept them from responding to parental efforts, schools and prior treatment. In some cases, academic credit is offered upon completion of the program.

Weight loss programs. We operate one year-round residential weight loss school and five summer weight loss camps in four states and the United Kingdom. These programs are intended for the growing number of obese adolescents for whom traditional weight loss methods have been unsuccessful. Our year-round weight loss school is the nation’s first therapeutic boarding school specifically designed for obese adolescents, and features a full academic program in addition to a therapeutic weight loss program. The residential school, as well as our summer weight loss camps, employ scientific weight loss methods that are designed to maximize long-term behavioral change as a catalyst to substantial and sustained weight loss. These programs include intensive cognitive-behavioral therapy, a low fat, low energy density diet, high physical activity and an integrated nutritional and academic educational program. By participating in a research-based diet and activity management program, and intensive training on the skill sets and behaviors necessary for weight control, students are returned to a normal weight and learn to change to a wide range of behaviors, starting with diet and activity, but including self-esteem, mood, affect and outlook.

Payor Mix for Youth Treatment. Substantially all of our revenues are from self payors.

Staffing and Local Management Structure for Youth Treatment Services. A typical youth treatment program is managed by an executive director experienced in education or other clinical areas, and many of our executive directors hold post-graduate degrees. Our executive directors have on average over 15 years of experience in education / healthcare and over six years tenure at the treatment center they currently manage. The executive director is supported by a staff that consists of therapists, clinical professionals, teachers, counselors, field staff, admissions, finance and operational personnel as well as administrative and maintenance employees.

Online Treatment Services. As part of a student’s participation in one of our youth treatment programs, we utilize a “parent check-in” website that provides parents with updated progress reports, pictures, and school event information. In select programs, parents can monitor their child via a web cam. This website is designed to allow families to participate in the student’s progress at the program, and assist with the eventual transition of the student back to home life upon completion of the program.

Competition

Treatment providers for the large and growing substance abuse treatment market are highly fragmented, with services being provided by over 13,000 different facilities of which only 26% are operated by for-profit organizations. The primary competitive factors in the substance abuse treatment industry include the quality of

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programs and services, charges for programs and services, geographic proximity to the patients served, brand and marketing awareness and the overall responsiveness to the needs of patients, families and payors. Our residential and outpatient treatment divisions compete against an array of local competitors, both private and governmental, hospital-based and free standing and for-profit and non-profit facilities. Most of our residential facilities compete within local or regional markets. Sierra Tucson, in contrast, competes in both national and international markets with other nationally known substance abuse treatment facilities such as the Betty Ford Clinic and Hazelden.

Providers of youth treatment services are also highly fragmented with services being provided by over 500 different facilities. Our youth treatment division competes with a large number of single-site businesses that lack our name recognition and management resources, as well as a handful of larger companies who have divisions that provide youth treatment programs, such as the youth programs of Universal Health Services, Second Nature and Three Springs.

Technology Infrastructure

We utilize computer systems for billing, general ledger and all corporate accounting and residential facilities and expect to invest an additional $3.0 to $4.0 million over the next twelve months on the implementation of a comprehensive and fully integrated system encompassing clinical, marketing, regulatory, financial and management reporting systems. We are also in the process of deploying human resource management systems. The implementation expenditure includes upgrades, new hardware and software, data communications infrastructure, general system maintenance and staffing. The implementation is scheduled over a three-year period to ensure smooth transition for each module and to minimize any disruption to our business.

Regulatory Matters

Overview

Healthcare providers are regulated extensively at the federal, state and local levels. In order to operate our business and obtain reimbursement from third party payors, our residential and outpatient treatment facilities are required to obtain and maintain a variety of state and federal licenses, permits and certifications. In addition, most of our residential and outpatient treatment facilities must obtain and maintain accreditation from private agencies. We must also comply with numerous other laws and regulations applicable to the conduct of business by healthcare providers. Our facilities are also subject to periodic on-site inspections by the agencies that regulate and accredit them in order to determine our compliance with applicable requirements.

Our youth treatment division must comply with state and local laws that vary based on the locations in which they operate. A typical program will be subject to licensure by the state department of education or health services, as well as local land use and health and safety laws. Those of our programs that are accredited must comply with the guidelines of the applicable accrediting agencies, and a number of our programs maintain federal land use permits for their outdoor education and ranching activities.

The laws and regulations that affect healthcare providers are complex, change frequently and require that we regularly review our organization and operations and make changes as necessary to comply with the new rules. This is particularly true since we have grown through a series of acquisitions in a number of states over the past ten years and because our activities span several different treatment settings, each of which may have its own regulatory requirements. Significant public attention has focused in recent years on the healthcare industry, directing attention not only to the conduct of industry participants but also to the cost of healthcare services. In recent years, there have been heightened coordinated civil and criminal enforcement efforts by both federal and state government agencies relating to the healthcare industry. The ongoing investigations relate to, among other things, various referral practices, cost reporting, billing practices, credit balances, physician ownership and joint ventures involving hospitals and other health care providers. We expect that healthcare costs and other factors will continue to encourage both the development of new laws and increased enforcement activity.

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Licensure, Accreditation and Certification

All of our residential and outpatient treatment facilities, and most of the programs at our youth treatment facilities must be licensed under applicable state laws. Licensing requirements typically vary significantly by state and by the services provided. Licensure requirements generally relate to the provider’s qualifications, the adequacy of care and other matters, including: its equipment, personnel, staff-to-patient ratios, operating policies and procedures, fire prevention, maintenance of adequate records, rate-setting and compliance with building codes and environmental protection laws. In addition, all of our outpatient treatment clinics that treat opiate addicts and some of our residential facilities are required to register with the U.S. Drug Enforcement Agency, or the DEA, because they handle and dispense controlled substances and are required to implement DEA-approved security systems and take other measures to ensure that methadone is dispensed and stored as required by the DEA.

JCAHO and CARF are private organizations that have accreditation programs for healthcare facilities. These accreditation programs are intended generally to improve the quality, safety, outcomes and value of healthcare services provided by accredited facilities. CARF accredits behavioral health organizations providing mental health and alcohol and drug use and addiction services, as well as opiate treatment programs, among others. JCAHO accredits a broader variety of healthcare organizations, including hospitals, behavioral health organizations, nursing and long-term care facilities, ambulatory care centers, laboratories and managed care networks and others, including two of our youth treatment programs. Accreditation by JCAHO, CARF or one of the educational accreditation organizations that recognize our youth treatment programs requires an initial application and completion of on-site surveys demonstrating compliance with accreditation requirements. Accreditation is typically granted for a specified period, typically ranging from one to three years, and renewals of accreditation generally require completion of a renewal application and an on-site renewal survey. Accreditation is generally a requirement for participation in government and private healthcare payment programs. In addition, certain federal and state licensing agencies require that providers be accredited.

Some of our residential and outpatient treatment programs participate in government healthcare payment programs such as Medicaid. In order to receive payment under these programs, each participating facility must apply to the appropriate government agency and be certified to participate in the program. In addition, our outpatient treatment clinics must be certified by SAMSHA before the DEA will issue the registration required in order to provide opiate treatment.

We believe that all of our residential, outpatient and youth treatment programs are in substantial compliance with current applicable federal, state, local licensure and certification requirements. In addition, we believe that all are in substantial compliance with the standards of the agencies, including JCAHO and CARF, which have accredited them. Periodically, federal, state and accreditation regulatory organizations conduct surveys of our facilities and may find from time to time that a facility is out of compliance with certain requirements. Upon receipt of any such finding, the facility timely submits a plan of correction and corrects any cited deficiencies.

Fraud, Abuse and Self-Referral Laws

Our residential and outpatient treatment programs must comply with a number of laws and regulations because we participate in government healthcare payment programs such as Medicare and Medicaid.

The anti-kickback provision of the Social Security Act, or the anti-kickback statute, prohibits certain offers, payments or receipt of remuneration in return for referring patients covered by federal healthcare payment programs or purchasing, leasing, ordering or arranging for or recommending any services, good, item or facility for which payment may be made under a federal healthcare program. As a result, our dealings with referring physicians and other referral sources, including employment contracts, independent contractor agreements, professional service agreements, joint venture agreements and medical director agreements, are all subject to the anti-kickback statute. The anti-kickback statute has been interpreted broadly by federal regulators and certain

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courts to prohibit the payment of anything of value if even one purpose of the payment is to influence the referral of Medicare or Medicaid business. Violations of the anti-kickback statute may be punished by criminal or civil penalties, exclusion from federal and state healthcare programs, imprisonment and damages up to three times the total dollar amount involved. The Office of Inspector General, or the OIG, of the Department of Health and Human Services is responsible for identifying fraud and abuse activities in government programs. The OIG has published regulations describing activities and business relationships that would be deemed not to violate the anti-kickback statute, known as “safe harbor” regulations. We use our best efforts to comply with applicable safe harbors.

Sections 1877 and 1903(s) of the Social Security Act, commonly known as the “Stark Law,” prohibit referrals for designated health services by physicians under the Medicare and Medicaid programs to any entity in which the physician has an ownership or compensation arrangement, unless an exception applies, and prohibits the entity from billing for such services rendered pursuant to any prohibited referrals. These types of referrals are commonly known as “self referrals.” There are exceptions for customary financial arrangements between physicians and facilities, including employment contracts, personal services agreements, leases and recruitment agreements that meet specific standards. We use our best efforts to structure our financial arrangements with physicians to comply with the statutory exceptions included in the Stark Law and related regulations. Sanctions for violating the Stark Law include required repayment to governmental payors of amounts received for services resulting from prohibited referrals, civil monetary penalties, assessments equal to three times the dollar value of each service rendered for an impermissible referral (in lieu of repayment) and exclusion from the Medicare and Medicaid programs.

A number of states have laws comparable to the anti-kickback statute and the Stark Law. These state laws may be more stringent than the federal rules and apply regardless of whether the healthcare services involved are paid for under a federal health care program.

The Federal False Claims Act

The federal False Claims Act prohibits healthcare providers from knowingly submitting false claims for payment under a federal healthcare payment program. There are many potential bases for liability under the federal False Claims Act, including claims submitted pursuant to a referral found to violate the Stark Law or the anti-kickback statute. Although liability under the federal False Claims Act arises when an entity “knowingly” submits a false claim for reimbursement to the federal government, the federal False Claims Act defines the term “knowingly” broadly. Civil liability under the federal False Claims Act can be up to three times the actual damages sustained by the government plus civil penalties for each false claim. From time to time, companies in the healthcare industry, including us, may be subject to actions under the federal False Claims Act.

Individuals may also bring an action on behalf of the government under the “whistleblower” or “qui tam” provisions of the federal False Claims Act. Because qui tam lawsuits are filed under seal, we could be named in one or more such lawsuits of which we are not aware. These provisions allow for the private party that identified the violation to receive a portion of the sums the provider is required to pay. This whistle-blower structure has encouraged some private companies to go into the business of detecting and reporting potential fraud and abuse.

Privacy and Security Requirements

There are numerous federal and state regulations addressing patient information privacy and security concerns. In particular, the federal regulations issued under the Drug Abuse Prevention, Treatment and Rehabilitation Act of 1979 and Health Insurance Portability and Accountability Act of 1996, or HIPAA, contain provisions that:

• protect individual privacy by limiting the uses and disclosures of patient information;

• create new rights for patients regarding their health information, such as access rights and the right to amend certain aspects of their health information;

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• require the implementation of security safeguards to ensure the confidentiality, integrity and availability of individually identifiable health information in electronic form;

• prescribe specific transaction formats and data code sets for certain electronic healthcare transactions; and

• require establishment of standard unique health identifiers for individuals, employers, health plans and healthcare providers to be used in connection with standard electronic transactions no later than May 23, 2007.

We are in the process of implementing or upgrading computer systems, as appropriate, to comply with the transaction and code set requirements to correspond to the requirements of our trading partners. We have furthermore adopted privacy policies in accordance with HIPAA requirements. Although we are not in compliance with certain security regulations under HIPAA, we do not believe that this noncompliance has a material effect on our business, and furthermore we have a plan in place to achieve compliance.

Under HIPAA, a violation of these regulations could result in civil money penalties of $100 per incident, up to a maximum of $25,000 per person per year per standard. HIPAA also provides for criminal penalties of up to $50,000 and one year in prison for knowingly and improperly obtaining or disclosing protected health information, up to $100,000 and five years in prison for obtaining protected health information under false pretenses and up to $250,000 and ten years in prison for obtaining or disclosing protected health information with the intent to sell, transfer or use such information for commercial advantage, personal gain or malicious harm.

In addition, many states impose requirements regarding the confidentiality and security of healthcare information, as well as regarding the permitted uses of that information, and many of these state laws are more restrictive than the federal rules. For example, some states impose laws governing the use and disclosure of health information pertaining to substance abuse issues that are more stringent than the rules that apply to healthcare information generally. As public attention is drawn to the issues of the privacy and security of medical information, states may revise or expand their laws concerning the use and disclosure of health information, or may adopt new laws addressing these subjects. Failure to comply with these laws could expose us to criminal and civil liability, as well as requiring us to restructure certain of our operations.

Health Planning and Certificates of Need

The construction of new healthcare facilities, the expansion of existing facilities, the transfer or change of ownership of existing facilities and the addition of new beds, services or equipment may be subject to state laws that require prior approval by state regulatory agencies under certificate of need laws. These laws generally require that a state agency determine the public need for construction or acquisition of facilities or the addition of new services. Review of certificates of need and other healthcare planning initiatives may be lengthy and may require public hearings. Violations of these state laws may result in the imposition of civil sanctions or revocation of a facility’s license. The states in which we operate that have certificate of need laws include Indiana, West Virginia and North Carolina.

Local Land Use and Zoning

Municipal and other local governments may also regulate our treatment programs. Many of our facilities must comply with zoning and land use requirements in order to operate. For example, local zoning authorities regulate not only the physical properties of a health facility, such as its height and size, but also the location and activities of the facility. In addition, community or political objections to the placement of treatment facilities can result in delays in the land use permit process, and may prevent the operation of facilities in certain areas.

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Corporate Practice of Medicine and Fee Splitting

Some states have laws that prohibit business entities, including corporations or other business organizations that own healthcare facilities, from employing physicians. Some states also have adopted laws that prohibit direct and indirect payments or fee-splitting arrangements between physicians and such business entities. These laws vary from state to state, are often difficult to interpret and have seldom been interpreted by the courts or regulatory agencies. We use our best efforts to comply with the relevant state laws. Sanctions for violations of these restrictions include loss of a physician’s license, civil and criminal penalties upon both the physician and the business entity and rescission of business arrangements.

Employees

As of December 31, 2006, we employed approximately 4,606 people throughout the United States. Approximately 4,086 of our employees are full-time and the remaining approximately 520 are part-time employees. There were approximately 1,901 employees in our residential treatment division, 961 employees in our outpatient treatment division and 1,664 employees in our youth treatment division. The remaining approximately 80 employees are in corporate management, administration and other services. None of our employees is represented by a labor union, and we believe our relationship with our employees is good.

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available on our website at http://www.crchealth.com/investor-sec-filings.asp, as soon as reasonably practicable after CRC electronically files such reports with, or furnishes those reports to, the Securities and Exchange Commission.

We included the certifications of the CEO and the CFO of CRC required by Section 302 of the Sarbanes-Oxley Act of 2002 and related rules, relating to the quality of CRC’s public disclosure, in this Annual Report on Form 10-K as Exhibits 31.1 and 31.2.

ITEM 1A. Risk Factors

Set forth below and elsewhere in this report and in other documents we have filed and will file with the SEC are risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report.

Business Risks

Impact of Inflation and Economic Trends

Although inflation has not had a material impact on our results of operations, our industry is very labor intensive and salaries and benefits are subject to inflationary pressures. Some of our facilities are experiencing the effects of the tight labor market, including a shortage of counselors and nurses, which has caused and may continue to cause an increase in our salaries, wages and benefits expense in excess of the inflation rate. Our ability to pass on increased costs associated with providing services to our patients, in some cases, may be limited.

Our programs may be negatively impacted to the extent adverse economic conditions result in decreased reimbursements by federal or state governments or managed care payors. Furthermore, our operations with a high proportion of private pay patients are more likely to be affected by periods of recession.

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Our level of indebtedness could adversely affect our ability to meet our obligations under our indebtedness, raise additional capital to fund our operations and limit our ability to react to changes in the economy or our industry.

We are highly leveraged. The following chart shows our level of indebtedness, and certain other information as of December 31, 2006 (in thousands).

Senior Secured Credit Facility(1)	$	421,827
Senior Subordinated Notes		197,295
Other		7,406
Total Debt	$	626,528
Total Stockholder’s Equity	$	437,174

(1) In addition, as of December 31, 2006, we had $3.9 million of letters of credit outstanding under our revolving line of credit leaving approximately $92.5 million available for additional borrowings under our revolving credit facility.

In addition, our parent company has incurred a $105.6 million of indebtedness as of December 31, 2006. Our substantial indebtedness and the indebtedness of our parent company could make it more difficult for us to satisfy our obligations with respect to our indebtedness, increase our vulnerability to general adverse economic and industry conditions, require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes, limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, place us at a competitive disadvantage compared to our competitors that have less debt; and limit our ability to borrow additional funds.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and other general corporate matters will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before the maturity thereof. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

If federal or state healthcare programs, managed care organizations and other third-party payors reduce their reimbursement rates for services provided, our revenue and profitability may decline.

Government healthcare programs, managed care organizations and other third-party payors pay for the services we provide to some of our patients. If any of these entities reduce their reimbursement rates, or elect not to cover some or all of our services, our revenue and profitability may decline.

For the year ended December 31, 2006, we derived approximately 19.9% of our revenue from government programs and 80.1% of our revenue from non-government payors such as self pay, managed care organizations, private health insurance programs and labor unions. Government payors, such as Medicaid and Medicare, generally reimburse us on a fee-for-service basis based on predetermined reimbursement rate schedules. As a result of these reimbursement schedules, we are limited in the amount we can record as revenue for our services from these government programs. If our costs to provide our services increase, we typically will not be able to recover these costs from government payors. In addition, the federal government and many state governments are operating under significant budgetary pressures, and they may seek to reduce payments under their Medicaid programs for services such as those we provide. They also tend to pay on a slower schedule. Thus, while 19.9%

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of our revenue for the year ended December 31, 2006 was attributable to governmental payors, such payors accounted for 37.7% of our accounts receivable as of December 31, 2006. Therefore, if governmental entities reduce the amounts they will pay for our services, or if they elect not to continue paying for such services altogether, our revenue and profitability may decline. In addition, if governmental entities slow their payment cycles, our cash flow from operations could be negatively affected.

Commercial payors such as managed care organizations, private health insurance programs and labor unions generally reimburse us for the services rendered to insured patients based upon contractually determined rates. These commercial payors are under significant pressure to control healthcare costs. In addition to limiting the amounts they will pay for the services we provide their members, commercial payors may, among other things, impose prior authorization and concurrent utilization review programs that may further limit the services for which they will pay and shift patients to lower levels of care and reimbursement. These actions may reduce the amount of revenue we derive from commercial payors.

We derive a significant portion of our revenue from key treatment programs that are located in Pennsylvania, California, Arizona, Indiana and West Virginia, which makes us particularly sensitive to regulatory and economic conditions in those states.

For the year ended December 31, 2006, our Pennsylvania facilities accounted for approximately 18% of our total revenue, our California facilities accounted for approximately 11% of our total revenue, our Arizona facilities accounted for approximately 15% of our total revenue, our Indiana facilities accounted for approximately 9% of our total revenue and our West Virginia facilities accounted for approximately 7% of our total revenue. If our treatment facilities in these states are adversely affected by changes in regulatory and economic conditions, our revenue and profitability may decline.

If Pennsylvania government funds for the services we provide are reduced or unavailable, our revenue and profitability may be negatively impacted.

For the year ended December 31, 2006, we derived approximately 12% of our revenue from government programs funded by the Commonwealth of Pennsylvania. Similar to other states, Pennsylvania prepares its budget on an annual basis under significant cost pressures and budgetary approval can be subject to the unpredictability of the political process. Our revenues and operating results could be harmed by any reduction or delay in reimbursement by the Commonwealth of Pennsylvania for services we provide to patients covered by state-funded programs.

A sustained downturn in the U.S. economy could negatively affect revenue and profitability of our operations dependent on private-pay funding.

Substantially all of the revenue from our youth treatment division and certain residential treatment facilities such as Sierra Tucson is derived from private-pay funding. In addition, a substantial portion of our revenue from our outpatient treatment division is from self-payors. A sustained downturn in the U.S. economy could restrain the ability of our patients and the families of our students to pay for our services. In addition, some of the families of our students in our youth treatment division rely on third-party loans to fund the cost of tuition at our programs. The unavailability of these loans could interfere with the ability of private-pay customers to afford our programs, and may harm our operating results.

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We may have difficulty operating and integrating treatment facilities and youth treatment programs that we acquire. This may disrupt our business and increase our costs and harm our operating results.

In 2003, we acquired nine residential facilities and 24 outpatient treatment clinics and in 2004, we acquired one residential facility. In 2005, we acquired three residential facilities and one outpatient treatment clinic. In 2006, we acquired six residential facilities and five outpatient treatment clinics. In addition, in 2006, we acquired Aspen Education Group which is our largest acquisition to date. Additional acquisitions would expose us to additional business and operating risk and uncertainties, including risks related to our ability to:

• integrate operations and personnel at acquired programs;

• retain key management and healthcare professional personnel;

• maintain and attract patients and students to acquired programs;

• manage our exposure to unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations; and

• realize our investment return on acquisitions.

Integration efforts can require spending substantial resources on projects, such as implementing consistent billing, payroll and information technology systems, instituting standard policies and procedures and re-training staff from the acquired businesses to conform to our service philosophy and internal compliance procedures. Furthermore, integrating an acquired treatment program may disrupt our ongoing business and distract our management and other key personnel. If we are unable to manage our expansion efforts efficiently or effectively, or are unable to attract and retain additional qualified management and healthcare professional personnel to run our expanded operations, our business may be disrupted, our costs may increase and our operating results may be harmed.

We may have difficulty opening new treatment facilities and operating them profitably. We have limited experience in opening new residential treatment facilities. If we are unable to execute our strategy, our growth may be restrained and our operating results could be adversely affected.

Our growth strategy includes developing and opening new treatment facilities and to date, we have limited experience in opening new treatment facilities. Planning and opening new treatment facilities in each of the residential, outpatient and youth treatment divisions can be complex, and may be delayed and, in some circumstances, prevented by a variety of forces, including local zoning and land use regulation, health facility licensing, certificate of need requirements, community opposition and other political issues. Healthcare laws and other rules and regulations may also impede or increase the cost of opening new programs. If we are unable to open new treatment programs on time and on budget, our rate of growth and operating results may be adversely affected.

Even if we are able to open new treatment programs, we may not be able to staff them or integrate them into our organization. In addition, there can be no assurance that, once completed, new treatment programs will achieve sufficient patient census or student enrollment to generate operating profits. Developing new programs, particularly facilities for residential treatment services and residential youth treatment programs, involves significant upfront capital investment and expense and if we are unable to attract patients and/or students quickly and/or enter into contracts or extend our existing contracts with third-party payors for these programs, these programs may not be profitable and our operating results could be adversely affected.

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State and local regulation of the construction, acquisition or expansion of treatment facilities could prevent us from opening or acquiring additional residential and outpatient treatment facilities or expanding or renovating our existing treatment facilities, which may cause our growth to be restrained and our operating results to be adversely affected.

Some states have enacted laws which require prior approval for the construction, acquisition or expansion of treatment facilities, or for other capital expenditures such as the acquisition of certain kinds of equipment used at treatment facilities. In giving approval, these states consider the need for additional or expanded treatment facilities or services. In the states of North Carolina, West Virginia and Indiana in which we currently operate, certificates of need may be required to be obtained for capital expenditures exceeding a prescribed amount, changes in capacity or services offered. Other states in which we now or may in the future operate may also require certificates of need under certain circumstances not currently applicable to us, or may impose standards and other health planning requirements upon us.

No assurance can be given that we will be able to obtain the required approvals or certificates of need for additional or expanded treatment facilities or services in the future, which may restrain our growth. If we are unable to obtain required regulatory, zoning or other required approvals for renovations and expansions, our growth may be restrained and our operating results may be adversely affected.

Changes to federal, state and local regulations affecting the operation of our treatment facilities could prevent us from operating our existing facilities or acquiring additional facilities, which may cause our growth to be restrained and our operating results to be adversely affected.

Federal, state and local regulations determine the capacity at which our therapeutic education programs for adolescents may be operated. Some of our programs in our youth treatment division rely on federal land-use permits to conduct the hiking, camping and ranching aspects of these programs. State licensing standards require many of our programs to have minimum staffing levels, minimum amounts of residential space per student and adhere to other minimum standards. Local regulations require us to follow land use guidelines at many of our programs, including those pertaining to fire safety, sewer capacity and other physical plant matters. In addition, federal, state and local regulations may be enacted that impose additional requirements on our facilities. For example, in the 2007 legislative session, senators and assemblymen from the state of California introduced numerous bills that would impose new regulations on our operations in California. Adoption of legislation or the creation of new regulations affecting our facilities could increase our operating costs, restrain our growth and harm our operating results.

A shortage of qualified workers could adversely affect our ability to identify, hire and retain qualified personnel. This could increase our operating costs, restrain our growth and reduce our revenue.

The success of our business depends on our ability to identify, hire and retain a professional team of addiction counselors, nurses, psychiatrists, physicians, licensed counselors and clinical technicians across our network of treatment facilities. Competition for skilled employees is intense. For example, there are currently national shortages of qualified addiction counselors and registered nurses. The process of locating and recruiting skilled employees with the combination of qualifications and attributes required to treat those suffering from addiction and other behavioral health illnesses can be lengthy and competition for these workers could cause the salaries, wages and benefits we must pay to increase faster than anticipated. Furthermore, many states require specified staff to patient ratios in for residential and outpatient treatment facilities. If we are unable to identify, hire and retain sufficient numbers of qualified professional employees, or to continue to offer competitive salaries and benefits, we may be unable to staff our facilities with the appropriate personnel or to maintain required staff ratios and may be required to turn away patients. Certain of our treatment facilities are located in remote geographical areas, far from population centers, which increases this risk. These factors could increase our operating costs, restrain our growth and reduce our revenue.

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If we fail to cultivate new or maintain established relationships with referral sources, our revenue may decline.

Our ability to grow or even to maintain our existing level of business depends significantly on our ability to establish and maintain close working relationships with physicians, managed care companies, insurance companies, educational consultants and other referral sources. We do not have binding contracts or commitments with any of these referral sources. We may not be able to maintain our existing referral source relationships or develop and maintain new relationships in existing or new markets. If we lose existing relationships with our referral sources, the number of people to whom we provide services may decline, which may adversely affect our revenue. If we fail to develop new referral relationships, our growth may be restrained.

Our treatment facilities are sometimes subject to attempts by local or regional governmental authorities and local area residents to force their closure or relocation.

Property owners and local authorities have attempted, and may in the future attempt, to use zoning ordinances to eliminate our ability to operate a given treatment facility by claiming that the program violates existing ordinances, rezoning or adopting new ordinances. Local governmental authorities in some cases have attempted to use litigation and the threat of prosecution to force the closure of certain of our clinics. If any of these attempts were to succeed or if their frequency were to increase, our revenue would be adversely affected and our operating results might be harmed.

There are only two significant suppliers of methadone distributed by our outpatient treatment facilities. If one or both of these vendors does not supply the methadone we require, we may face increased costs in our outpatient treatment division, which may adversely affect our operating results and profitability.

Although methadone is a generic drug, there are only two significant national suppliers of methadone, Mallinckrodt Inc. and VistaPharm, Inc. We currently purchase methadone for dispensation in our clinics from both of them. If one of these suppliers were to reduce or curtail production of methadone, we would need to identify other suppliers of methadone. If we are unable to do so, our cost to purchase methadone may increase which may adversely affect our operating results and profitability.

A decline in the revenues or profitability of our Sierra Tucson facility would likely have a material adverse effect on our revenues and operating results.

For the year ended December 31, 2006, our Sierra Tucson facility represented approximately 14.7% of our total revenue and approximately 22.1% of our operating income before corporate and divisional overhead. Our Sierra Tucson facility’s high occupancy rate as well as the favorable average length of stay and price of treatment made it our most profitable facility for the calendar year 2006. Should Sierra Tucson’s revenues or profitability decline for any reason or its operations be interrupted, our total revenue and profitability could also decline. For example, a terrorist act, significant terrorist threat or other disruption to air travel may reduce the willingness or ability of Sierra Tucson’s national and international patient base to travel to the facility or a fire or other casualty loss could interrupt its operations. These events could negatively affect our consolidated operating results.

Accidents or other incidents involving the students at our youth treatment facilities, or those of our competitors, may adversely affect our revenues and operating results directly or through negative public perception of the industry.

Accidents resulting in physical injuries to our students or staff, or incidents that attract negative attention to the youth treatment industry generally, such as those involving death or criminal conduct against, or by a student may adversely affect our business. For example, in 2006, a student at one of our outdoor programs contracted West Nile Virus and passed away. Accidents or incidents of this nature, in addition to costs associated with possible legal claims or regulatory action against us, could result in reduced revenues based on lost referrals or student withdrawals. Similar accidents or incidents at programs operated by our competitors could negatively impact public perception of the therapeutic education industry and harm our operations as well. No assurance can

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be given that accidents or other incidents at our programs or those of our competitors will not adversely affect our operations.

Natural disasters such as hurricanes, earthquakes and floods may adversely affect our revenues and operating results.

Natural disasters such as hurricanes, earthquakes and floods may adversely affect our operations. Such natural disasters may result in physical damage to or destruction of our programs as well as damage to areas where our patients or referral sources are based. In 2005, Hurricane Dennis resulted in property damage, extra expenses and lost revenue to our Twelve Oaks facility. In addition, prior to Hurricane Katrina in 2005, our Twelve Oaks facility historically generated 15-20 referrals on a monthly basis from areas affected by Hurricane Katrina. In the months following Hurricane Katrina, such referrals decreased significantly. In 2005, Hurricane Wilma resulted in a loss of electricity to our Wellness Resource Center in Boca Raton, Florida and patients had to be evacuated for a period of time. Such natural disasters may lead to decreased census, decreased revenues and higher operating costs.

We face significant competition from established treatment providers as well as new entrants.

We compete directly with a wide variety of non-profit, government and for-profit treatment providers, and this competition may intensify in the future. Non-profit and government providers may be able to offer competitive services at lower prices, which may adversely affect our revenue in regional markets and service categories in which we compete with non-profit and government providers. In addition, many for-profit providers are local, independent operators with strong established reputations within the surrounding communities, which may adversely affect our ability to attract a sufficiently large number of patients in markets where we compete with such providers. For example, our outpatient treatment programs are currently facing increasing competition in California, which has slowed the growth in the number of patients those clinics treat. Our youth treatment division competes against a small number of multiple-location providers, such as Universal Health Services, Second Nature and Three Springs, as well as a number of independent operators. These providers compete with us not only for referrals, but also for qualified personnel, and in some cases our personnel have resigned their positions with us to operate programs of their own. We may also face increasing competition from new operators which may adversely affect our revenue and operating results in impacted markets.

As a provider of treatment services, we are subject to claims and legal actions by patients, students, employees and others, which may increase our costs and harm our business.

We are subject to medical malpractice and other lawsuits based on the services we provide. In addition, treatment facilities and programs that we have acquired, or may acquire in the future, may have unknown or contingent liabilities, including liabilities related to care and failure to comply with healthcare laws and regulations, which could result in large claims, significant defense costs and interruptions to our business. These liabilities may increase our costs and harm our business. A successful lawsuit or claim that is not covered by, or is in excess of, our insurance coverage may increase our costs and reduce our profitability. Furthermore, we maintain a $0.5 million deductible per claim under our workers compensation insurance, and an increase in workers compensation claims or average claim size may also increase our costs and reduce our profitability. Our insurance coverage may not continue to be available at a reasonable cost, especially given the significant increase in insurance premiums generally experienced in the healthcare industry.

Companies within the healthcare industry continue to be the subject of federal and state investigations.

Both federal and state government agencies as well as commercial payors have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare organizations. These investigations relate to a wide variety of topics, including:

• quality of care;

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• financial relationships with referral sources;

• medical necessity of services provided; and

• appropriateness of billing and coding for items and services billed to governmental payors.

The 2006 Work Plan issued by the OIG includes among the areas that the agency will target for investigation in 2006 a number of services we offer, including Outpatient Alcoholism Services and Freestanding Inpatient Alcoholism Providers. Any investigations of us or our executives or managers could result in significant liabilities or penalties, including possible exclusion from the Medicare or Medicaid programs, as well as adverse publicity.

The integration of our information systems may be more costly than we anticipate, may not be completed on time or the integrated systems may not function properly.

We are currently introducing new software to consolidate and integrate critical information systems used in daily operations, including for claims processing, billing, financial, intake and other clinical functions. The new software is also intended to streamline internal controls to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We expect to make additional capital expenditures related to this plan before it is complete. If this implementation takes longer or is more expensive than anticipated, or if we fail to successfully complete this implementation or if the software fails to perform as expected, our operations may be disrupted and we may not comply with the requirements of Section 404 of the Sarbanes-Oxley Act. This may increase our costs, reduce our revenue and harm our business.

We have a limited history of profitability, have incurred net losses in the past and may incur substantial net losses in the future.

We began operations in August 2002, and our predecessor organizations began operations in September 1995. In 2002 and 2003, we recorded a net loss from continuing operations of approximately $11.5 million and $1.6 million, respectively. For the year ended December 31, 2006, we recorded a net loss of approximately $35.5 million. We recorded a net profit in 2004 and 2005, but we cannot assure you that we will operate profitably in the future. In addition, we may experience significant quarter-to-quarter variations in operating results.

We are subject to restrictions that limit our flexibility in operating our business as a result of our debt financing agreements.

Our debt financing agreements contain a number of significant covenants that, among other things, restrict our ability to incur additional indebtedness, create liens on our assets, restrict our ability to engage in sale and leaseback transactions, mergers, acquisitions or asset sales and make investments. Under some circumstances, these restrictive covenants may not allow us the flexibility we need to operate our business in an effective and efficient manner and may prevent us from taking advantage of strategic and financial opportunities that could benefit our business. In addition, we are required under our senior secured credit facility to satisfy specified financial ratios and tests. Our ability to comply with those financial ratios and tests may be affected by events beyond our control, and we may not be able to meet those ratios and tests. A breach of any of those covenants could result in a default under our senior secured credit facility and the lenders could elect to declare all amounts borrowed under our senior secured credit facility, together with accrued interest, to be immediately due and payable and could proceed against the collateral securing that indebtedness. Substantially all of our assets are pledged as collateral pursuant to the terms of our senior secured credit facility. In such an event, we could not assure you that we would have sufficient assets to pay amounts due our subordinated indebtedness.

If we fail to comply with the restrictions in our debt financing agreements, a default may allow the creditors to accelerate the related indebtedness, as well as any other indebtedness to which a cross-acceleration or cross-

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default provision applies. In addition, lenders may be able to terminate any commitments they had made to supply us with further funds.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligation to increase significantly.

Certain of our borrowings, primarily borrowings under our senior secured credit facility, are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows would decrease.

We depend on our key management personnel.

Our senior management team has many years of experience addressing the broad range of concerns and issues relevant to our business. The loss of existing key management or the inability to attract, retain and motivate sufficient numbers of qualified management personnel could have an adverse effect on our business and our ability to execute our growth strategy.

Funds associated with Bain Capital Partners, LLC control us and may have conflicts of interest with us.

Investment funds associated with or designated by Bain Capital Partners, LLC which we refer to as Bain Capital, indirectly own, through their ownership in our parent company, substantially all of our capital stock. As a result, Bain Capital has control over our decisions to enter into any corporate transaction regardless of whether our debt holders believe that any such transaction is in their own best interests. For example, Bain Capital could cause us to make acquisitions or pay dividends that increase the amount of indebtedness that is secured or that is senior to our senior subordinated notes or to sell assets.

Additionally, Bain Capital is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Bain Capital may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as investment funds associated with or designated by Bain Capital continue to indirectly own a significant amount of the outstanding shares of our common stock, even if such amount is less than 50%, Bain Capital will continue to be able to strongly influence or effectively control our decisions.

Regulatory Risks

If we fail to comply with extensive laws and government regulations, we could suffer penalties, become ineligible to participate in reimbursement programs or be required to make significant changes to our operations, which may reduce our revenues, increase our costs and harm our business.

Healthcare service providers are required to comply with extensive and complex laws and regulations at the federal, state and local government levels relating to, among other things:

• licensure, certification and accreditation;

• handling of controlled substances;

• adequacy of care, quality of services, qualifications of professional and support personnel;

• referrals of patients and relationships with physicians;

• inducements to use healthcare services that are paid for by governmental agencies;

• billings for reimbursement from commercial and government payors;

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• confidentiality, maintenance and security issues associated with health-related information and medical records;

• physical plant planning, construction of new facilities and expansion of existing facilities;

• state and local land use and zoning requirements; and

• corporate practice of medicine and fee splitting.

Failure to comply with these laws and regulations could result in the imposition of significant penalties or require us to change our operations, which may harm our business and operating results.

The following is a discussion of some of the risks relating to specific laws and regulations that apply to us.

Licensure, accreditation and certification

In order to operate our business, our residential and outpatient treatment programs for substance abuse must obtain the required state and federal licenses and certification as well as in most cases accreditation from the Joint Council on Accreditation of Healthcare Organizations, JCAHO, or the Commission on Accreditation of Rehabilitation Facilities, CARF. In addition, such licensure, certification and accreditation is required to receive reimbursement from most commercial and government payors. If our programs are unable to maintain such licensure, certification and accreditation, our revenue may decline, our growth may be limited and our business may be harmed.

Handling of controlled substances

Our residential and outpatient treatment programs must comply with especially strict federal and state regulations concerning the distribution of methadone and other controlled pharmaceuticals. The potential for theft or diversion of methadone and other pharmaceuticals distributed at our facilities for illegal uses has led the federal government as well as a number of states and localities to adopt stringent regulations not applicable to many other types of healthcare providers. Compliance with these regulations is expensive and these costs may increase in the future.

Referrals of patients and relationships with physicians

The federal anti-kickback statute and related regulations prohibit certain offers, payments or receipt of remuneration in return for referring patients covered by Medicaid or other federal healthcare programs or purchasing, leasing, ordering or arranging for or recommending any services, good, item or facility for which payment may be made under a federal healthcare program. Federal physician self-referral legislation, known as the Stark Law, generally prohibits a physician from ordering certain services reimbursable by a federal healthcare program from an entity with which the physician has a financial relationship, unless an exception applies, and prohibits the entity from billing for certain services rendered pursuant to any prohibited referrals. Several of the states in which we operate have laws that are similar to the federal Stark and anti-kickback laws and that reach services paid for by private payors and individual patients.

If we fail to comply with the federal anti-kickback statute and its safe harbors, the Stark Law or other related state and federal laws and regulations, we could be subjected to criminal and civil penalties, we could lose our license to operate, and our residential and outpatient treatment programs could be excluded from participation in Medicaid and other federal and state healthcare programs and could be required to repay governmental payors amounts received by our residential and outpatient treatment programs for services resulting from prohibited referrals. In lieu of repayment, the OIG may impose civil monetary assessments of three times the amount of each item or service wrongfully claimed. In addition, if we do not operate our treatment facilities in accordance with applicable law, our residential and outpatient treatment programs may lose their licenses or the ability to participate in third-party reimbursement programs.

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Coding and billing rules

If we fail to comply with federal and state documentation, coding and billing rules, we could be subject to criminal and civil penalties, loss of licenses and exclusion from Medicaid programs, which could harm us. Approximately 19.9% of our revenue for the year ended December 31, 2006 consisted of payments from Medicaid and other government programs. In billing for our services to government payors, we must follow complex documentation, coding and billing rules. Failure to follow these rules could result in potential criminal or civil liability under the federal False Claims Act, under which extensive financial penalties can be imposed. It could further result in criminal liability under various federal and state criminal statutes, or in our being ineligible for reimbursement under Medicaid programs. The rules are complex and we submit a large number of claims per year for Medicaid and other federal program payments and we cannot assure you that governmental investigators, commercial insurers or whistleblowers will not challenge our practices or that there will be no errors. Any such challenges or errors could result in increased costs and have an adverse effect on our profitability, and could result in a portion of our recorded revenue being uncollectible or subject to repayment to governmental payors.

Privacy and security requirements

There are numerous federal and state regulations such as the federal regulations issued under the Drug Abuse Prevention, Treatment and Rehabilitation Act of 1979 and the Health Insurance Portability and Accountability Act of 1996, or HIPAA, addressing patient information privacy and security concerns. Compliance with these regulations can be costly and requires substantial management time and resources. We are not currently in full compliance with the security regulations contained in HIPAA, however, we do have plans in place to become compliant. Our failure to comply with HIPAA privacy or security requirements could lead to civil and criminal penalties and our business could be harmed.

In addition, many states impose similar, and in some cases more restrictive, requirements. For example, some states impose laws governing the use and disclosure of health information pertaining to mental health and/or substance abuse issues that are more stringent than the rules that apply to healthcare information generally. As public attention is drawn to the issues of the privacy and security of medical information, states may revise or expand their laws concerning the use and disclosure of health information, or may adopt new laws addressing these subjects. Failure to comply with these laws could expose us to criminal and civil liability, as well as requiring us to restructure certain of our operations.

Changes in state and federal regulation and in the regulatory environment, as well as different or new interpretations of existing regulations, could adversely affect our operations and profitability.

Since our treatment programs and operations are regulated at federal, state and local levels, we could be affected by different regulatory changes in different regional markets. Increases in the costs of regulatory compliance and the risks of noncompliance may increase our operating costs, and we may not be able to recover these increased costs, which may adversely affect our results of operations and profitability.

Also, because many of the current laws and regulations are relatively new, we do not always have the benefit of significant regulatory or judicial interpretation of these laws and regulations. In the future, different interpretations or enforcement of these laws and regulations could subject our current or past practices to allegations of impropriety or illegality or could require us to make changes in our treatment facilities, equipment, personnel, services or capital expenditure programs. A determination that we have violated these laws, or the public announcement that we are being investigated for possible violations of these laws, could adversely affect our business and operating results.

ITEM 1B. Unresolved Staff Comments

Not applicable.

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ITEM 2. Properties

Residential Treatment Division. The following tables list our residential treatment facilities, as of December 31, 2006.

Program	City	State	Owned / Leased
Inpatient Residential Treatment Facilities
Azure Acres	Sebastopol	CA	Owned
Brandywine	Kennett Square	PA	Owned
Camp Recovery Centers	Santa Cruz	CA	Owned
Carolina House	Durham	NC	Owned
Center for Hope of the Sierras	Reno	NV	Leased
Center for Hope of the Sierras II	Reno	NV	Owned
Galax Treatment Center	Galax	VA	Owned
Keystone Treatment Center	Canton	SD	Owned
Life Healing Center	Santa Fe	NM	Owned
Montecatini	Carlsbad	CA	Owned
Montecatini II	Carlsbad	CA	Owned
New Life Lodge	Burns	TN	Owned
Sierra Tucson	Tucson	AZ	Leased
Sober Living by the Sea (14 separate licensed treatment programs)	Newport Beach, Riverside	CA	Leased
Starlite Treatment Center	Center Point	TX	Owned
Twelve Oaks	Navarre	FL	Owned
Wilmington Treatment Center	Wilmington	NC	Owned
White Deer Run (WDR) – Allenwood	Allenwood	PA	Owned
WDR – Blue Mountain	Blue Mountain	PA	Owned
WDR—Lancaster	Lancaster	PA	Leased
WDR—Lebanon	Lebanon	PA	Leased
WDR—Johnstown New Directions	Johnstown	PA	Owned
WDR—Johnstown Renewal Center	Johnstown	PA	Leased
WDR—Torrance	Torrance	PA	Leased
WDR—Williamsburg	Williamburg	PA	Leased
WDR—Williamsport	Williamsport	PA	Owned
Wellness Resource Center	Boca Raton	FL	Leased
Outpatient Treatment Facilities
Camp San Jose	San Jose	CA	Leased
Camp Santa Cruz	Santa Cruz	CA	Leased
Keystone—Sioux Falls	Sioux Falls	SD	Leased
Wilmington—Myrtle Beach	Myrtle Beach	NC	Leased
Wilmington—Wilmington	Wilmington	NC	Leased
Wilmington—Shallotte	Shallotte	NC	Leased
WDR—Allentown	Allentown	PA	Leased
WDR—Altoona	Altoona	PA	Leased
WDR—Bloomsburg	Bloomsburg	PA	Leased
WDR—Chambersburg	Chambersburg	PA	Leased
WDR—Erie	Erie	PA	Leased
WDR—Harrisburg	Harrisburg	PA	Leased
WDR—Lewisburg	Lewisburg	PA	Leased
WDR—New Castle	New Castle	PA	Leased
WDR—Pittsburgh	Pittsburgh	PA	Leased
WDR—Pottsville	Pottsville	PA	Leased
WDR—Reading	Reading	PA	Leased

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Outpatient Treatment Division. The following table lists our outpatient treatment clinics by state and number, as of December 31, 2006.

State	Clinics	Owned / Leased
California	15	All clinics leased
Colorado	1	Leased
Delaware	1	Leased
Georgia	1	Leased
Indiana	5	All clinics leased
Kansas	2	All clinics leased
Louisiana	1	Leased
Maryland	2	Leased
New Mexico	1	All clinics leased
North Carolina	1	Leased
Oregon	5	All clinics leased
Pennsylvania	2	Leased
Tennessee	1	Leased
Texas	1	Leased
Virginia	3	All clinics leased
Washington	4	All leased
West Virginia	7	All leased except for one owned property
Wisconsin	6	All leased
Total	59

Youth Treatment Division. The following table lists our youth treatment programs as of December 31, 2006.

Program	City	State	Owned / Leased
Island View	Syracuse	UT	Leased
Aspen Ranch	Loa	UT	Leased
Youth Care Pine Ridge Academy	Draper	UT	Leased
Sunhawk	St George	UT	Leased
Turn-About Ranch	Escalante	UT	Leased
Excel Academy	Conroe	TX	Leased
Mount Bachelor Academy	Prineville	OR	Leased
Academy at Swift River	Cummington	MA	Leased
Oakley School	Oakley	UT	Leased
Copper Canyon Academy	Rimrock	AZ	Leased
Bromley Brook School	Manchester	VT	Leased
New Leaf Academy	Bend	OR	Leased
New Leaf North Carolina	Hendersonville	NC	Leased
Stone Mountain School	Black Mountain	NC	Leased
NorthStar Center	Bend	OR	Leased
Cedars Academy	Bridgeville	DE	Leased
Four Circles Recovery	Horseshoe	NC	Leased
SUWS of the Carolinas Seasons	Shoshone	NC	Leased
Passages to Recovery	Loa	UT	Leased
Adirondack Leadership Expeditions	Saranac Lake	NY	Leased
Lone Star Expeditions	Groveton	TX	Leased
Talisman Summer Camps	Asheville	NC	Leased

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Program	City	State	Owned / Leased
Aspen Achievement Academy	Loa	UT	Leased
SUWS Adolescent and Youth Programs	Shoshone	ID	Leased
Outback Therapeutic Exp	Lehi	UT	Leased
Sage Walk	Redmond	OR	Leased
Academy of the Sierras (opened 2007)	Reedley	CA	Leased
Wellspring New York	Adirondack Mountains	NY	Leased
Wellspring Adventure Camp	Blue Ridge Mountains	NC	Leased
Wellspring Adventure Camp	Sierra Nevada Mountains	CA	Leased
Wellspring UK	Lake District	UK	Leased
Wellspring Family Camp	Upper Peninsula of Michigan	MI	Leased

Our properties are owned and or leased by our residential treatment division, outpatient treatment division and youth treatment division. All owned property is subject to a security interest under our senior secured credit facility. We believe that our existing properties are in good condition and are suitable for the conduct of our business.

ITEM 3. Legal Proceedings

We are subject to various claims and legal actions that arise in the ordinary course of our business. In the opinion of management, we are not currently a party to any proceeding that would have a material adverse effect on its financial condition or results of operations.

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

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PART II

ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There is no established public trading market for CRC Health Corp.’s common stock. We are a wholly-owned subsidiary of CRC Health Group, Inc. which holds all of our outstanding common stock.

ITEM 6. Selected Financial Data

Set forth below is selected historical consolidated financial information at the dates and for the periods indicated. The summary historical financial information as of and for the years ended December 31, 2002, 2003, 2004, 2005 and 2006 has been derived from our audited financial statements. Certain reclassifications have been made to 2004 and 2005 periods in order to conform to the current year presentation. The date of the purchase of our Company by investment funds managed by Bain Capital Partners, LLC (“Bain Capital”) was February 6, 2006, but for accounting purposes and to coincide with our normal financial accounting closing dates, we have utilized February 1, 2006, as the effective date of the close of the transaction. As a result, we have reported operating results and financial position for all periods presented prior to February 1, 2006 as those of the Predecessor Company and for all periods from and after February 1, 2006 as those of the Successor Company due to the resulting change in the basis of accounting. For the purpose of presenting a comparison of our 2006 results to 2005, we have presented the year ended December 31, 2006 as the mathematical addition of our operating results for January 2006 (“Predecessor Company”) to the operating results of the eleven months ended December 31, 2006 (“Successor Company”). This approach is not consistent with GAAP and may yield results that are not strictly comparable on a period-to-period basis primarily due to the impact of purchase accounting entries recorded as a result of the Transactions. For purposes of this management’s discussion and analysis of financial condition and results of operations, however, management believes that it is the most meaningful way to present our results of operations for the year ended December 31, 2006.

The selected historical financial information should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes there to included in Item 8, “Financial Statements and Supplementary Data,” which are included elsewhere in this Annual Report on Form 10-K. Historical results are not necessarily indicative of results to be expected for future results.

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	Predecessor															Successor
	Year Ended December 31,												One Month Ended January 31, 2006			Eleven Months Ended December 31, 2006			Combined Year Ended December 31, 2006
	2002			2003			2004			2005
	(Dollars in thousands)
Statement of Income Data:
Net revenue
Residential	$	42,016		$	65,962		$	86,551		$	124,858		$	12,693		$	151,200		$	163,893
Outpatient		15,198			36,501			78,925			83,847			7,125			84,404			91,529
Youth		—			—			—			—			—			15,200			15,200
Corporate/other		1			41			127			317			32			524			556
Net revenue	$	57,215		$	102,504		$	165,603		$	209,022		$	19,850		$	251,328		$	271,178
Operating expenses
Residential	$	34,029		$	56,858		$	67,405		$	92,494		$	9,112		$	112,273		$	121,385
Outpatient		12,277			27,388			49,955			53,011			4,447			56,905			61,352
Youth		—			—			—			—			—			16,136			16,136
Corporate/other(1)		5,929			7,996			11,067			14,903			44,623			18,270			62,893
Charge related to merger with eGetgoing(2)		13,576			—			—			—			—			—			—
Operating expenses	$	65,811		$	92,242		$	128,427		$	160,408		$	58,182		$	203,584		$	261,766
Income from operations
Residential	$	7,987		$	9,104		$	19,146		$	32,364		$	3,581		$	38,927		$	42,508
Outpatient		2,921			9,113			28,970			30,836			2,678			27,499			30,177
Youth		—			—			—			—			—			(936	)		(936	)
Corporate/other		(19,504	)		(7,955	)		(10,940	)		(14,586	)		(44,591	)		(17,746	)		(62,337	)
(Loss) income from operations	$	(8,596	)	$	10,262		$	37,176		$	48,614		$	(38,332	)	$	47,744		$	9,412
Other income (expense)(3)		582			(4	)		—			2,232			55			89			144
Interest expense, net		(4,967	)		(6,564	)		(13,966	)		(19,744	)		(2,505	)		(41,338	)		(43,843	)
Other financing costs(4)		—			(8,331	)		—			(2,185	)		(10,655	)		—			(10,655	)
Loss (income) from continuing operations before income taxes	$	(12,981	)	$	(4,637	)	$	23,210		$	28,917		$	(51,437	)	$	6,495		$	(44,942	)
Income tax (benefit) expense		(1,439	)		(3,081	)		9,996			10,916			(12,444	)		3,011			(9,433	)
Minority interest in loss of a subsidiary		—			—			—			—			—			(38	)		(38	)
Net (loss) income from continuing operations	$	(11,542	)	$	(1,556	)	$	13,214		$	18,001		$	(38,993	)	$	3,522		$	(35,471	)

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	Predecessor															Successor
	Year Ended December 31,												One Month Ended January 31, 2006			Eleven Months Ended December 31, 2006
	2002			2003			2004			2005
	(Dollars in thousands)
Balance Sheet Data (at period end):
Working capital(5)	$	15,710		$	15,460		$	12,493		$	2,284					$	(18,730	)
Property and equipment, net		9,715			24,566			27,809			49,074						94,976
Cash and cash equivalents		5,363			7,121			10,563			5,077						4,206
Total assets		87,341			237,267			262,695			424,154						1,288,788
Total debt, including capital leases		43,799			127,494			123,343			259,931						626,528
Mandatorily redeemable stock		42,567			109,859			115,418			115,625						—
Shareholders’ (deficit) equity		(8,349	)		(17,684	)		(5,812	)		11,985						437,174
Other Financial Data:
Cash paid for interest	$	2,779		$	7,861		$	12,572		$	18,101		$	1,336		$	29,118
Depreciation and amortization		1,101			2,209			3,699			3,850			361			10,193
Capital expenditures		849			2,408			7,329			11,480			411			14,189
Cash flows from operating activities		(424	)		3,274			25,584			23,902			1,201			(4,486	)
Cash flows from investing activities		(31,923	)		(139,025	)		(22,741	)		(159,228	)		(315	)		(746,811	)
Cash flows from financing activities		36,582			137,509			599			129,840			(5,540	)		755,080

(1) Corporate/other expense for the one month ended January 31, 2006 and the eleven months ended December 31, 2006 includes $43.7 million in acquisition related costs incurred in connection with the purchase of our Company by Bain Capital.

(2) On the date of the merger with eGetgoing in August 2002, in accordance with provisions of SFAS, No. 141, Business Combinations, we determined that the merger with eGetgoing did not constitute an acquisition of a business. In addition, we determined that there were no identifiable intangible assets acquired. Accordingly, the excess of purchase price over the fair value of net tangible assets acquired in the amount of $13.6 million was written off to expense in accordance with SFAS, No. 142, Goodwill and Other Intangibles.

(3) Other income (expense) for the year ended December 31, 2005 includes $0.6 million of gain recognized upon termination of our swap agreement in connection with the acquisition of Sierra Tucson and refinancing our debt in May 2005, $1.6 million of increase in fair value of our new swap on December 31, 2005 and $0.1 million of gain recognized on the fair value of our interest rate swap during the year ended December 31, 2006.

(4) Represents the write-off of unamortized capitalized financing costs of $8.3 million in 2003, $2.2 million in the year ended December 31, 2005 and $7.2 million during the one month ended January 31, 2006, respectively, and $3.5 million during the one month ended January 31, 2006, related to the write-off of unamortized debt discount.

(5) We define working capital as our current assets (including cash and cash equivalents) minus our current liabilities, which includes the current portion of long-term debt and accrued interest thereon.

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this Annual Report.

Unless the context otherwise requires, in this management’s discussion and analysis of financial condition and results of operations, the terms “our company,” “we,” “us,” “the Company” and “our” refer (i) for periods prior to the consummation of the Transactions, to CRC Health Group, Inc. and its consolidated subsidiaries and (ii) for periods following the consummation of the Transactions, to CRC Health Corporation and its consolidated subsidiaries following the mergers described below under “The Transactions.”

OVERVIEW

We are a leading provider of substance abuse treatment services and youth treatment services in the United States. We also provide treatment services for other addiction diseases and behavioral disorders such as eating disorders. We deliver our substance abuse and behavioral disorder treatment services through our residential and outpatient treatment programs, which we refer to as our residential and outpatient treatment divisions. We deliver our youth treatment services through our residential schools, wilderness programs and weight loss programs, which we refer to as our youth treatment division or Aspen Education Group. We have three reporting segments: residential treatment division, outpatient treatment division and youth treatment division. Our residential treatment division, which currently operates 28 inpatient and 18 outpatient facilities in 12 states, treats patients for addiction to alcohol and drugs and other behavioral health disorders. As of December 31, 2006, our residential treatment division treated approximately 1,400 patients per day. Our outpatient treatment division, which currently operates 59 outpatient treatment clinics in 18 states, provides services to individuals addicted to opiates, including heroin and prescription painkillers such as oxycodone. As of December 31, 2006, our outpatient treatment programs treated approximately 24,000 patients per day. Aspen Education Group currently operates 32 education facilities in 12 states and 1 facility in the United Kingdom and enrolled over 4,400 new students during the calendar year 2006. Activities classified as “Corporate/other” represent revenue and expenses associated with eGetgoing, an online internet startup, and general and administrative expenses (i.e., expenses associated with our corporate offices in Cupertino, California, which provides management, financial, human resource and information system support) and stock option-based compensation expense that are not allocated to the segments.

The Transactions

On February 6, 2006, investment funds managed by Bain Capital Partners, LLC acquired CRC Health Group, Inc. in a merger in which CRCA Merger Corporation, a newly-organized Delaware corporation and an indirect wholly owned subsidiary of CRCA Holdings, Inc., a newly-organized Delaware corporation controlled by investment funds managed by Bain Capital Partners, LLC, merged with and into CRC Health Group, Inc. with CRC Health Group, Inc. remaining as the surviving corporation. In connection with the Transactions, certain members of our management elected to exchange, or roll, a portion of their pre-merger equity for an interest in CRCA Holdings, Inc. Immediately after the merger, CRC Health Corporation and eGetgoing, Inc. merged with and into CRC Health Group Inc. with CRC Health Group, Inc. continuing as the surviving entity. Immediately thereafter, CRCA Holdings Inc. was renamed CRC Health Group, Inc. and our Predecessor Company was renamed CRC Health Corporation. Total cash contributed was approximately $742.3 million (including acquisition and financing related fees and expenses of $28.5 million incurred by CRCA Merger Corporation). The proceeds were used to repay existing balances on a revolving line of credit of $4.5 million, long-term debt of $254.0 million, accrued interest of $1.4 million and acquisition and financing related expense of $24.4 million incurred by the Company that were expensed in the Predecessor Company financial statements. The proceeds were also used to pay $0.3 million related to the February and March management fees per the management agreement with an affiliate of Bain Capital Partners, LLC which was expensed in the eleven months ended December 31, 2006 Successor Company financial statements. In addition, as part of the Transactions, the Company’s former stockholders, including mandatorily redeemable common and preferred stockholders, were

29

paid $429.2 million per the merger agreement. We refer to our acquisition by investment funds managed by Bain Capital Partners, LLC, the related mergers and the related financings as the “Transactions.”

The aggregate purchase price of $722.9 million plus expenses of $28.5 million incurred by CRCA Merger Corporation was financed with the term loan portion of our new senior secured credit facility of $245.0 million, the issuance of senior subordinated notes of $197.0 million ($200.0 million aggregate principal amount, less $3.0 million of original issue discount), a borrowing under the revolving portion of our new senior secured credit facility of $4.3 million, cash equity investments by investment funds managed by Bain Capital Partners, LLC of $294.5 million, rollover equity investments by certain members of our management of $9.1 million and $1.5 million from cash generated by our operations.

As a result of the acquisition, investment funds managed by Bain Capital Partners, LLC received unilateral control of the Company. Consequently, the acquisition was accounted for as a change in accounting basis in a successor company (CRC Health Corporation). Equity roll over of $9.1 million from certain members of our management was recorded at the stockholder’s predecessor basis, which is zero for accounting purposes, in accordance with Financial Accounting Standards Board Emerging Issues Task Force (“EITF”) Issue No. 88-16, Basis in Leveraged Buyout Transactions.

The acquisition was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Under purchase accounting, the purchase consideration was allocated to our assets and liabilities based on their relative fair values. The consideration remaining was allocated to our intangibles with finite lives and is being amortized over that life, as well as to goodwill and identifiable intangibles with indefinite lives, which will be evaluated on at least an annual basis to determine impairment and adjusted accordingly.

As required by our senior secured credit agreement and retained in the amended and restated credit agreement, we entered into an interest rate swap agreement on February 28, 2006 to provide for interest protection for an initial notional amount of $115.0 million declining to $10.0 million at the end of the term. The effective date of the swap agreement was March 31, 2006 and the termination date is March 31, 2011. Under the interest rate swap, we receive an interest rate equal to the 3-month LIBOR rate. In exchange, we pay a fixed rate of 4.99% on the notional amount.

Basis of Presentation

As a result of the Transactions on February 6, 2006, a new basis of accounting has begun. However, for accounting purposes and to coincide with our normal financial account closing dates, we have utilized February 1, 2006 as the effective date of the Transactions. For the purpose of presenting a comparison of our 2006 operating results to 2005, we have presented the year ended December 31, 2006 as the mathematical addition of our operating results for January 2006 (“Predecessor Company”) to the operating results of the eleven months ended December 31, 2006 (“Successor Company”). This approach is not consistent with GAAP and may yield results that are not strictly comparable on a period-to-period basis primarily due to the impact of purchase accounting entries recorded as a result of the Transactions. For purposes of this management’s discussion and analysis of financial condition and results of operations, however, management believes that it is the most meaningful way to present our results of operations for the year ended December 31, 2006.

Acquisitions and Dispositions

2006 Acquisitions

In November 2006, we acquired all of the outstanding capital stock of Aspen Education Group for approximately $279.5 million in total purchase consideration, including acquisition related expenses of $1.3 million. We refer to this acquisition as the Aspen Acquisition. We believe Aspen Education Group is the largest for-profit provider of therapeutic educational programs to troubled youth. Aspen Education Group operates 32 facilities in 12 states and 1 facility in the U.K and its offerings include boarding schools, experiential

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outdoor education programs, weight loss residential high schools and summer weight loss camps. The Aspen Acquisition is intended to diversify our business into other service offerings and geographic regions. This acquisition will further enhance our overall self payor mix revenue and offers multiple revenue and cost synergies.

In 2006, in addition, to the Aspen Acquisition, we completed five other acquisitions for which we paid approximately $36.6 million in cash, including acquisition related expenses. These acquisitions are intended to expand our range of treatment programs into new geographic regions in the United States. In addition, they contribute to the continued building of a nationwide network of specialized behavioral care services.

2005 Acquisitions

In May 2005, we acquired substantially all of the assets of Sierra Tucson for approximately $132.1 million, including acquisition related expenses of $2.7 million, and assumed certain of its liabilities. Sierra Tucson was a 91-bed residential treatment facility (at the time of acquisition) and is located outside Tucson, Arizona.

In 2005, in addition, to the acquisition of Sierra Tucson, we completed four other acquisitions for which we paid approximately $16.5 million in cash, including acquisition related expenses.

2004 Acquisition and Disposition

In 2004, we completed one acquisition for approximately $16.6 million in cash, including acquisition related expenses. In addition, in 2004, we sold one nursing home for approximately $2.0 million and recorded a net loss of approximately $2.2 million in connection with this transaction; the nursing home was acquired in connection with our 2003 acquisitions.

EXECUTIVE SUMMARY

We generate revenue by providing substance abuse treatment services and youth treatment services in the United States. We also generate revenue by providing treatment services for other specialized behavioral disorders. Revenue is recognized when services are provided. During the year ended December 31, 2006, we generated 80.1% of our net revenue from non-governmental sources, including 60.8% from self payors and 19.3% from commercial payors, respectively. During the corresponding period in 2005, revenue from Sierra Tucson is only included following the date of acquisition on May 11, 2005. Sierra Tucson generates effectively all of its revenue from self payors. Substantially all of our government program net revenue was received from multiple counties and states under Medicaid and similar programs.

In 2006, our consolidated same-facility net revenue increased by 8.3% compared to the consolidated same-facility net revenue in 2005. “Same-facility” refers to the comparison of each facility owned during 2005 with the results for the comparable period in 2006.

Our operating expenses include salaries and benefits, supplies, facilities and other operating costs, provision for doubtful accounts, depreciation and amortization and acquisition related costs. Operating expenses for our residential, outpatient and youth treatment divisions exclude corporate level general and administrative costs (i.e., expenses associated with our corporate offices in Cupertino, California, which provide management, financial, human resources and information systems support), stock option-based compensation expense and expenses associated with eGetgoing.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General

The accompanying discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted

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accounting principles in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, net revenue and expenses. We have based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our senior management has reviewed our critical accounting policies and their application in the preparation of our financial statements and related disclosures and discussed the development, selection and disclosure of significant estimates. To the extent that actual results differ from those estimates, our future results of operations may be affected. The following describe the estimates considered most critical to our operating performance and involve the most subjective and complex assumptions and assessments.

Revenue Recognition

Revenue in the residential treatment division and outpatient treatment division is recognized when rehabilitation and treatment services are provided to a patient. Client service revenue is reported at the estimated net realizable amounts from clients, third-party payors and others for services rendered. Revenue under third-party payor agreements is subject to audit and retroactive adjustment. Provisions for estimated third-party payor settlements are provided for in the period the related services are rendered and adjusted in future periods as final settlements are determined. Revenue for educational services provided to youth consists primarily of tuition, enrollment fees, alumni services and ancillary charges. Tuition revenue and ancillary charges are recognized based on contracted monthly/daily rates as services are rendered. The enrollment fees for service contracts that are charged upfront are deferred and recognized over the average student length of stay, approximately eleven months. Alumni fees revenue represents non-refundable upfront fees for post graduation services and these fees are deferred and recognized systematically over the contracted life, which is twelve months.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from non-payment of accounts receivables from patients and students and third party billings and notes receivable from payors. We record bad debt expense monthly based on an analysis of age and collectibility of outstanding accounts receivable that reflects our historical experience. In evaluating the collectibility of accounts receivable, we consider a number of factors, including the age of the accounts, changes in collection trends, the composition of patient accounts by payor, the status of ongoing disputes with third party payors and general industry conditions. If the financial condition of our payors were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. If, at December 31, 2006, we were to recognize an increase of 10% in the allowance for our doubtful accounts, our total current assets would decrease by $0.8 million, or 1.4%.

Evaluation of Goodwill and Purchased Intangible Assets

Goodwill is measured as the excess of the cost of acquisition over sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. We review goodwill and indefinite-lived intangible assets for impairment at least annually and whenever changes in events or changes in circumstances indicate that the carrying value of an asset may not be recoverable in accordance with SFAS No. 142, “Goodwill and Intangible Assets.” Applying the provisions of SFAS No. 142, we perform two-step impairment test for goodwill. In the first step, we compare the fair value of each reporting unit to its carrying value. Our reporting units are consistent with our reportable segments. We determine the fair value of the reporting units based on the market approach. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to the reporting unit, goodwill is not impaired and no further testing is performed. SFAS 142 also requires that the fair value of the indefinite-lived purchased intangible assets be estimated and compared to the carrying value. We estimate the fair value of these intangible assets using an income approach annually at the beginning of the fourth

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quarter. We recognize an impairment loss when the fair value of the indefinite-lived purchased intangible asset is less than the carrying value. Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions, including revenue growth rates and operating margins. We base our fair value estimates on assumptions we believe are reasonable. However, if the actual results differ from our estimates we may be required to record impairment on goodwill and indefinite-lived purchased intangible assets. We did not record any impairment charges relating to the carrying value of goodwill or indefinite-lived purchased intangible assets during the years ended December 31, 2006, 2005 and 2004. Intangibles assets with finite lives are amortized on a straight-line basis over the estimated economic useful lives of the assets, ranging from one to twenty years. We review the intangible assets with finite lives for impairment whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In 2005, we recorded an impairment of $0.04 million in connection with the carrying value of finite lived intangible asset related to one of the acquisitions completed in 2003.

Income Taxes

As part of our process for preparing our consolidated financial statements, management is required to compute income taxes in each of the jurisdictions in which we operate. This process involves estimating the current tax benefit or expense of future deductible and taxable temporary differences. The future deductible and taxable temporary differences are recorded as deferred tax assets and liabilities which are components of our balance sheet. Management then assesses our ability to realize the deferred tax assets based on reversals of deferred tax liabilities and, if necessary, estimates of future taxable income. A valuation allowance for deferred tax assets is established when we believe that it is more likely than not that the deferred tax asset will not be realized. Management must also assess the impact of our acquisitions on the realization of deferred tax assets subject to a valuation allowance to determine if all or a portion of the valuation allowance will be offset by reversing taxable differences or future taxable income of the acquired entity. To the extent the valuation allowance can be reversed due to the estimated future taxable income of an acquired entity, then our valuation allowance is reduced accordingly as an adjustment to purchase price.

Stock Options

We adopted the provisions of Statement of Financial Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”) using the prospective transition method on January 1, 2006 and therefore have not restated results for prior periods. During the eleven months ended December 31, 2006, we recorded stock option-based compensation expense of $3.5 million in accordance with SFAS 123(R). On February 6, 2006, after the consummation of the Transactions, our parent company, (CRC Health Group, Inc, the “Group”) adopted the 2006 Management Incentive Plan (the “Management Plan”) and the 2006 Executive Incentive Plan (the “Executive Plan”), collectively, the (“Plans”). The current period stock-based compensation recognized is based on the amortization of the fair value of stock options as determined on their date of grant using a Black-Scholes option valuation model for Management Plan grants and tranches 1 and 3 of Executive Plan grants. We used the Monte Carlo simulation approach to a binominal pricing model to determine fair value of tranche 2 of Executive Plan grants. The estimate of fair value of the granted awards is based upon certain assumptions including probability of achievement of market conditions for grants under the Executive Plan, stock price volatility, risk-free interest rate, dividend yield, expected life in years and forfeiture rate.

We made the following assumptions in our use of the above models:

• Expected volatility of 56.5% was utilized for the units granted during the year ended December 31, 2006 and was based on historical volatility of comparable public companies for periods corresponding to effective lives for the plans.

• We utilized the risk-free rate of 4.76% in our models for the units granted during the year ended December 31, 2006. The risk-free rate is based on a yield of a constant maturity U.S. Treasury security with a term equal to the expected term of the options.

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• No dividends would be paid over the option term.

• For the Management Plan and tranches 1 and 3 of the Executive Plan, we used an expected vesting term of five years as of December 31, 2006; and for tranche 2 of the Executive Plan, we used an expected vesting term of 5.85 years, which is the derived service period based on the Monte Carlo simulation for the units granted during the year ended December 31, 2006.

• Forfeiture rate is 5% each year over the effective vesting period.

The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment to FASB Statement No. 115 (“SFAS 159). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that would otherwise not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, e.g., debt issue costs. The fair value election is irrevocable and may generally be made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are required to adopt SFAS 159 on January 1, 2008. We are currently evaluating the effect of the adoption of SFAS 159 will have on our financial statements.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB No. 108 is effective for fiscal years ending after November 15, 2006, the adoption of the provisions of SAB 108 had no impact on our consolidated financial statements as of December 31, 2006.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute; however SFAS 157 does not apply to SFAS 123(R). SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are required to adopt SFAS 157 on January 1, 2008. We are currently evaluating the effect of the adoption of SFAS 157 will have on our financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement

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recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 on January 1, 2007 and we are currently evaluating the impact of the adoption of FIN 48 and have not completed our evaluation; therefore, we cannot estimate the effect of the adoption of FIN 48 will have on our financial statements.

RESULTS OF OPERATIONS

The following table illustrates our results of operations by segment for the years ended December 31, 2006, 2005 and 2004 (dollars in thousands, except for percentages; percentages are calculated as percentage of total net revenue).

	Years Ended December 31,
	2006			%		2005			%		2004			%
Net revenue:
Residential treatment	$	163,893		60.4	%	$	124,858		59.7	%	$	86,551		52.3	%
Outpatient treatment		91,529		33.8	%		83,847		40.1	%		78,925		47.7	%
Youth treatment		15,200		5.6	%		—		—			—		—
Corporate / other		556		0.2	%		317		0.2	%		127		0.0	%
Net revenue		271,178		100.0	%		209,022		100.0	%		165,603		100.0	%
Operating expenses:
Residential treatment		121,385		44.8	%		92,494		44.2	%		67,405		40.7	%
Outpatient treatment		61,352		22.6	%		53,011		25.4	%		49,955		30.2	%
Youth treatment		16,136		5.9	%		—		—			—		—
Corporate / other		62,893		23.2	%		14,903		7.1	%		11,067		6.7	%
Total operating expenses		261,766		96.5	%		160,408		76.7	%		128,427		77.6	%
Income (loss) from operations:
Residential treatment		42,508		15.6	%		32,364		15.5	%		19,146		11.6	%
Outpatient treatment		30,177		11.2	%		30,836		14.7	%		28,970		17.5	%
Youth treatment		(936	)	-0.3	%		—		—			—		—
Corporate / other		(62,337	)	-23.0	%		(14,586	)	-6.9	%		(10,940	)	-6.7	%
Income (loss) from operations		9,412		3.5	%		48,614		23.3	%		37,176		22.4	%
Interest expense, net		(43,843	)				(19,744	)				(13,966	)
Other financing costs		(10,655	)				(2,185	)				—
Other income		144					2,232					—
(Loss) income from continuing operations before income taxes		(44,942	)				28,917					23,210
Income tax (benefit) expense		(9,433	)				10,916					9,996
Minority interest in loss of a subsidiary		(38	)				—					—
Net (loss) income from continuing operations	$	(35,471	)			$	18,001				$	13,214

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Consolidated net revenue increased $62.2 million, or 29.7%, to $271.2 million in 2006 from $209.0 million in 2005. The increase in consolidated net revenue of $62.2 million was primarily attributable to an increase of $39.0 million, or 31.3%, in residential treatment net revenue, and, to a lesser extent, an increase of $7.7 million, or 9.2%, in outpatient treatment net revenue. The youth treatment division contributed $15.2 million to net revenue in 2006. The growth in residential treatment net revenue was mainly attributable to the $14.5 million increase in revenue generated by Sierra Tucson and $11.6 million increase resulting from the 2005 and 2006 acquisitions other than Sierra Tucson, including unearned revenue adjustments that were not included in 2005. In addition, residential treatment revenue growth was partly attributable to a $12.6 million, or 10.3%, increase in

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same-facility net revenue due to a 6.7% increase in patient census and a 3.4% increase in revenue per patient day. Outpatient treatment same-facility net revenue increased $4.3 million or 5.2%. This increase was primarily attributable to an increase in the number of patients receiving treatment at our outpatient treatment clinics. On a same-facility basis, outpatient treatment clinic census increased 4.3% from an average daily census of 20,515 in 2005 to an average daily census of 21,407 in 2006. The youth treatment revenue is due to strong performance in the residential and outdoor treatment programs within our youth treatment division.

Consolidated operating expenses increased $101.4 million, or 63.2%, to $261.8 million in 2006 from $160.4 million in 2005. Of the $101.4 million increase, $6.7 million was attributable to an increase in depreciation and amortization of intangibles expense in 2006 resulting from an increase in the fair value of our assets recorded in connection with the Transactions, and, to a lesser extent, from the Aspen Acquisition. In addition, the increase was attributable to an increase of $24.1 million, or 26.6%, in residential treatment operating expenses and an increase of $6.1 million, or 12.9%, in outpatient treatment operating expenses before divisional administration expenses. The youth treatment total operating expenses in 2006 were $16.1 million and are attributable mainly to salaries and wages and other general operating expenses. Divisional administration expenses increased $4.8 million, or 257.5%, in our residential treatment division and increased $2.3 million, or 38.2%, in our outpatient treatment division. The increase of $24.1 million in residential treatment operating expenses was primarily attributable to a $17.8 million increase in expenses resulting from the 2005 and 2006 acquisitions and a $5.8 million, or 6.5%, same-facility increase in operating expenses. The increase in outpatient treatment operating expenses was attributable to same-facility growth ($3.4 million, or a 7.7% increase), a $1.2 million increase in expenses resulting from the 2006 acquisitions and to operating expenses of start-up facilities ($1.8 million, or a 65.3% increase). Corporate/other expenses increased $48.0 million, or 322.0%. Expressed as a percentage of consolidated net revenue, corporate/other expenses increased to 23.2% in 2006 compared to 7.1% in 2005. The increase in corporate/other expenses was primarily attributable to one-time expenses of $43.7 million related to the Transactions and a non-cash charge of $3.5 million relating to stock option-based employee compensation expense (not recognized in 2005).

Our consolidated operating margins declined to 3.5% in 2006 from 23.3% in 2005, due primarily to one-time expenses of $43.7 million related to the Transactions, a $6.7 million increase in depreciation and amortization of intangibles expense in 2006 resulting primarily from an increase in the fair value of our assets recorded in connection with the Transactions and Aspen Acquisition and a non-cash charge of $3.5 million relating to stock option-based employee compensation expense. Our residential treatment same-facility income from operations before divisional administrative expenses increased $6.8 million, or 20.4%, in 2006 compared to 2005. Our outpatient treatment same-facility income from operations before divisional administrative expenses increased $0.9 million, or 2.3%, in 2006 compared to 2005.

Consolidated net income (loss) decreased by $53.5 million in 2006 compared to 2005. In addition, to the factors described above regarding the decline of the operating margin in 2006, the net loss in 2006 was primarily attributable to the increase in interest expense and other financing costs of $32.6 million, or 148.5%, to $54.5 million in 2006 from $21.9 million in 2005. This increase in interest expense and other financing costs was attributable to the issuance of new senior and subordinated debt related to the Transactions and Aspen Acquisition and to the write-off of debt discount and unamortized capitalized financing costs in the amount of $10.6 million from prior senior and subordinated debt that was refinanced as part of the Transactions. Other income decreased by $2.1 million in 2006 due primarily to gains of $1.6 million recognized on the fair value of our interest rate swap and $0.6 million resulting from the termination of the interest rate swap in 2005. Income tax expense (benefit) change of $20.3 million resulted in a benefit of $9.4 million in 2006 from a $10.9 million expense in 2005 due to the loss incurred in 2006 due primarily to one-time expenses of $43.7 million related to the Transactions. The effective tax rate was 20.9% in 2006 compared to 37.8% in 2005. The effective tax rate reduction relates primarily to the deduction of one-time costs in January 2006. Such one-time deductions include: payments for stock options and management bonuses, and write-offs of debt discount and capitalized financing costs.

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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Consolidated net revenue increased $43.4 million, or 26.2%, to $209.0 million in 2005 from $165.6 million in 2004. This increase was attributable to increases of $38.3 million, or 44.3%, in residential treatment net revenue, and $4.9 million, or 6.2%, in outpatient treatment net revenue. The growth in residential treatment net revenue was in part attributable to a $10.5 million, or 12.2%, increase in same facility net revenue and in part to the $21.9 million of net revenue generated by Sierra Tucson, which we acquired in May 2005 and $3.6 million net revenue generated by other acquisition in 2004, respectively. Our same facility residential growth was driven in part by a 9.1% increase in patient census and a 2.9% increase in revenue per patient day. Outpatient treatment same facility net revenue increased by 4.4%. This increase was primarily attributable to an increase in the number of patients receiving treatment at our outpatient treatment clinics. On a same facility basis, outpatient treatment clinic census increased by 3.7% from average daily census of 19,646 in 2004 to average daily census of 20,374 in 2005.

Consolidated operating expenses increased $31.9 million, or 24.9%, to $160.4 million in 2005 from $128.4 million in 2004. This increase was attributable to an increase of $24.6 million, or 37.3%, in residential treatment operating expenses and an increase of $3.5 million, or 8.0%, in outpatient treatment operating expenses before divisional administration expenses. Division administration expenses increased by $0.5 million, or 32.2%, in our residential treatment division and declined by $0.4 million, or 6.4%, in our outpatient treatment division. Corporate/other expenses increased by $3.8 million, or 34.7%, comprising a $4.8 million increase in corporate expenses and a $1.1 million decrease in eGetgoing operating expenses. The increase in residential treatment operating expenses was in part attributable to a $8.1 million, or 12.4%, same facility increase in operating expenses. Sierra Tucson, acquired in May 2005, contributed $12.6 million to residential treatment division operating expenses. The increase in outpatient treatment operating expenses was attributable to same facility growth ($1.7 million or 4.1% increase) and to operating expenses of start-up facilities ($1.8 million or 186.5% increase). Expressed as a percentage of consolidated net revenue, corporate/other expenses increased to 7.1% in 2005 compared to 6.7% in 2004. The increase in corporate/other expenses was primarily attributable to increased corporate management headcount, infrastructure costs and professional fees associated with the growth of our operations and costs associated with a contemplated initial public offering.

Our consolidated operating margins improved to 23.3% in 2005 from 22.4% in 2004, due primarily to improved profitability on a same facility basis in our residential treatment and outpatient treatment divisions, the impact of higher operating margins, relative to the company average, at Sierra Tucson which was acquired in May 2005, and partially offset by an increase in corporate/other operating expenses. Residential treatment same facility growth in income from operations before divisional administrative expenses was 11.6% in 2005 compared to 2004. Our outpatient treatment same facility income from operations before divisional administrative expenses increased 4.7% in 2005 compared to 2004.

Consolidated net income from continuing operations increased 36.2% in 2005 compared to 2004, primarily due to the above factors. Interest expense and other financing costs increased $8.0 million, or 57.5%, to $22.0 million in 2005 from $14.0 million in 2004. This increase is attributable to the placement of new senior debt related to the Sierra Tucson acquisition and to the write-off of capitalized financing costs in the amount of $2.2 million from prior senior debt that was refinanced as part of the Sierra Tucson acquisition. Other income of $2.2 million in the twelve months ended December 31, 2005 related to gains on interest rate swaps put in place as part of the senior debt agreements. Income tax expense increased $0.9 million, or 9.2%, to $10.9 million in 2005 from $10.0 million in 2004 due to higher income before income taxes. However, the effective tax rate declined from 43.1% for 2004 to 37.8% for 2005. This reduction relates to three factors: a change in the overall state tax rate due to the mix of state income, a research and development credit difference between the tax returns and the provision for 2004 and miscellaneous state tax payments in 2004.

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LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity for operating activities are payments from self pay patients, students, commercial payors and government programs for treatment services. We receive most of our cash from self payors in advance or upon completion of treatment. Cash revenue from commercial payors and government programs is typically received upon the collection of accounts receivable, which are generated upon delivery of treatment services.

Working Capital

Working capital is defined as total current assets, including cash and cash equivalents, less total current liabilities, including the current portion of long-term debt.

We had negative working capital of $18.7 million at December 31, 2006, compared to working capital of $2.3 million at December 31, 2005. The decrease in working capital from December 31, 2005 to December 31, 2006 was primarily attributable to an increase in deferred revenue of $12.6 million, an increase in accrued interest of $8.9 million related to additional long-term debt incurred to finance the Bain Merger and the Aspen Acquisition in 2006, other net changes of $1.9 million reducing working capital largely in connection with the Aspen Acquisition and an accrued liability related to earn-out obligations of $5.2 million resulting from historic acquisitions of Aspen Education Group. In addition, a net increase in income tax receivable of $9.9 million (an increase in income tax receivable of $6.5 million and a decrease in income tax payable of $3.4 million) partially offset the decrease in working capital. The increase in income tax receivable resulted primarily from a pre-tax book loss in the eleven months ended December 31, 2006 due to charges to the Predecessor Company statement of operations in January 2006 in connection with the Transactions. Such charges included: write-offs of discount on debt and capitalized financing costs, accrual for payment of stock options and management bonuses and accrual for payment of sellers’ fees.

Sources and Uses of Cash

	Years Ended December 31,
	2006			2005			2004
	(In thousands)
Net cash (used in) provided by operating activities	$	(3,285	)	$	23,902		$	25,584
Net cash used in investing activities		(747,126	)		(159,228	)		(22,741	)
Net cash provided by financing activities		749,540			129,840			599
Net (decrease) increase in cash	$	(871	)	$	(5,486	)	$	3,442

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Cash used in operating activities was $3.3 million in the year ended December 31, 2006, compared to cash provided by operating activities of $23.9 million in the year ended December 31, 2005. The $27.2 million decrease in cash flows from operating activities was primarily due to the net loss in the January 2006 statement of operations of the Predecessor Company resulting from one-time acquisition related expenses incurred in connection with the Transactions and higher working capital needs in the eleven months ended December 31, 2006 compared to the same period in 2005.

Cash used in investing activities was $747.1 million in the year ended December 31, 2006, compared to $159.2 million in the year ended December 31, 2005. The increase in the cash used for investing activities during the year ended December 31, 2006 was due to the payment of the purchase price to former shareholders in connection with the Transactions of $429.2 million and increase of $156.3 million in cash paid for acquisitions.

38

Cash provided by financing activities was $749.5 million in the year ended December 31, 2006, compared to $129.8 million in the year ended December 31, 2005. The increase of $619.7 million was due primarily to an equity contribution of $330.7 million from investment funds managed by Bain Capital Partners, LLC in connection with the Bain Merger and Aspen Acquisition, and an equity contribution of $99.5 million from the Group resulting from proceeds net of financing costs of a PIK loan in connection with the Aspen Acquisition. In addition, the net increase in net issuances of long-term debt of $354.8 million in the year ended December 31, 2006 compared to $136.1 million in the year ended December 31, 2005 contributed to the overall increase.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Cash provided by operating activities was $23.9 million in 2005, compared to $25.6 million in 2004. The decrease in cash flows from operating activities was primarily due to increased working capital needs partially offset by higher net income from continuing operations.

Cash used in investing activities was $159.2 million in 2005, compared to $22.7 million in 2004. Cash used in investing activities for 2005 increased due primarily to the acquisition of Sierra Tucson and other acquisitions in 2005.

Cash provided by financing activities was $129.8 million in 2005, compared to cash provided by financing activities of $0.6 million in 2004. The higher net cash provided by financing activities in 2004 compared to the comparable period in 2005 was attributable to a debt financing in connection with the acquisition of Sierra Tucson in May 2005. In connection with the Sierra Tucson acquisition, we borrowed $205 million under a term loan expiring on May 11, 2011. A previously outstanding amount of $76.4 million under the credit agreement executed December 19, 2003 was repaid.

Financing and Liquidity

We intend to fund our ongoing operations through cash generated by operations, funds available under the revolving portion of our new senior secured credit facility and existing cash and cash equivalents. As of December 31, 2006, our amended and restated senior secured credit facility is comprised of a $418.2 million senior secured term loan facility and a $100.0 million revolving credit facility, of which $3.6 million was issued and outstanding. In addition, the revolving credit facility had approximately $3.9 million of letters of credit issued and outstanding. As part of the Transactions, we issued $200.0 million in aggregate principal amount of senior subordinated notes. Based on past performance and current expectations, we believe that cash generated by current operations, the remaining funds available under the revolving portion of our new amended and restated senior secured credit facility and existing cash and cash equivalents will be sufficient to meet working capital requirements, service our debt and finance capital expenditures over the next twelve months.

In addition, we may expand existing residential, outpatient and youth treatment facilities and build or acquire new facilities. Management continually assesses our capital needs and may seek additional financing, including debt or equity, to fund potential acquisitions or for other corporate purposes. In negotiating such financing, there can be no assurance that we will be able to raise additional capital on terms satisfactory to us. Failure to obtain additional financing on reasonable terms could have a negative effect on our plans to acquire additional residential treatment facilities, outpatient treatment clinics and youth treatment facilities. We expect to spend approximately $5.0 to $8.0 million for maintenance related expenditures and an additional $20.0 to $30.0 million over the next 12 months for expansion projects, systems upgrades and other related initiatives.

Under the terms of our borrowing arrangements, we are required to comply with various covenants, including the maintenance of certain financial ratios. As of December 31, 2006, we are in compliance with all such covenants.

39

Funding Commitments

In connection with an acquisition closed in October 2005, we are obligated to make certain payments in the amount of up to $1.8 million in the first year and up to $2.0 million in the second year if the entity meets certain performance milestones in the first and second year after closing. In the third quarter of 2006, the entity met the first year performance milestones and as a result we made a payment of $1.8 million in the fourth quarter of 2006. As of March 30, 2007, we have not incurred a liability associated with the second year performance milestones.

In connection with the historic acquisitions of Aspen, we are obligated to make certain earn out payments in the amount of up to $6.0 million if the acquisitions meet performance milestones as specified in the agreements. As of March 30, 2007, we have incurred a liability of $1.2 million associated with such earn out obligations and expect to make the payment in the second quarter of 2007.

Off Balance Sheet Obligations

As of December 31, 2006, we do not have any off-balance sheet obligations.

Obligations and Commitments

The following table sets forth our contractual obligations as of December 31, 2006 (dollars in millions):

	Total		Less Than 1 Year		1-3 Years		4-5 Years		Thereafter
Term loans, including interest(i)	$	623.7	$	37.5	$	75.1	$	73.7	$	437.4
Senior subordinated notes, including interest(ii)		404.3		21.5		43.0		43.0		296.8
Seller notes, including interest		8.0		3.2		4.5		0.3		—
Capital leases, including interest		279.0		243.0		25.0		11.0		—
Operating leases		89.8		15.2		23.6		14.3		36.7
Consulting agreements		4.0		1.5		1.7		0.6		0.2
Total obligations	$	1,408.8	$	321.9	$	172.9	$	142.9	$	771.1

(i) Interest rate is calculated using three month LIBOR at February 28, 2007, most recent practicable date, plus 2.50%, which equals 8.15%.

(ii) Stated interest rate of 10.75% per the indenture.

ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk

Interest rate risk

We are subject to interest rate risk in connection with our long-term debt. Our principal interest rate exposure relates to the term loans outstanding under our amended and restated senior secured credit facility. As of December 31, 2006 we have $418.2 million in term loans outstanding, bearing interest at variable rates. A hypothetical quarter point increase or decrease in market interest rates compared to the interest rates at December 31, 2006 would result in a $1.0 million change in annual interest expense on our term loans. We also have a revolving credit facility, which provides for borrowings of up to $100.0 million, which bears interest at variable rates. Assuming the revolver is fully drawn, each quarter point change in interest rates compared to the interest rates at December 31, 2006 would result in a $0.3 million change in annual interest expense on our revolving credit facility. In conjunction with our term loans, we entered into an interest rate swap agreement on February 28, 2006 in the amount of $115.0 million as provided under our credit agreement and retained in our amended and restated credit agreement to exchange floating for fixed interest rate payments to reduce interest rate volatility. The effective date of the agreement was March 31, 2006 and has a maturity date of March 31, 2011.

40

ITEM 8. Financial Statements and Supplementary Data

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm	42
Consolidated Balance Sheets as of December 31, 2006 (Successor) and December 31, 2005 (Predecessor)	43
Consolidated Statements of Operations for the eleven months ended December 31, 2006 (Successor), the one month ended January 31, 2006 (Predecessor) and the years ended December 31, 2005 and 2004 (Predecessor)	44
Consolidated Statements of Mandatorily Redeemable Stock and Stockholder’s Equity for the eleven months ended December 31, 2006 (Successor), the one month ended January 31, 2006 (Predecessor) and the years ended December 31, 2005 and 2004 (Predecessor)	45
Consolidated Statements of Cash Flows for the eleven months ended December 31, 2006 (Successor), the one month ended January 31, 2006 (Predecessor) and the years ended December 31, 2005 and 2004 (Predecessor)	47
Notes to Consolidated Financial Statements	49

41

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

CRC Health Corporation:

We have audited the accompanying consolidated balance sheets of CRC Health Corporation (formerly known as CRC Health Group, Inc.) and subsidiaries, (the “Company”), (a wholly owned subsidiary of CRC Health Group, Inc.) as of December 31, 2006 (Successor) and 2005 (Predecessor), and the related consolidated statements of operations, mandatorily redeemable stock and stockholders’ equity (deficit), and cash flows for the eleven-month period ended December 31, 2006 (Successor), one-month period ended January 31, 2006 (Predecessor) and years ended December 31, 2005 and 2004 (Predecessor). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CRC Health Corporation and subsidiaries as of December 31, 2006 (Successor) and 2005 (Predecessor), and the results of their operations and their cash flows for the eleven-month period ended December 31, 2006 (Successor), one-month period ended January 31, 2006 (Predecessor) and years ended December 31, 2005 and 2004 (Predecessor) in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, on January 1, 2006 the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

/s/    DELOITTE & TOUCHE LLP

San Francisco, California

March 29, 2007

42

CRC HEALTH CORPORATION

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2006 (SUCCESSOR) AND DECEMBER 31, 2005 (PREDECESSOR)

(In thousands, except share amounts)

	December 31, 2006		December 31, 2005
	(Successor)		(Predecessor)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,206	$	5,077
Accounts receivable, net of allowance for doubtful accounts of $8,235 in 2006 and $4,459 in 2005		33,805		23,418
Prepaid expenses		7,675		4,510
Other current assets		2,261		2,832
Income taxes receivable		6,496		—
Deferred income taxes		7,052		4,264
Total current assets		61,495		40,101
PROPERTY AND EQUIPMENT—Net		94,976		49,074
GOODWILL		702,425		265,977
INTANGIBLE ASSETS—Net		400,714		60,008
OTHER ASSETS		29,178		8,994
TOTAL ASSETS	$	1,288,788	$	424,154
LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	6,714	$	5,348
Accrued liabilities		34,827		14,400
Income taxes payable		—		3,384
Current portion of long-term debt		10,743		11,550
Other current liabilities		27,941		3,135
Total current liabilities		80,225		37,817
LONG-TERM DEBT—Less current portion		615,785		248,381
OTHER LONG-TERM LIABILITIES		5,526		469
DEFERRED INCOME TAXES		149,827		9,877
Total liabilities		851,363		296,544
COMMITMENTS AND CONTINGENCIES (Note 11)
MINORITY INTEREST		251		—
MANDATORILY REDEEMABLE STOCK—Predecessor Company—324,731,796 shares authorized; 262,399,056 shares issued and outstanding at December 31, 2005		—		115,625
STOCKHOLDER’S EQUITY:
Predecessor Company—Series A common stock, $0.000001 par value—378,090,843 shares authorized; 8,652,429 shares issued and outstanding at December 31, 2005
Successor Company—Common stock, $0.001 par value—1,000 shares authorized; 1,000 shares issued and outstanding at December 31, 2006
Additional paid-in capital		433,652		215
Retained earnings		3,522		11,770
Total stockholder’s equity		437,174		11,985
TOTAL LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDER’S EQUITY	$	1,288,788	$	424,154

See notes to consolidated financial statements.

43

CRC HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 2006 (SUCCESSOR),

THE ONE MONTH ENDED JANUARY 31, 2006 (PREDECESSOR) AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (PREDECESSOR)

(In thousands)

	Successor			Predecessor
	Eleven Months Ended December 31, 2006			One Month Ended January 31, 2006			Year Ended December 31, 2005			Year Ended December 31, 2004
NET REVENUE:
Net client service revenue	$	246,880		$	19,360		$	205,833		$	163,705
Other revenue		4,448			490			3,189			1,898
Net revenue		251,328			19,850			209,022			165,603
OPERATING EXPENSES:
Salaries and benefits		118,954			9,265			96,241			77,898
Supplies, facilities and other operating costs		69,331			4,561			55,640			43,996
Provision for doubtful accounts		5,106			285			3,041			2,834
Depreciation and amortization		10,193			361			3,850			3,699
Acquisition related costs		—			43,710			1,636			—
Total operating expenses		203,584			58,182			160,408			128,427
INCOME (LOSS) FROM OPERATIONS		47,744			(38,332	)		48,614			37,176
INTEREST EXPENSE, NET		(41,338	)		(2,505	)		(19,744	)		(13,966	)
OTHER FINANCING COSTS		—			(10,655	)		(2,185	)		—
OTHER INCOME		89			55			2,232			—
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		6,495			(51,437	)		28,917			23,210
INCOME TAX EXPENSE (BENEFIT)		3,011			(12,444	)		10,916			9,996
MINORITY INTEREST IN LOSS OF A SUBSIDIARY		(38	)		—			—			—
NET INCOME (LOSS) FROM CONTINUING OPERATIONS		3,522			(38,993	)		18,001			13,214
DISCONTINUED OPERATIONS (Note 4)
Loss from discontinued operations before income taxes, including loss on disposal of $2,241		—			—			—			(2,015	)
Income tax benefit		—			—			—			(257	)
Net loss from discontinued operations		—			—			—			(1,758	)
NET INCOME (LOSS)	$	3,522		$	(38,993	)	$	18,001		$	11,456

See notes to consolidated financial statements

44

CRC HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE STOCK AND STOCKHOLDER’S EQUITY

FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 2006 (SUCCESSOR), THE ONE MONTH ENDED JANUARY 31, 2006 (PREDECESSOR) AND THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (PREDECESSOR)

(In thousands, except per share and share amounts)

	Redeemable Convertible Preferred and A-1 Common Stock				Series A Common Stock			Additional Paid-in Capital		Deferred Stock-based Compensation			Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity (Deficit)
	Shares		Amount		Shares	Amount
BALANCE—December 31, 2003	224,725,865		$	109,859	7,949,862	$	—	$	117	$	(114	)	$	—		$	(17,687	)	$	(17,684	)
Issuance of Series C preferred stock for cash at $0.46 per share in February 2004, net of issuance costs of $349	12,843,113			5,559
Exchange of Series A preferred stock to Series A-2 preferred stock in February 2004	(17,846,634	)
Issuance of Series A-2 preferred stock upon the exchange of Series A preferred stock	42,676,712
Exercise of options in 2004					97,775				12											12
Amortization of stock-based compensation											114									114
Comprehensive income:
Net income																	11,456			11,456
Fair value of interest rate swap (net of tax of $193)														290						290
Comprehensive income																				11,746
BALANCE—December 31, 2004	262,399,056			115,418	8,047,637				129					290			(6,231	)		(5,812	)
Warrants issued in conjunction with the issuance of Series C preferred stock				207
Exercise of options in 2005					604,792				86											86
Comprehensive income:
Net income																	18,001			18,001
Cancellation of interest rate swap (net of tax of $193)														(290	)					(290	)
Comprehensive income																				17,711
BALANCE—December 31, 2005	262,399,056		$	115,625	8,652,429	$	—	$	215	$	—		$	—		$	11,770		$	11,985

45

CRC HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE STOCK AND STOCKHOLDER’S EQUITY—(Continued)

FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 2006 (SUCCESSOR), THE ONE MONTH ENDED JANUARY 31, 2006 (PREDECESSOR) AND THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (PREDECESSOR)

(In thousands, except per share and share amounts)

	Redeemable Convertible Preferred and A-1 Common Stock					Common Stock				Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Total Stockholder’s Equity (Deficit)
	Shares		Amount			Shares		Amount
BALANCE—December 31, 2005 (Predecessor)	262,399,056		$	115,625		8,652,429		$	—	$	215		$	11,770		$	11,985
Exercise of options						72,968					7						7
Net loss for the one month ended January 31, 2006														(38,993	)		(38,993	)
BALANCE—January 31, 2006 (Predecessor)	262,399,056			115,625		8,725,397					222			(27,223	)		(27,001	)
Merger with CRCA Merger Corporation:
Repurchase and retirement of CRC Health Group, Inc. preferred and common stock and Series A common stock	(262,399,056	)		(115,625	)	(8,725,397	)				(222	)		27,223			27,001
Issuance of CRC Health Corporation common stock						1,000					294,475						294,475
Capital contributed by parent											135,711						135,711
Stock based compensation											3,466						3,466
Net income for the eleven months ended December 31, 2006														3,522			3,522
BALANCE—December 31, 2006 (Successor)	—		$	—		1,000		$	—	$	433,652		$	3,522		$	437,174

46

CRC HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 2006 (SUCCESSOR),

THE ONE MONTH ENDED JANUARY 31, 2006 (PREDECESSOR) AND THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (PREDECESSOR)

(In thousands)

	Successor			Predecessor
	Eleven Months Ended December 31, 2006			One Month Ended January 31, 2006			Year Ended December 31, 2005			Year Ended December 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	3,522		$	(38,993	)	$	18,001		$	11,456
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Loss on disposal of discontinued operations		—			—			—			2,241
Depreciation and amortization		10,193			361			3,850			3,867
Write-off of debt discount and capitalized financing costs		—			10,655			2,185			—
Write off of intangible assets		—			—			41			—
Non-cash forgiveness of note receivable from CEO		—			—			205			210
Amortization of debt discount and capitalized financing costs		2,906			162			1,653			1,506
(Gain) loss on interest rate swap agreement		(109	)		(55	)		(1,643	)		—
(Gain) loss on disposition of property		(41	)		(1	)		103			11
Provision for doubtful accounts		5,106			285			3,041			2,948
Stock-based compensation		3,469			17,666			—			114
Deferred income taxes		(85	)		—			1,933			1,817
Minority interest		(38	)		—			—			—
Changes in assets and liabilities:
Accounts receivable		(9,216	)		(1,271	)		(5,866	)		(3,804	)
Income taxes receivable		2,931			(9,041	)		—			—
Prepaid expenses		(2,069	)		317			706			(1,470	)
Other current assets		3,500			40			(2,688	)		(90	)
Accounts payable		(838	)		(2,997	)		1,538			446
Accrued liabilities		(29,543	)		25,641			2,631			1,019
Other current liabilities		2,741			485			1,395			1,393
Income taxes payable		—			(3,384	)		(2,133	)		4,473
Deferred revenue		3,356			—			—			—
Other long-term assets		(534	)		1,302			(722	)		(372	)
Other long-term liabilities		263			29			(328	)		(181	)
Net cash (used in) provided by operating activities		(4,486	)		1,201			23,902			25,584
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment		(12,786	)		(316	)		(10,708	)		(7,329	)
Proceeds from sale of property and equipment		41			1			—			—
Acquisition of businesses, net of cash acquired		(304,861	)		—			(148,520	)		(16,890	)
Prior period acquisition adjustments		(14	)		—			—			—
Payment of purchase price to former shareholders		(429,191	)		—			—			—
Proceeds from sale of discontinued operations		—			—			—			1,478
Net cash used in investing activities		(746,811	)		(315	)		(159,228	)		(22,741	)

See notes to consolidated financial statements.

47

CRC HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 2006 (SUCCESSOR),

THE ONE MONTH ENDED JANUARY 31, 2006 (PREDCESSOR) AND THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (PREDECESSOR)

	Successor			Predecessor
	Eleven Months Ended December 31, 2006			One Month Ended January 31, 2006			Year Ended December 31, 2005			Year Ended December 31, 2004
CASH FLOWS FROM FINANCING ACTIVITIES:
Equity contribution from Bain Capital		294,475			—			—			—
Capital contributed by parent		135,711			—			—			—
Proceeds from issuance of Series C convertible preferred stock-net		—			—						5,559
Payment of transaction related costs		(5,354	)		—			—			—
Stock options exercised		—			7			86			12
Debt financing costs		(29,527	)		(547	)		(6,267	)		—
Repayments of capital lease obligations		(43	)		—			(78	)		(84	)
Repayments of promissory notes		—			—			(2,007	)		(258	)
Net (repayments) borrowings under revolving line of credit		(900	)		(5,000	)		9,500			—
Proceeds from issuances of long-term debt		617,522			—			205,000			—
Repayment of long-term debt		(256,804	)		—			(76,394	)		(4,630	)
Net cash provided by (used in) financing activities		755,080			(5,540	)		129,840			599
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,783			(4,654	)		(5,486	)		3,442
CASH AND CASH EQUIVALENTS—Beginning of period		423			5,077			10,563			7,121
CASH AND CASH EQUIVALENTS—End of period	$	4,206		$	423		$	5,077		$	10,563
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Note receivable from the sale of discontinued operations	$	—		$	—		$	—		$	250
Payable in conjunction with the addition of property and equipment	$	1,403		$	95		$	772		$	—
Payable in conjunction with acquisition contingent consideration	$	268		$	—		$	—		$	—
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	29,118		$	1,336		$	18,101		$	12,572
Cash paid for income taxes, net of refunds	$	593		$	—		$	10,945		$	5,025

See notes to consolidated financial statements.

48

CRC HEALTH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

CRC Health Group, Inc. (“Health Group”) was incorporated as a Delaware corporation on January 31, 2002 for the purpose of holding all of the securities of CRC Health Corporation (the “Predecessor Company”) and eGetgoing, Inc. (“eGetgoing”), each a Delaware corporation that primarily provides chemical dependency treatment services.

On February 6, 2006, investment funds managed by Bain Capital Partners, LLC (“Bain Capital”) acquired Health Group for approximately $723 million (see Note 3). This transaction (the “Bain Merger”) was structured as a merger in which CRCA Merger Corporation, a newly-organized Delaware corporation and an indirect wholly owned subsidiary of CRCA Holdings, Inc., a newly-organized Delaware corporation controlled by Bain Capital, merged with and into Health Group with Health Group remaining as the surviving corporation. Immediately after the merger, CRC Health Corporation and eGetgoing merged with and into Health Group with Health Group as the surviving entity. CRCA Holdings Inc. was renamed to CRC Health Group, Inc. and Health Group was renamed CRC Health Corporation (the “Company”). As a result, the Company is a wholly owned subsidiary of CRC Health Group, Inc referred to as (the “Group”) or (the “Parent”).

The Company is headquartered in Cupertino, California and through its wholly owned subsidiaries provides substance abuse treatment services and youth treatment services in the United States. The Company also provides treatment services for other addiction diseases and behavioral disorders such as eating disorders. The Company delivers its substance abuse and behavioral disorder treatment services through residential and outpatient treatment facilities, which we refer to as our residential and outpatient treatment divisions. We deliver our youth treatment services through our residential schools, wilderness programs and weight loss programs, which we refer to as our youth treatment division. As of December 31, 2006, we operated 105 residential and outpatient treatment facilities in 23 states and treated approximately 24,000 patients per day. As of December 31, 2006, our youth treatment division operated programs at 32 facilities in 12 states and 1in the United Kingdom.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation—The date of the Bain Merger was February 6, 2006 but for accounting purposes and to coincide with its normal financial closing, the Company has utilized February 1, 2006 as the effective date. As a result, the Company has reported operating results and financial position for all periods presented prior to February 1, 2006 as those of the Predecessor Company and for all periods from and subsequent to February 1, 2006 as those of the Successor Company due to the resulting change in the basis of accounting.

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable for annual financial information. The Company’s consolidated financial statements include the accounts of CRC Health Corporation and its consolidated subsidiaries, and, for the periods through January 31, 2006, CRC Health Group, Inc. and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications—Certain reclassifications have been made to prior period amounts in order to conform to the current period presentation. The Company modified the presentation of operating expense line items in the consolidated statements of operations to combine the previously labeled “Insurance” with “Supplies, facilities and other operating costs.” In addition, the following immaterial reclassifications have been made to amounts as previously reported in the Successor Company’s consolidated statement of operations for the eleven months ended December 31, 2006 and the Predecessor Company’s consolidated statement of operations for the one month ended January 31, 2006 and for the years ended December 31, 2005 and 2004.

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In the year ended December 31, 2005 consolidated statement of operations the reclassifications were (i) a loss on the sale of fixed assets of $0.1 million from “Other income (expense) “ into “Supplies, facilities and other operating costs” and (ii) interest income of $0.07 million from “Other income (expense) into “Interest expense, net”.

In the year ended December 31, 2004 consolidated statement of operations stock option-based compensation expense of approximately $0.1 million was reclassified from “Supplies, facilities and other operating costs” into “Salaries and benefits”.

These reclassifications do not impact the Company’s previously reported consolidated net revenue, net income or total assets for the periods presented.

Use of Estimates—Preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts reported in the Company’s consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Cash and Cash Equivalents—Cash includes amounts in demand accounts. At December 31, 2006 and 2005 all cash was on deposit with financial institutions. Cash equivalents are short-term investments with original maturities of three months or less. Interest income was approximately $0.1 million for the eleven months ended December 31, 2006, $0.0 million in the one month ended January 31, 2006, $0.07 million for the year ended December 31, 2005 and $0.0 million for the year ended December 31, 2004.

Property and Equipment—Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed on a straight-line basis over the estimated useful lives of the assets, generally three to seven years, except for buildings, which are depreciated over thirty years. Leasehold improvements and assets held under capital leases are amortized using the straight-line method over the life of the lease, or the estimated useful life of the asset, whichever is shorter. Maintenance and repairs are charged to operations as incurred.

Capitalized Financing Costs—Costs related to obtaining financing and long-term debt are capitalized and amortized using the effective interest method commencing in 2005. Prior to 2005, the Company amortized such costs on a straight-line basis over the life of the applicable debt. Management does not believe that the difference between the effective interest and the straight-line method had a material impact. As of December 31, 2006 and 2005, other long-term assets includes capitalized financing costs of $29.5 million and $8.9 million, respectively. Amortization expense for the eleven months ended December 31, 2006, one month ended January 31, 2006 and the years ended December 31, 2005 and 2004 was $2.6 million, $0.1 million, $1.0 million and $0.8 million, respectively.

Other Financing Costs—Other financing costs written off in the one month ended January 31, 2006 and the year ended December 31, 2005 include charges associated with the early extinguishment of borrowings, including amounts paid for prepayment premiums and additional interest, capitalized financing costs and debt discounts associated with the retired debt.

Goodwill—Goodwill arising from business combinations is capitalized. Goodwill is not amortized but is subject to an impairment test at least annually. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) prohibits the amortization of goodwill and purchased intangible assets with indefinite lives. The Company reviews goodwill annually at the beginning of its fourth quarter and whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable in accordance with SFAS 142. For goodwill, the Company performs a two step impairment test. In the first step, the Company compares the fair value of each reporting unit to its carrying value. The Company determined the fair value of the reporting unit based on the market approach. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to the reporting unit, goodwill is not impaired and no further testing is performed. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value. The Company records an impairment loss equal to the difference. No impairment to the carrying value of goodwill was identified by

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the Company during the eleven months ended December 31, 2006, one month ended January 31, 2006 and the years ended December 31, 2005 or 2004.

Intangible Assets—Identifiable intangible assets, which include the value assigned to certificates of need, regulatory licenses, a covenant not to compete, trademarks and trade names, registration rights, core developed technology, referral network, accreditations, curriculum, student contracts and to certain third-party reimbursement contracts, obtained by the Company through acquisitions, are reported separately from goodwill. Intangible assets determined to have an indefinite useful life, which include the value assigned to the certificates of need, regulatory licenses and trademarks and trade names, are not being amortized by the Company in accordance with SFAS 142. SFAS 142 requires that the fair value of the indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company estimates the fair value of these intangible assets using an income approach annually at the beginning of its fourth fiscal quarter. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible asset is less than the carrying value. No impairment to the carrying value of indefinite-lived intangible assets was identified by the Company during the eleven months ended December 31, 2006, one month ended January 31, 2006 and the years ended December 31, 2005 or 2004. Intangibles assets with finite lives are amortized on a straight-line basis over the estimated economic useful lives of the assets, ranging from one to twenty years (see Note 7). The Company reviews the intangible assets with finite lives for impairment whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In 2005, the Company recorded an impairment of $0.04 million in connection with the carrying value of finite lived intangible asset related to one of the acquisitions completed in 2003.

Income Taxes—The Company accounts for income taxes under an asset and liability method. Under this method, deferred income tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and tax bases of assets and liabilities using tax rates in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Revenue Recognition—Revenue in the residential treatment division and outpatient treatment division is recognized when rehabilitation and treatment services are provided to a patient. Client service revenue is reported at the estimated net realizable amounts from clients, third-party payors and others for services rendered. Revenue under third-party payor agreements is subject to audit and retroactive adjustment. Provisions for estimated third-party payor settlements are provided for in the period the related services are rendered and adjusted in future periods as final settlements are determined. Revenue for educational services provided by the Company’s youth division consists primarily of tuition, enrollment fees, alumni services and ancillary charges. Tuition revenue and ancillary charges are recognized based on contracted monthly/daily rates as services are rendered. The enrollment fees for service contracts that are charged upfront are deferred and recognized over the average student length of stay, approximately eleven months. Alumni fees revenue represents non-refundable upfront fees for post graduation services and these fees are deferred and recognized systematically over the contracted life, which is twelve months. The Company, from time to time, may provide charity care to a limited number of clients. The Company does not record revenues or receivables for charity care provided. Advance billings for client services are deferred and recognized as the related services are performed.

Advertising Costs—Advertising costs, included in supplies and facilities cost, are expensed as incurred. Advertising costs for the eleven months ended December 31, 2006, one month ended January 31, 2006 and for the years ended December 31, 2005 and 2004 were $1.3 million, $0.07million, $0.8 million and $0.7 million, respectively.

Concentration of Credit Risk—Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and accounts receivable. The Company’s cash accounts are maintained with financial institutions in the United States of America. At times, deposits in these institutions may exceed federally insured limits. The Company’s accounts receivable are primarily derived

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from methadone treatment, detoxification, psychological evaluations, counseling, education and other related rehabilitation services provided to clients. As of December 31, 2006 and 2005, approximately 37.7% and 40.0% of gross accounts receivable and approximately 19.9% for the eleven months ended December 31, 2006 and 26.0% for the one month ended January 31, 2006 and for the year ended December 31, 2005 of net client service revenue, respectively, was derived from county, state and federal contracts under Medicaid and other programs. In the event of cancellation or curtailment of these programs or default on these accounts receivable, the Company’s operating results and financial position would be adversely affected. The Company performs ongoing credit evaluations of its third-party insurance payors’ financial condition and generally requires advance payment from its clients who do not have verifiable insurance coverage. The Company maintains an allowance for doubtful accounts to cover potential credit losses based upon the estimated collectibility of accounts receivable.

Fair Value of Financial Instruments—The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their short maturities. Based upon the borrowing rates currently available to the Company for loans with similar terms and the anticipated payment of our term loans per the amended and restated credit agreement (see Note 9) the carrying value of the term loans approximates fair value. At December 31, 2006, the carrying value and fair value of the senior subordinated notes was $197.3 million, net of discount of $2.7 million and $215.0 million, respectively.

Interest Rate Swaps—Interest rate swaps are used principally in the management of the Company’s interest rate exposures and are recorded on the balance sheet at fair value. The fair value of the interest rate swap is estimated based upon quoted market prices of comparable agreements (see Note 10). If the swap is designated as a cash flow hedge, the effective portions of changes in the fair value of the swap are recorded in other comprehensive income. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. If the swap is not designated as a cash flow hedge, the changes in the fair value of the swap are recorded in other income (expense).

Long-Lived Assets—Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised values, depending on the nature of the asset. No impairments of long-lived assets were recorded during the eleven months ended December 31, 2006, one month ended January 31, 2006 and the years ended December 31, 2005 or 2004.

Stock-Based Compensation—On January 1, 2006, the Predecessor Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards, including employee stock options, granted after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123 (R). Prior to the adoption of SFAS 123(R), the Predecessor Company recognized stock-based compensation expense in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations, as permitted by SFAS 123, Accounting for Stock Based Compensation. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R) and the Predecessor Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R). The Predecessor Company adopted SFAS 123(R) using the prospective transition method, which requires the application of the accounting standard to awards granted, modified or settled after the date of adoption. Results for prior periods have not been restated and the pro forma disclosures of compensation cost under the original provisions of SFAS 123 will no longer be provided.

Minority Interest—The Company through the acquisition of Aspen acquired a seventy-five percent interest in a weight loss program and consolidates its investment for financial reporting purposes. Losses are allocated based upon the “at risk” capital of each limited liability partner member. Losses in excess of the “at risk” capital are allocated to the Company without regard to the percentage of ownership. The Company

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retains an option to buy-out the minority interest at a price to be calculated pursuant to the terms and conditions of the operating agreement.

Other Comprehensive Income—For the years ended December 31, 2005 and 2004, other comprehensive income includes net income and changes in the fair value of the interest rate swaps that qualified as a cash flow hedge. For the eleven months ended December 31, 2006 and the one month ended January 31, 2006 the interest rate swap has not been designated as a hedge, therefore, changes in the fair value is recorded in other income in the consolidated statements of operations.

Recent Accounting Pronouncements—In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment to FASB Statement No. 115 (“SFAS 159). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that would otherwise not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, e.g., debt issue costs. The fair value election is irrevocable and may generally be made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in the first quarter 2008. The Company is currently determining whether fair value is appropriate for any of its eligible items and cannot estimate the impact, if any, which SFAS 159 will have on its consolidated results of operations and financial condition.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB No. 108 is effective for first fiscal years ending after November 15, 2006. The adoption of the provisions of SAB 108 had no impact on our consolidated financial statements as of December 31, 2006.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute; however SFAS 157 does not apply to SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”). SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. SFAS 157 is required to be adopted by the Company on January 1, 2008. The Company is currently evaluating the effect of the adoption of SFAS 157 will have on its financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 on January 1, 2007 and is currently evaluating the effect of the adoption of FIN 48 and has not completed its evaluation; therefore, the Company cannot estimate the effect of the adoption of FIN 48 will have on its financial statements.

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3. ACQUISITIONS

2006 Acquisitions

Aspen Acquisition—On November 17, 2006, the Company acquired all the outstanding capital stock of Aspen Education Group, Inc., a California corporation (“Aspen Education Group”) for approximately $273.9 million in cash purchase consideration, the assumption of approximately $20.6 million of indebtedness as defined per the merger agreement (includes the buy-out of minority interest of $4.2 million), and the payment of costs associated with the acquisition and related financing of approximately $1.3 million and $10.8 million, respectively. Aspen Education Group provides educational services to youth who have demonstrated behavioral issues that have interfered with their performance in school and life. Aspen Education Group offers its programs through its residential division (boarding schools), outdoor division (outdoor education programs) and health living division (weight management programs for children and teenagers). Among other benefits, the Aspen Acquisition offers multiple revenue and cost synergies. The Aspen Acquisition further enhances the Company’s private pay mix and business diversification, thereby reducing business risk from any one aspect of the Company’s operations. In addition, the Company is expected to benefit from increased cross-referral opportunities.

The Aspen Acquisition and associated transactions and expenses were financed by the issuance of an additional $175.5 million of senior secured term loan (by amending and restating the Company’s existing $243.8 million senior secured term loan facility), and capital contributions of $135.7 million from the Group, which was treated as equity. The Group funded such capital contributions by a combination of $36.2 million resulting from the sale of its equity securities to certain of the Group’s equity holders and by the issuance of a payment in kind (“PIK”) loan of $105.0 million issued at 1% original issue discount for net proceeds of $103.9 million. The Group incurred $4.5 million of financing costs in connection with the PIK loan which was treated as a reduction in the capital contribution. The interest payable per annum for the PIK loan is 90 day LIBOR plus 7.0% for the first year, 90 day LIBOR plus 7.5% for the second year and 90 day LIBOR plus 8.0% for the years thereafter until the maturity date. Per the PIK loan agreement, the interest is accrued through an increase in the principal amount. The aggregate principal amount inclusive of the accrued interest matures on November 17, 2013. This senior unsecured PIK loan is not guaranteed by the Company or any of its subsidiaries.

The acquisition was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Under purchase accounting, the purchase consideration was allocated to the assets and liabilities based on their estimated fair values. The consideration remaining was allocated to the Company’s intangibles with finite lives and is being amortized over that life, as well as to goodwill and identifiable intangibles with indefinite lives, which will be evaluated on at least an annual basis to determine impairment and adjusted accordingly. The fair value of intangibles was based upon appraisals performed by independent valuation specialists and other information. The purchase price was allocated using the information currently available. As a result, the Company may adjust the total purchase consideration in the future as we obtain more information regarding the asset valuations, liabilities assumed and purchase price adjustment as defined per the merger agreement. The purchase price and the allocation will be finalized in 2007.

A summary of the acquisition purchase consideration is as follows (in thousands):

Cash	$	273,988
Acquisition related expenses		1,308
Buyout of minority interests and other agreement(a)		4,189
Total purchase consideration	$	279,485

(a) Represents the purchase of a 10% minority interest for $3.7 million in SUWS of the Carolinas, a 10% interest for $0.2 million in the Eating Disorder Venture owned by Niton, LLC and a $0.3 million payment related to the termination of a consulting agreement.

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Preliminary allocation of the aggregate purchase price to the assets and liabilities based on estimated fair value is as follows (in thousands):

Cash		$	11,251
Accounts receivable			4,534
Prepaid expenses			1,399
Other current assets			1,354
Income taxes receivable			554
Deferred income tax assets			1,179
Property and equipment			19,007
Other assets			1,178
Goodwill			226,347
Intangible assets:
Curriculum	9,000
Accreditation	24,400
Referral network	45,400
Student contracts	2,241
Regulatory licenses	16,300
Trademark and trade name	10,800
Total intangible assets			108,141
Accounts payable			(4,070	)
Accrued expenses			(20,454	)
Current portion of long—term debt			(2,990	)
Other current liabilities			(17,865	)
Long term debt—Less current portion			(5,015	)
Other long-term liabilities			(4,943	)
Deferred income tax liabilities			(39,836	)
Minority Interest			(286	)
Total purchase price		$	279,485

Intangible assets determined to have finite lives and are being amortized over that life consist of curriculum, accreditation, referral network and student contracts. Intangible assets determined to have an indefinite life are the regulatory licenses and trademarks and trade names and, accordingly, are not being amortized by the Company. Goodwill was assigned a value of $226.3 million of which $58.5 million is expected to be deductible for tax purposes.

Pro-forma Financial Information—The unaudited pro-forma financial information presented below sets forth the Company’s historical consolidated statements of operations for the periods indicated and gives effect to the Aspen Acquisition as if it took place at the beginning of each period presented below. Such information is presented for comparative purposes only and is not intended to represent what the Company’s results of operations (in thousands) would actually have been had these transactions occurred at the beginning of each period presented.

	For the Year Ended
	December 31, 2006(a)			December 31, 2005
	(unaudited)			(unaudited)
Net revenue	$	401,152		$	331,678
Income (loss) from operations before income taxes	$	(63,794	)	$	15,316
Net income (loss)	$	(48,208	)	$	10,019

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(a) The unaudited pro forma consolidated statement of operations for the year ended December 31, 2006 includes certain nonrecurring charges that were incurred by Aspen Education Group in connection with the Aspen Acquisition: (i) stock option compensation expenses of $9.6 million, recognized upon settlement of the options and (ii) various accounting, other professional fees and other transaction related fees of $7.1 million, of which tax deductible transaction fees are $5.2 million. The tax effect of these nonrecurring items at Aspen Education Group’s historical effective tax rate of 41.6% is $6.1 million. In addition, the year ended December 31, 2006 pro forma consolidated statement of operations includes $54.4 million of certain nonrecurring charges incurred by the Company, net of tax benefit of $13.1 million (see Bain Merger pro forma footnote (a) below).

Bain Merger—On February 6, 2006, investment funds managed by Bain Capital acquired Health Group in a merger in which CRCA Merger Corporation, a newly-organized Delaware corporation and an indirect wholly owned subsidiary of CRCA Holdings, Inc., a newly-organized Delaware corporation controlled by Bain Capital, merged with and into Health Group with Health Group remaining as the surviving corporation. In connection with the Bain Merger, certain members of management elected to rollover options to exchange, or roll, a portion of their pre-merger equity for an interest in CRCA Holdings, Inc. Immediately after the merger, CRC Health Corporation (the “Predecessor Company”) and eGetgoing merged with and into Health Group with Health Group continuing as the surviving entity. Immediately thereafter, CRCA Holdings Inc. was renamed CRC Health Group, Inc. and the Predecessor Company was renamed CRC Health Corporation (the “Company”). Total cash contributed was approximately $742.3 million (including acquisition and financing transactions related fees and expenses of $27.0 million incurred by CRCA Merger Corporation. Subsequent to the closing of the acquisition an additional $1.5 million of financing related fees and expenses were recorded for a total acquisition and financing transaction related fees and expenses of $28.5 million). The proceeds were used to repay existing balances on the revolving line of credit of $4.5 million, long-term debt of $254.0 million, accrued interest of $1.4 million and acquisition and financing related expense of $24.4 million incurred by the Company that were expensed in the Predecessor Company financial statements and are included in acquisition related costs. The proceeds were also used to pay $0.3 million related to the February and March management fees per the management agreement with an affiliate of Bain Capital (see Note 15) which was recorded in the eleven months ended December 31, 2006 consolidated statement of operations. In addition, as part of the transactions, the Company’s former stockholders, including mandatorily redeemable common and preferred stockholders, were paid $429.2 million as per the merger agreement.

The aggregate purchase price of $722.9 million plus expenses of $28.5 million incurred by CRCA Merger Corporation was financed with the senior secured term loans of $245.0 million dated February 6, 2006, the issuance of senior subordinated notes of $197.0 million ($200.0 million aggregate principal amount, less $3.0 million of original issue discount), a borrowing under the revolving credit facility of $4.3 million, cash equity investments by investment funds managed by Bain Capital of $294.5 million, rollover equity investments by certain members of the Company’s management of $9.1 million and $1.5 million from the Company’s cash flow from operations.

As a result of the acquisition, Bain Capital received unilateral control of the Company. The acquisition was accounted for as a complete change in accounting basis in a successor company (CRC Health Corporation). Equity rollover of $9.1 million from certain members of the Company’s management was recorded at the stockholder’s predecessor basis, which is zero for accounting purposes, in accordance with Financial Accounting Standards Board Emerging Issues Task Force (“EITF”) Issue No. 88-16, Basis in Leveraged Buyout Transactions.

The acquisition was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Under purchase accounting, the purchase consideration was allocated to the assets and liabilities based on their relative fair values. The consideration remaining was allocated to the Company’s intangibles with finite lives and is being amortized over that life, as well as to goodwill and identifiable intangibles with indefinite lives, which will be evaluated on at least an annual basis to determine impairment and adjusted accordingly. Goodwill was assigned a value of $445.4 million of which $121.6 million is expected to be deductible for tax purposes.

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A summary of the acquisition purchase consideration is as follows (in thousands):

Total purchase price	$	722,856
Less—management rollover equity (zero basis)		(9,075	)
Add—Total costs incurred by CRCA Merger Corporation(a)		28,494
Total cash contributed	$	742,275

(a) Total costs incurred by CRCA Merger Corporation include acquisition related expenses of $5.4 million that were included as part of the purchase price and financing related costs of $23.1 million that were capitalized on the successor balance sheet. These fees and expenses were primarily comprised of accounting and professional fees, financial advisory and investment banking fees and fees paid to other service providers.

Allocation of the aggregate purchase price to the assets and liabilities based on fair value as determined by independent valuations (for intangibles) is as follows (in thousands):

Cash		$	423
Accounts receivable			24,404
Prepaid expenses			4,216
Other current assets			16,152
Property and equipment			64,382
Other assets and capitalized financing costs			24,105
Goodwill			445,375
Intangible assets:
Government, including Medicaid, contracts	35,600
Managed care contracts	14,400
Covenants not to compete	152
Registration rights	200
Core developed technology	2,484
Certificates of need	44,600
Licenses	25,200
Trademark and trade name	163,700
Total intangible assets			286,336
Other liabilities assumed			(18,987	)
Deferred income tax liabilities			(104,131	)
Total purchase price		$	742,275

Pro-forma Financial Information—The unaudited pro-forma financial information presented below sets forth the Company’s historical consolidated statements of operations for the periods indicated and gives effect to the Bain Merger as if it took place at the beginning of each period presented below. Such information is presented for comparative purposes only and is not intended to represent what the Company’s results of operations (in thousands) would actually have been had these transactions occurred at the beginning of each period presented.

	For the Year Ended
	December 31, 2006(a)			December 31, 2005
	(unaudited)			(unaudited)
Net revenue	$	271,178		$	209,022
(Loss) income from operations before income taxes	$	(46,543	)	$	(203	)
Net (loss) income	$	(36,416	)	$	820

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(a) The predecessor consolidated statement of operations for the one month ended January 31, 2006 includes certain material nonrecurring charges that are directly attributable to the Bain Merger and such charges were not excluded from the year ended December 31 2006 pro-forma financial information. The charges and their related tax effects are as follows (in thousands):

Stock option-based compensation expense related to the settlement of stock options	$	17,666
Fees to financial advisors		9,635
Fees to former lead investors		9,437
Management bonuses and related payroll taxes		3,530
Legal, accounting and other professional fees		3,442
Capitalized financing costs written-off		7,164
Unamortized debt discount		3,491
Income tax benefit(i)		(13,058	)
Total nonrecurring items—net of tax	$	41,307

(i) Income tax benefit at 41% tax rate is as follows (in thousands):

	Pre-tax Amount		Tax Effect
Stock option-based compensation expense related to the settlement of stock options	$	17,666	$	7,243
Management bonuses and related payroll taxes		3,530		1,447
Capitalized financing costs written-off		7,164		2,937
Unamortized debt discount		3,491		1,431
Total income tax benefit			$	13,058

2006 Other Acquisitions

In 2006, the Company completed five other acquisitions and paid total cash consideration of approximately $36.6 million, including acquisition related expenses. These acquisitions are intended to expand the range of services offered by the Company and also provide expansion of its services into new geographic regions in the United States. They contribute to the continued building of a nationwide network of specialized behavioral care services by the Company. The Company recorded $28.5 million of goodwill, of which $16.4 million is expected to be deductible for tax purposes. The goodwill was assigned to residential and outpatient segments, in the amounts of $17.7 million and $10.8 million, respectively. The Company also recorded $11.2 million of purchased intangibles in connection with these acquisitions.

The acquisitions were accounted for as a purchase and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values. The Company has included the results of operations in the consolidated statements of operations from the respective dates of the acquisitions. Pro forma results of operations have not been presented because the effects of these acquisitions are not material either on an individual or an aggregate basis.

In connection with an acquisition closed in October 2005, the Company is obligated to make certain payments in the amount of up to $1.8 million in the first year and up to $2.0 million in the second year if the entity meets certain performance milestones in the first and second year after closing. In the third quarter of 2006, the entity achieved the first year performance milestones and as a result the Company recorded additional goodwill and a liability of $1.8 million and made such pay-out in the fourth quarter of 2006. As of March 30, 2007, the Company has not incurred a liability associated with the second year performance milestones.

Certain acquisition agreements acquired in the Aspen Acquisition contain contingent earnout provisions that provide for additional consideration to be paid to the sellers if the results of the entity’s operations exceed negotiated benchmarks. The Youth segment recorded $0.3 million of goodwill as a result of an entity exceeding the benchmark.

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2005 Acquisitions

Sierra Tucson, L.L.C.—On May 11, 2005, the Company acquired substantially all of the assets of Sierra Tucson, L.L.C. (“Sierra Tucson”) for approximately $132.1 million in cash, including acquisition related expenses. Sierra Tucson specializes in providing inpatient rehabilitation treatment services to individuals suffering from addiction and other behavioral health disorders. Management expects that this acquisition will allow the Company to service a target demographic not previously served by the Company and will contribute to the continued building of a nationwide network of behavioral health facilities. The acquisition was accounted for as a purchase and, accordingly the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values. Sierra Tucson’s results of operations are included in the Company’s consolidated statement of operations from the date of acquisition.

A summary of the acquisition purchase consideration is as follows (in thousands):

Cash	$	129,415
Acquisition costs		2,660
Total consideration	$	132,075

Allocation of the aggregate purchase price to the assets and liabilities acquired is as follows (in thousands):

Current assets	$	624
Property and equipment		12,045
Other assets		909
Goodwill		84,841
Intangible assets		35,400
Liabilities assumed		(1,744	)
Total purchase price	$	132,075

Intangible assets relate primarily to the value assigned to certain trademarks and trade names and regulatory licenses. Such assets have been determined to have an indefinite useful life and, accordingly, are not being amortized by the Company. All of the $84.8 million that was assigned to goodwill is expected to be fully deductible for tax purposes.

Pro-forma Financial Information—The unaudited pro-forma effect as if Sierra Tucson had been acquired by the Company on January 1, 2005 is as follows (in thousands):

	Year Ended December 31, 2005
	(unaudited)
Net revenue	$	221,178
Income from operations before income taxes	$	33,767
Net income	$	20,862

2005 Other Acquisitions

In 2005, the Company completed four other acquisitions and paid total cash consideration of approximately $16.5 million, including acquisition related expenses. These acquisitions are intended to expand the range of services offered by the Company and also provide expansion of its services into new geographic regions in the United States. They contribute to the continued building of a nationwide network of behavioral health facilities operated by the Company. The Company recorded $13.9 million of goodwill, all of which is

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expected to be deductible for tax purposes. The goodwill was assigned to residential and outpatient segments, in the amounts of $13.2 million and $0.7 million, respectively. The Company also recorded $2.5 million of purchased intangibles in connection with these acquisitions.

The acquisitions were accounted for as a purchase and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values. The Company has included the results of operations in the consolidated statements of operations from the respective dates of the acquisitions. Pro forma results of operations have not been presented because the effects of these acquisitions are not material either on an individual or an aggregate basis.

2004 Other Acquisitions

In 2004, the Company completed one acquisition for total cash consideration of approximately $16.7 million, including acquisition related expenses. The acquisition is intended to expand the range of services offered by the Company and also provide expansion of its services into a new geographic region in the United States. The acquisition contributes to the continued building of a nationwide network of behavioral health facilities operated by the Company. The Company recorded $16.7 million of goodwill, none of which is expected to be deductible for tax purposes. The goodwill was assigned to the residential segment.

The acquisition was accounted for as a purchase and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values. The Company has included the results of operations in the consolidated statements of operations from the respective date of the acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions are not material either on an individual or an aggregate basis.

4. DISCONTINUED OPERATIONS

On December 31, 2004, the Company sold certain assets of Stonehedge Convalescent Center, L.P. (“Stonehedge”) for $2.0 million, including cash of $1.8 million and a promissory note of $0.2 million. The Company sold fixed assets with a net book value of $2.2 million. In addition, goodwill of $1.5 million and intangible assets of $0.3 million have been included in the carrying amount of Stonehedge for purposes of determining the loss on disposal. The amount of goodwill included in the carrying amount was based upon the relative fair value of Stonehedge in relation to the portion of the reporting unit that was retained. The Company incurred $0.3 million in transaction costs in connection with this sale, resulting in a loss on the transaction of $2.2 million. The promissory note is included in other assets on the consolidated balance sheets, has an interest rate of 7% and principal payments are due over a 7-year period. Stonehedge was included in the residential segment under the reporting requirements of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information (“SFAS 131”).

This disposition qualifies as a discontinued operation component of the Company under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company has reported the results of operations of Stonehedge as discontinued operations within the Company’s consolidated statement of operations for all periods presented subsequent to the Company’s acquisition of Stonehedge as part of the CAPS acquisition in February 2003. The results of discontinued operations for the years ended December 31, 2005 and 2004 were as follows (in thousands):

	2005			2004
Net client service and other revenue	$	28		$	4,749
Operating expenses		9			4,523
Income from operations		19			226
Loss on sale from discontinued operation		(19	)		(2,241	)
Income (loss) from discontinued operations before income taxes	$	—		$	(2,015	)

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5. BALANCE SHEET COMPONENTS

Balance sheet components at December 31, 2006 and 2005 consist of the following (in thousands):

	2006			2005
	(Successor)			(Predecessor)
Other assets:
Capitalized financing costs—net	$	26,899		$	8,248
Deposits		1,078			246
Note receivable and accrued interest		1,201			500
Total other assets	$	29,178		$	8,994
Accrued liabilities:
Accrued payroll and related expenses	$	13,227		$	6,009
Accrued vacation		5,376			2,841
Accrued interest		9,288			363
Accrued expenses		6,936			5,187
Total accrued liabilities	$	34,827		$	14,400
Other current liabilities:
Deferred revenue	$	15,343		$	3,124
Other liabilities		5,434			11
Client deposits		4,347			—
Insurance premium financing		2,817			—
Total other current liabilities	$	27,941		$	3,135
Accounts receivable:
Accounts receivable	$	41,323		$	27,092
Unbilled client service fees		717			785
		42,040			27,877
Less allowance for doubtful accounts		(8,235	)		(4,459	)
Accounts receivable—net	$	33,805		$	23,418

The following schedule reflects activity associated with the Company’s allowance for doubtful accounts for the years ended December 31, 2006 and 2005 (in thousands):

	2006			2005
	(Successor)			(Predecessor)
Allowance for Doubtful Accounts
Balance—beginning of the period	$	4,459		$	3,519
Provision for doubtful accounts(1)		5,391			3,041
Write-off of uncollectible accounts(1)		(1,615	)		(2,101	)
Balance—end of the period	$	8,235		$	4,459

(1) Amounts include provision and write-offs recorded during the one month ended January 31, 2006 (Predecessor).

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6. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2006 and 2005 consists of the following (in thousands):

	2006			2005
	(Successor)			(Predecessor)
Land	$	19,031		$	3,826
Building and improvements		41,886			36,002
Leasehold improvements		12,011			4,649
Furniture and fixtures		7,074			5,742
Computer equipment		5,766			4,165
Computer software		3,078			1,314
Motor vehicles		3,687			1,580
Field equipment		1,423			—
Construction in progress		6,208			3,568
		100,164			60,846
Less accumulated depreciation		(5,188	)		(11,772	)
Property and equipment—net	$	94,976		$	49,074

Depreciation expense was $5.2 million, $0.3 million, $3.5 million and $3.7 million for the eleven months ended December 31, 2006, one month ended January 31, 2006 and years ended December 31, 2005 and 2004, respectively.

7. GOODWILL AND INTANGIBLE ASSETS

Changes to goodwill by reportable segment for the years ended December 31, 2006 and 2005 are as follows (in thousands):

	Residential			Outpatient			Youth		Total
Goodwill—December 31, 2004 (Predecessor)	$	53,435		$	113,759		$	—	$	167,194
Goodwill additions (Sierra Tucson)		84,841			—			—		84,841
Goodwill additions (Other Acquisitions)		13,203			742			—		13,945
Goodwill adjustments		(272	)		269			—		(3	)
Goodwill—December 31, 2005 and January 31, 2006 (Predecessor)	$	151,207		$	114,770		$	—	$	265,977
Elimination of Predecessor Company goodwill		(151,207	)		(114,770	)		—		(265,977	)
Goodwill addition (Bain Merger and Aspen Acquisition)		248,041			197,334			226,347		671,722
Goodwill additions (Other Acquisitions)		19,437			10,842			268		30,547
Goodwill adjustments		153			3			—		156
Goodwill—December 31, 2006 (Successor)	$	267,631		$	208,179		$	226,615	$	702,425

The goodwill adjustments are for acquisitions made in the current and prior fiscal year and relate primarily to revisions of original estimates that resulted in additions to goodwill.

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Intangible assets at December 31, 2006 and 2005 consist of the following (in thousands):

	Amortization Lives	2006			2005
		(Successor)			(Predecessor)
Intangible assets subject to amortization:
Referral network	20 years	$	45,400		$	—
Accreditations	20 years		24,400			—
Curriculum	20 years		9,000			—
Government, including Medicaid, contracts	15 years		35,600			4,090
Managed care contracts	10 years		14,400			—
Core developed technology	5 years		2,704			2,500
Covenants not to compete	3 years		152			200
Registration rights	2 years		200			200
Student contracts	1 year		2,241			—
Less: accumulated amortization			(4,929	)		(688	)
Total intangible assets subject to amortization			129,168			6,302
Intangible assets not subject to amortization:
Trademarks and trade names			183,725			23,400
Certificates of need			44,600			18,006
Licenses			43,221			12,300
Total intangible assets not subject to amortization			271,546			53,706
Total intangible assets		$	400,714		$	60,008

Amortization expense of intangible assets subject to amortization was $4.9 million, $0.02 million, $0.3 million and $ 0.2 million for the eleven months ended December 31, 2006, one month ended January 31, 2006 and the years ended December 31, 2005 and 2004, respectively.

Estimated future amortization expense related to the amortizable intangible assets at December 31, 2006 is as follows (in thousands):

Fiscal Year
2007	$	10,421
2008		8,318
2009		8,293
2010		8,293
2011		7,798
Thereafter		86,045
Total	$	129,168

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8. INCOME TAXES

The provision for income taxes for the eleven months ended December 31, 2006, one month ended January 31, 2006 and years ended December 31, 2005 and 2004 consists of the following (in thousands):

	Eleven Months Ended December 31, 2006			One Month Ended January 31, 2006			Year Ended December 31, 2005		Year Ended December 31 2004
	(Successor)			(Predecessor)			(Predecessor)		(Predecessor)
Current:
Federal	$	(9,178	)	$	—		$	6,930	$	6,176
State and local		298			—			2,051		2,551
Total current		(8,880	)		—			8,981		8,727
Deferred:
Federal		10,988		$	(10,685	)		1,915		1,416
State and local		903			(1,759	)		20		(147	)
Total deferred		11,891			(12,444	)		1,935		1,269
Income tax expense (benefit)	$	3,011		$	(12,444	)	$	10,916	$	9,996

The following table summarizes the differences between the federal statutory tax rate and the Company’s effective tax rate for financial statement purposes:

	Eleven Months Ended December 31, 2006		One Month Ended January 31, 2006		Year Ended December 31, 2005		Year Ended December 31 2004
	(Successor)		(Predecessor)		(Predecessor)		(Predecessor)
Statutory federal rate	35.0	%	35.0	%	35.0	%	35.0	%
State taxes—net of federal tax benefit	18.5		2.4		4.7		7.3
Release of valuation allowance	0.0		0.0		(0.8	)	(0.6	)
Acquisition costs	9.7		(14.1	)	0.0		0.0
Non deductible expenses	0.1		0.0		0.0		0.4
Prior year provision true-ups	0.0		0.0		(0.3	)	0.3
Research and development credits	0.0		0.0		0.0		1.1
Meals and entertainment	2.3		0.0		0.0		0.0
Release of tax reserve	(22.5	)	0.0		0.0		0.0
Other	3.3		0.9		(0.8	)	(0.4	)
Effective tax rate	46.4	%	24.2	%	37.8	%	43.1	%

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Deferred tax assets and liabilities at December 31, 2006 and 2005 consist of the following (in thousands):

	2006			2005
	(Successor)			(Predecessor)
Deferred tax assets:
Reserves and allowances	$	7,012		$	3,946
Net operating loss carryforwards		5,425			4,690
Research credits		593			593
Acquisition costs		510			—
Equity based compensation		1,588			—
Charitable contributions		10			—
State taxes		33			318
Gross deferred tax assets		15,171			9,547
Valuation allowance		(2,028	)		(2,075	)
Total deferred tax assets		13,143			7,472
Deferred tax liabilities:
Cash vs. accrual adjustment		(35	)		—
Acquired intangible assets		(147,100	)		(9,856	)
Depreciation and amortization		(8,672	)		(3,512	)
Interest rate swap		(111	)		283
Total deferred tax liabilities		(155,918	)		(13,085	)
Total net deferred tax liabilities	$	(142,775	)	$	(5,613	)

At December 31, 2006, the Company had $9.8 million and $42.8 million of federal and state net operating loss carryforwards, respectively, available to offset future taxable income, which expire in varying amounts beginning in 2022 and 2010. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three-year period. In the event that the Company has a change of ownership in the future, the net operating loss carryforwards may be subject to such limitations.

At December 31, 2006, the Company had $0.3 million and $0.4 million of federal and state research and development credit carryforwards, respectively. Federal credits will expire in varying amounts beginning in 2022. The state credits carryforward indefinitely.

The Company has established a valuation allowance against certain deferred tax assets due to uncertainty surrounding the realization of such assets. Management evaluates on a periodic basis the recoverability of these deferred tax assets. At such time as it is determined that it is more likely than not that these deferred tax assets are realizable, the valuation allowance will be reduced. At December 31, 2006, the valuation allowance is attributable to certain net operating losses of a subsidiary, which are subject to limitation under Internal Revenue Code Section 382. The Company’s deferred tax liabilities do not form a basis for realization of the deferred tax assets associated with these net operating losses.

The income tax expense for the eleven months ended December 31, 2006, one month ended January 31, 2006 and years ended December 31,2005 and 2004 was $3.0 million, $(12.4) million, $10.9 million and $9.9 million, respectively, reflecting an effective tax rate of 46.4%, 24.2%, 37.8% and 43.1%, respectively. The effective tax rate for the eleven months ended December 31, 2006 was impacted by an additional tax expenses in the amount of $0.6 million for non-deductible acquisition expenses and $0.4 million resulting from the true-up of estimated to actual state tax rate, respectively. These expenses were offset in part by a benefit of $1.5 million resulting from the release of a tax reserve. The tax benefit for the one month ended January 31, 2006 was primarily the result of $31.9 million of one time acquisition-related expenses that are

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deductible for tax purposes. There were no material one-time items affecting the effective tax rate for the years ended December 31, 2005 and 2004.

9. LONG-TERM DEBT

Long-term debt at December 31, 2006 and 2005 consists of the following (in thousands):

	2006			2005
	(Successor)			(Predecessor)
Term loans:
2006 borrowing arrangements	$	418,227		$	—
2005 borrowing arrangements		—			203,975
Total term loans		418,227			203,975
Revolving line of credit:		3,600			9,500
Senior subordinated notes:
2006 notes, net of discount of $2,705		197,295			—
2003 Sub agreement, net of discount of $3,544		—			46,456
Total senior subordinated notes		197,295			46,456
Seller notes		7,145			—
Capital lease obligations		261			—
Total long-term debt		626,528			259,931
Less current portion		(10,743	)		(11,550	)
Long-term debt—less current portion	$	615,785		$	248,381

2006 Borrowing Arrangements—

Term Loans and Revolving Line of Credit—Concurrent with the Bain Merger, the Company entered into a Credit Agreement (the “Credit Agreement”) on February 6, 2006 with a syndicate of institutional lenders and financial institutions. The Credit Agreement provided for financing of $245.0 million in senior secured term loans and $100.0 million of revolving credit. As of November 16, 2006, the Company and repaid $1.2 million of the aggregate principal of the $245.0 million senior secured term loans. On November 17, 2006, concurrent with the Aspen Acquisition, the Company amended and restated the Credit Agreement (the “Amended and Restated Credit Agreement”) entered into during the Bain Merger. The Amended and Restated Credit Agreement provides for financing of $419.3 million in senior secured term loans and $100.0 million of revolving credit. The Company borrowed $175.5 million in senior secured term loans upon execution of the amendment.

Term Loan—Aggregate commitment of $419.3 million matures on February 6, 2013. The term loan is payable in quarterly principal installments of $1.05 million per quarter through December 31, 2012, and the remainder on February 6, 2013. Interest is payable quarterly at 90 day LIBOR plus 2.50% (7.86% at December 31, 2006). The principal balance outstanding at December 31, 2006 was $418.2 million.

Revolving Line of Credit (“Revolver”)—Maximum borrowings not to exceed $100.0 million. At the Company’s option, interest is currently available at the London InterBank Offered Rate (“LIBOR”) plus 2.50% or monthly at the Base Rate (defined as the higher of (a) the prime rate or (b) the overnight federal funds rate plus 50 basis points) plus 1.50%. Principal is payable at the Company’s discretion based on available operating cash balances. The revolving line of credit commitment expires on February 6, 2012. At December 31, 2006, the outstanding balance under the revolving line of credit was $3.6 million. From time to time the Revolver may include one or more swing line

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loans at the Base Rate or one or more letters of credit (“LCs”). At December 31, 2006, there was no outstanding balance on the swing line loans. LCs outstanding at December 31, 2006 and 2005 were $3.9 million and $3.2 million, respectively, with interest payable quarterly at 2.50%. The LCs secure various liability and workers’ compensation policies in place for the Company and its subsidiaries

Senior Subordinated Notes—Concurrent with the Bain Merger, the Company issued $200.0 million aggregate principal amount of 10 3/4% Senior Subordinated Notes (the “Notes”) due February 1, 2016 (see Note 3). Interest is payable semiannually beginning August 1, 2006. The Notes were issued at a price of 98.511%, resulting in $3.0 million of original issue discount. The Company may redeem some or all of the Notes on or prior to February 1, 2011 at a redemption price equal to 100% of the principal amount of the Notes redeemed plus a “make-whole” premium or at the redemption prices set forth in the indenture governing the Notes. The Company may also redeem up to 35% of the aggregate principal amount of the Notes using the proceeds of one or more equity offerings completed before February 1, 2009. If there is a change of control as specified in the indenture, the Company must offer to repurchase the Notes. The Notes are subordinated to all of the Company’s existing and future senior indebtedness, rank equally with all of the Company’s existing and future senior subordinated indebtedness and rank senior to all of the Company’s existing and future subordinated indebtedness. The Notes are guaranteed on an unsecured senior subordinated basis by all of the Company’s subsidiaries.

Repayments of Loans and Notes—In connection with the 2006 borrowing arrangements for the Bain Merger, the full amount of the 2005 term loans and 2003 senior subordinated notes (issued in December 2003, at an interest rate of 14.0% per annum) were repaid. Unamortized capitalized debt issuance costs associated with the 2005 revolving line of credit, term loans and 2003 senior subordinated notes of $7.2 million and unamortized debt discount of $3.5 million associated with the 2003 subordinated notes were written-off and charged to income in the 2006 Predecessor consolidated statement of operations and is included in other financing costs.

2005 Borrowing Arrangements—

Term Loans and Revolving Line of Credit—On May 11, 2005, the Company entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with certain lenders to (a) finance a portion of the purchase price of all of the capital stock of Sierra Tucson, (b) finance additional acquisitions, (c) provide working capital financing and (d) provide funds for other general corporate purposes. As a result, all previously outstanding amounts under the Credit Agreement executed December 19, 2003, were repaid. The unamortized capitalized debt issuance costs associated with the term loans of $2.2 million were charged to income in 2005 and are included in other financing costs.

Pursuant to the Restated Credit Agreement, principal borrowings of up to $230.0 million were made available to the Company through the following credit facilities:

Term Loan—Aggregate commitment of $205.0 million matures on May 11, 2011. The term loan was payable in quarterly principal installments beginning on September 30, 2005 of $0.5 million per quarter through June 30, 2010, $48.7 million per quarter from September 30, 2010 through March 31, 2011, and the remainder on May 11, 2011. Interest is payable quarterly at 90 day LIBOR plus 2.75% (7.14% at December 31, 2005) or monthly at Base Rate (defined as the higher of a) the prime rate or b) the overnight federal funds rate plus 50 basis points) plus 1.75% (9.00% at December 31, 2005). The principal balance outstanding at December 31, 2005 was $204.0 million.

Revolving Line of Credit—Maximum borrowings were not to exceed $25.0 million. Interest was currently payable monthly at 30 day LIBOR plus 3.00% (7.38% at December 31, 2005) or monthly at Base Rate (defined as the higher of a) the prime rate or b) the overnight federal funds rate plus 50 basis points) plus 2.00%. Principal was payable monthly at the Company’s discretion based on available operating cash balances. The revolving credit commitment expires on May 11, 2011. At December 31, 2005, the outstanding balance under the revolving line of credit was $9.5 million.

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Under the Amended and Restated Credit Agreement and the indenture governing the Notes, the Company must comply with certain restrictive financial covenants that limit the amount of capital expenditures the Company may make on an annual basis and require the Company to maintain certain levels of liquidity, debt to income ratios and interest coverage ratios. Borrowings under the revolving line of credit and term loans are collateralized by all of the existing and acquired personal property and other assets of the Company and its subsidiaries. The Company was in compliance with all such covenants as of December 31, 2006.

Seller Notes—Represents notes payable for amounts owed by Aspen Education Group arising out of achievement of certain earn out obligations per the terms of the underlying purchase agreements and to fund prior acquisitions. Interest rates on these notes range from 6.75% to 10.25%. Principal and interest are payable quarterly through September 2011.

Capital Leases—Principal and interest are payable monthly at various dates through September 2011. Interest rates range from 5.00% to 10.75%.

Interest expense on total debt was $41.5 million in the eleven months ended December 31, 2006, $2.5 million in the one month ended January 31, 2006, $19.8 million in the year ended December 31, 2005 and $14.0 million in the year ended December 31, 2004.

At December 31, 2006, currently scheduled principal payments of total long-term debt, excluding discount on senior subordinated notes are as follows (in thousands):

	Long-Term Debt		Capital Lease Obligations			Total
2007	$	10,513	$	243		$	10,756
2008		7,621		18			7,639
2009		4,936		7			4,943
2010		4,370		6			4,376
2011		4,269		5			4,274
Thereafter		594,558		—			594,558
Less interest		—		(18	)		(18	)
Total	$	626,267	$	261		$	626,528

10. INTEREST RATE SWAP

On February 28, 2006, as provided for in the Credit Agreement and retained in the Amended and Restated Credit Agreement the Company entered into an interest rate swap agreement to provide for interest rate protection for an aggregate notional amount of $115.0 million of the principal amount of the outstanding funded indebtedness (consisting of amounts outstanding under the term loan, excluding the revolving credit facility, and the Notes). The effective date of the agreement is March 31, 2006 and has a maturity date of March 31, 2011. The interest rate swap agreement is accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). Under the interest rate swap, the Company receives an interest rate equal to the 3-month LIBOR rate. In exchange, the Company pays a fixed rate of 4.99% on the $115.0 million. The notional amount will decline over the period of the swap. This swap has not been designated as a hedge under SFAS 133. On a monthly basis, the Company revalues the interest rate swap and records the month-to-month change in the fair value of the swap in other income. The Company recognized fair value swap gain of approximately $0.1 million in the eleven months ended December 31, 2006 and is recorded in other current assets at December 31, 2006.

On June 1, 2005, as provided for in the Predecessor Company’s restated credit agreement, the Company entered into an interest rate swap agreement to provide for interest rate protection for an aggregate notional amount of $100.0 million of the principal amount of the outstanding term loan. This agreement had a maturity date of June 30, 2008. The interest rate swap agreement was accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Under the interest rate swap, the Company received an interest rate equal to the 3-month LIBOR rate. In exchange, the Company paid a fixed rate of 4.05% on the $100.0

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million. This swap was not designated as a hedge under SFAS 133. On a monthly basis, the Company revalued the interest rate swap and recorded the month-to-month change in the fair value of the swap in other income. The Company recognized fair value swap gains of $0.06 million and $1.6 million in the one month ended January 31, 2006 and the year ended December 31, 2005, respectively. The fair value of the interest rate swap in other current assets was $1.6 million as of December 31, 2005. In connection with the repayment of all outstanding amounts under the restated credit agreement (see Note 9), the interest rate swap was terminated.

On February 17, 2004, as provided for in the Company’s Credit Agreement, the Company entered into an interest rate swap agreement to provide for interest rate protection for an aggregate notional amount of $40.0 million of the principal amount of the outstanding term loans. This agreement had a maturity date of December 31, 2006. The interest rate swap agreement was accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Under the interest rate swap, the Company receives an interest rate equal to the 3-month LIBOR rate. In exchange, the Company paid a fixed rate of 2.75% on the $40.0 million. This interest rate swap was designated as a cash flow hedge under SFAS No. 133. On a quarterly basis, the Company revalued the interest rate swap and recorded the quarter-to-quarter change in other comprehensive income. On May 11, 2005, in connection with the repayment of all outstanding amounts under the Credit Agreement, the Company terminated the interest rate swap agreement and recorded a gain of $0.6 million in other income for the year ended December 31, 2005.

11. COMMITMENTS AND CONTINGENCIES

Operating Leases—The Company leases various office space, clinic offices, facilities and equipment under non cancellable operating leases throughout the United States with various expiration dates through November 2026. Rent expense was $8.5 million, $0.3 million, $5.9 million and $4.7 million for the eleven months ended December 31, 2006, one month ended January 31, 2006 and the years ended December 31, 2005 and 2004, respectively. The Company did not earn any sublease rental income for the eleven months ended December 31, 2006 and the one month ended January 31, 2006. Sublease rental income was $0.07 million and $0.1 million for the years ended December 31, 2005 and 2004, respectively. The terms of certain facility leases provide for annual scheduled increases in cost adjustments and rental payments on a graduated scale. Prior to 2005, the Company charged rent expense to the statements of operations on a cash basis instead of over the lease term on a straight-line basis. Management does not believe that the difference between the straight-line method and cash basis had a material impact on its 2004 results of operations. Related party leases arise as a result of the Company’s acquisitions (see Note 15). Such related party leases are due and payable on a monthly basis on similar terms and conditions as the Company’s other leasing arrangements. In addition, the Company is also responsible for certain expenses including property tax, insurance and maintenance costs associated with some of the clinic offices and facility leases.

Future minimum lease payments under all non cancellable operating leases at December 31, 2006 are as follows (in thousands):

	Third Party Operating Lease Payments		Related Party Operating Lease Payments		Total Operating Lease Payments
2007	$	12,929	$	2,304	$	15,233
2008		10,559		2,349		12,908
2009		8,651		2,040		10,691
2010		6,602		1,785		8,387
2011		4,386		1,489		5,875
Thereafter		24,769		11,971		36,740
Total minimum lease payments	$	67,896	$	21,938	$	89,834

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Indemnifications—The Company provides for indemnification of directors, officers and other persons in accordance with limited liability agreements, certificates of incorporation, bylaws, articles of association or similar organizational documents, as the case may be. The Company maintains directors’ and officers’ insurance which should enable the Company to recover a portion of any future amounts paid.

In addition to the above, from time to time the Company provides standard representations and warranties to counterparties in contracts in connection with business dispositions and acquisitions and also provide indemnities that protect the counterparties to these contracts in the event they suffer damages as a result of a breach of such representations and warranties or in certain other circumstances relating to such sales or acquisitions.

While the Company’s future obligations under certain agreements may contain limitations on liability for indemnification, other agreements do not contain such limitations and under such agreements it is not possible to predict the maximum potential amount of future payments due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, no payments have been made under any of these indemnities.

Consulting Agreements—The Company has entered into consulting agreements with certain professionals which require annual consulting fee payments which range from $0.1 million to $0.4 million per annum. The consulting agreements range from a period of one to seven years. In the event that such consulting agreements are terminated without cause, the Company is contractually obligated to pay the remaining balance due on the consulting agreements. In addition, a Director receives a salary of $10,000 per month in connection with consulting services provided to the Company.

The following is a schedule of the Company’s future minimum annual payments under such consulting agreements as of December 31, 2006:

2007	$	1,511
2008		990
2009		612
2010		378
2011		252
Thereafter		233
Total	$	3,976

Self Insurance Plans—Effective May 2004, the Company has established a self-insurance program for workers’ compensation benefits for the employees. Self-insurance reserves are based on past claims experience and projected losses for incurred claims and includes an estimate of costs for claims incurred but not reported at the balance sheet date. Insurance coverage, in excess of the per occurrence self-insurance retention, has been secured with insurers for specified amounts. The reserve for self-insured workers’ compensation claims totaled $0.7 million and $0.6 million at December 31, 2006 and 2005, respectively, and is included in accrued liabilities.

The Company is self insured for the cost of the Aspen Education Group employee group health insurance. Insurance coverage, in excess of the per occurrence self-insurance retention, has been secured with insurers for specified amounts. Self-insurance reserves are based on projected costs for incurred claims and include an estimate of costs of claims incurred but not reported at the balance sheet date. The Company obtains an independent actuarial valuation of the estimated costs of claims reported but not settled, and claims incurred but not reported and may adjust the reserves based on the results of the valuations. The reserve for self-insured health insurance claims totaled $0.7 million at December 31, 2006 and is included in accrued liabilities.

Litigation—The Company is involved in litigation and regulatory investigations arising in the course of business. After consultation with legal counsel, management estimates that these matters will be resolved without material adverse effect on the Company’s future financial position or results from operations and cash flows.

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12. MANDATORILY REDEEMABLE STOCK AND STOCKHOLDER’S EQUITY

Predecessor Company

On February 6, 2006 (February 1, for accounting purposes) the holders of mandatorily redeemable stock and common stock in the Predecessor Company liquidated their equity interest in connection with the Bain Merger (see Note 3). Concurrent with the Bain Merger and the related transactions, certain mandatorily redeemable stock holders received a payout of their liquidation preference of $99.4 million. Subsequent to the payout of the liquidation preference, all redeemable convertible preferred and redeemable common stock, was converted into Series A common stock of the Predecessor Company. The Series A common stock holders and the common stock option holders received a distribution in the amount of $338.9 million (includes $9.1 million of management equity roll over). Upon consummation of the Bain Merger all the outstanding mandatorily redeemable shares of 262,399,056 and Series A common shares of 8,725,397 of the Predecessor Company were eliminated.

Successor Company

Common Stock

The Company’s Amended and Restated Certificate of Incorporation authorizes the Company to issue 1,000 shares of $0.001 par value common stock, all of which are issued and outstanding as of December 31, 2006 and are held by the Parent.

Voting—Each share of common stock is entitled, on all matters submitted for a vote or the consent of the holders of shares of common stock, to one vote.

Capital Contributed by Parent

The Company received a capital contribution of $135.7 million from the Group to fund the Aspen Acquisition (see Note 3). The Group funded such capital contributions by a combination of $36.2 million resulting from the sale of its equity securities to certain of the Group’s equity holders and by the issuance of a PIK loan of $105.0 million issued at 1% original issue discount for net proceeds of $103.9 million. The Group incurred $4.5 million of financing costs in connection with the issuance of the PIK loan which was treated as a reduction in the capital contribution. The interest payable per annum for the PIK loan is 90 day LIBOR plus 7.0% for the first year, 90 day LIBOR plus 7.5% for the second year and 90 day LIBOR plus 8.0% for the years thereafter until the maturity date. Per the PIK loan agreement, the interest is accrued through an increase in the principal amount. The aggregate principal amount inclusive of the accrued interest matures on November 17, 2013. This senior unsecured PIK loan is not guaranteed by the Company or any of its subsidiaries.

13. STOCK-BASED COMPENSATION

Adoption of New Accounting Policy

On January 1, 2006, the Company adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards, including employee stock options, granted after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related interpretations, as permitted by SFAS 123, Accounting for Stock Based Compensation. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R) and the Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R). The Company adopted SFAS 123(R) using the prospective transition method, which requires the application of the accounting standard to awards granted, modified or settled after the date of adoption. Results for prior periods have not been restated and the pro forma disclosures of compensation cost under the original provisions of SFAS 123 will no longer be provided.

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The Company’s consolidated financial statements as of and for the eleven months ended December 31, 2006 reflects the effect of SFAS 123(R). Stock option-based compensation expense recognized under SFAS 123(R) for the eleven months ended December 31, 2006 was $3.5 million which related to employee stock options granted by the Group subsequent to the date of adoption plus an immaterial amount from an acquired restricted stock agreement. There was no stock option-based compensation expense recognized in the consolidated statements of operations for the eleven months ended December 31, 2006 and one month ended January 31, 2006 related to the options granted and outstanding prior to the date of adoption of SFAS 123(R). Stock option-based compensation expense of $17.7 million and tax benefit of $7.3 million was recognized in the 2006 Predecessor Company consolidated statement of operations and is included in the acquisition related costs. The expense is related to the settlement of all outstanding options at the date of the Bain Merger, except for 8.9 million options rolled over to the Successor Company at the Predecessor Company cost basis in accordance with EITF 88-16.

No stock option-based compensation expense was recognized in the consolidated financial statements for the year ended December 31, 2005, as all options granted under the prior stock plans had an exercise price equal to the market value of the underlying stock on the date of grant. The Predecessor Company recognized $0.1 million of stock option-based compensation related to options granted to consultants and third parties for the year ended December 31, 2004.

SFAS 123(R) requires management to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the consolidated statement of operations. The Company attributes the fair value of stock option-based compensation to expense on a straight-line, single option method. In addition, for the options that vest upon the achievement of performance conditions, the Company recognizes compensation expense based on the probability of achievement of such performance conditions ratably over the requisite service period starting from the service inception date. As stock option-based compensation expense recognized in the consolidated statement of operations for the eleven months ended December 31, 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated forfeiture rate at December 31, 2006 is 5% per year. The Company previously accounted for forfeitures as they occurred under the provisions of SFAS 123. During the eleven months ended December 31, 2006, the Group granted 512,846 units which are exercisable into 4,615,613 shares of Class A common stock of the Group and 512,846 shares of Class L common stock of the Group. As of December 31, 2006, $17.5 million of total unrecognized compensation is expected to be recognized over a weighted-average period of 2.1 years.

Prior to the adoption of SFAS 123(R), the Predecessor Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the consolidated statement of cash flows. SFAS 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options to be classified as financing cash flows. The total income tax benefit recognized in the consolidated statement of operations for stock option-based compensation expense for the eleven months ended December 31, 2006 was $1.6 million.

Stock Option Plans

2006 Executive Incentive Plan and 2006 Management Incentive Plan

On February 6, 2006, following the Bain Merger, Group adopted the 2006 Executive Incentive Plan and 2006 Management Incentive Plan, or (the “Executive Plan”) and (the “Management Plan”), respectively, and collectively, (the “Plans”). The Plans provide for the options to purchase Group stock by the Company’s key employees, directors, consultants and advisors. Options granted under the Plans may be either incentive or non-incentive stock options. Options granted under the Plans represent units. One unit consists of nine shares of class A and one share of class L common stock of the Group.

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Options under the Plans may be granted for periods of up to ten years at an exercise price generally not less than fair market value of the shares subject to the award, determined as of the award date. In the case that the incentive stock options are granted to a 10% shareholder, an exercise price shall not be less than 110% of the fair market value of the shares subject to the award at the grant date.

Options granted under the Executive Plan vest in three tranches as follows: tranche 1 options vest and become exercisable at the rate of 20% in one year from the date of grant and 10% on each six-month period thereafter or, if earlier, 100% on a change of control, as defined in the Executive Plan; tranche 2 options vest and become exercisable upon achievement of certain performance conditions and a market condition, as defined in the Executive Plan; tranche 3 options vest and become exercisable over a five-year period upon achievement of performance conditions, as defined in the Executive Plan. Tranche 1 options represent 50% of an option grant under the Executive Plan and tranches 2 and 3 options each represent 25% of the option grant under the Executive Plan.

Options granted under the Management Plan vest and become exercisable over five years as follows: 20% in one year from the date of grant and 10% on each six-month period thereafter or, if earlier, 100% on a change of control, as defined in the Management Plan.

A maximum of 5,374,051 shares of Class A common stock of the Group and 597,117 shares of Class L common stock of the Group may be granted under the Plans.

Additional fully vested options under the Executive Plan of 1,184,809 shares of Class A common stock of the Group and 131,647 shares of Class L common stock of the Group were issued in connection with rolled over options at the time of the Bain Merger and Aspen Acquisition, as discussed above.

Current period stock option-based compensation recognized is based on the amortization of the fair value of stock options as determined on their date of grant using a Black-Scholes option valuation model for Management Plan grants and tranches 1 and 3 of Executive Plan grants. The Company used the Monte Carlo simulation approach to a binominal model to determine fair value of tranche 2 of the Executive Plan grants. The estimate of fair value of the granted awards is based upon certain assumptions, including probability of achievement of market conditions in the Executive Plan awards, stock price volatility, risk-free interest rate, dividend yield, expected term in years and forfeiture rate. The weighted-average estimated fair value of units granted during the eleven months ended December 31, 2006 was $53.5 per unit using the above described models with the following assumptions:

• Expected volatility of 56.5% was utilized for the units granted during the year ended December 31, 2006 and was based on the historical volatility of comparable public companies for periods corresponding to expected term of the Plans.

• The Company utilized the risk-free rate of 4.76% in the models for the units granted during the year ended December 31, 2006. The risk-free rate is based on a yield of a constant maturity U.S, Treasury security with a term equal to the expected term of the options.

• No dividend would be paid over the option term.

• For the Management Plan and tranches 1 and 3 of the Executive Plan, the Company as of December 31, 2006 used an expected vesting term of five years; and for tranche 2 of the Executive Plan, the Company used an expected vesting term of 5.85 years, which is the derived service period based on Monte Carlo simulation for the units granted during the year ended December 31, 2006.

• Forfeiture rate is 5% each year over the effective vesting period.

SFAS 123(R) did not change the accounting guidance for share-based payment transactions with parties other than employees and, accordingly, the Company continues to account for stock options issued to non-employees in accordance with the provisions of SFAS 123 as originally issued and EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with, Selling Goods or Services.

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Activity under the Executive and Management Plans is set forth below:

	Options		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (In Years)
Predecessor
Outstanding—January 1, 2006	26,340,194		$	0.11	7.93
Exercised (January 1—January 31, 2006)	(72,968	)		0.11	7.93
Outstanding at January 31, 2006	26,267,226			0.11	7.92
Cancellation of the options per Bain Merger	(17,358,062	)		0.11
Options rollover to new vested options per Bain Merger	(8,909,164	)		0.11
Options outstanding under the pre Bain Merger Plan	—			—
Successor
Rollover options converted into vested options under the new Plans	1,316,454			0.87	4.81
Granted per the new Plans	5,128,459			9.02	4.81
Exercised (February 1—December 31, 2006)	—			—	—
Forfeited/cancelled/expired	(134,355	)		9.00	—
Outstanding—December 31, 2006	6,310,558		$	9.02	4.81
Exercisable—December 31, 2006	1,316,454		$	0.87	4.81

14. EMPLOYEE BENEFITS

Defined Contribution Plans

The Company has two qualified 401(k) plans (the “401 K Plans”). The 401 K Plans are defined contribution plans, available to all eligible employees and allows participants to contribute up to the legal maximum of their eligible compensation, not to exceed the maximum tax-deferred amount allowed by the Internal Revenue Service. The 401 K Plans also allows the Company to make discretionary matching contributions. The Company’s defined contribution plans expense was $0.4 million and $0.02 million for the eleven months ended December 31, 2006 and one month ended January 31, 2006, respectively. The Company made no contributions to the 401 K Plans for the years ended December 31, 2005 and 2004.

Deferred Compensation Plan

The Company has a non-qualified Insured Security Option Plan (the “ISOP”) for certain key Aspen Education Group employees. The ISOP permits these employees to defer on an after-tax basis a portion of their salary/or bonus each calendar year. The Company may also make discretionary contributions to these employee accounts, up to a maximum of $6,000 per employee. Any discretionary contributions become fully vested three years after the contribution. Contributions to the ISOP were immaterial for the six week period ended December 31, 2006.

15. RELATED PARTY TRANSACTIONS

In connection with the Bain Merger, Bain Capital and the Company’s management entered into a stockholders agreement. The stockholders agreement contains agreements among the parties with respect to the election of the Company’s directors and the directors of the Company’s direct and indirect parent companies, restrictions on the issuance or transfer of shares, including tag-along rights and drag-along

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rights, other special corporate governance provisions (including the right to approve various corporate actions), registration rights (including customary indemnification provisions) and call options. Three of the Company’s directors hold the position of managing director or principal with Bain Capital Partners, LLC.

Upon the consummation of the Bain Merger, the Company entered into a management agreement with an affiliate of Bain Capital Partners, LLC pursuant to which such entity or its affiliates will provide management services. Pursuant to such agreement, an affiliate of Bain Capital Partners, LLC will receive an aggregate annual management fee of $2.0 million and reimbursement for out-of-pocket expenses incurred in connection with the Bain Merger prior to the closing of the Bain Merger and in connection with the provision of services pursuant to the agreement. In addition, pursuant to such agreement, an affiliate of Bain Capital Partners, LLC also received aggregate transaction fees of approximately $7.2 million in connection with services provided by such entity related to the Bain Merger. Of the $7.2 million, approximately $2.9 million were for acquisition related expenses and $4.3 million were for financing related expenses which are capitalized and recorded in other assets. The management agreement has a five year, evergreen term, however, in certain circumstances, such as an initial public offering or change of control of the Group, the Company may terminate the management agreement and buy out its remaining obligations under the agreement to Bain Capital Partners, LLC and affiliates. In addition, the management agreement provides that an affiliate of Bain Capital Partners, LLC may receive fees in connection with certain subsequent financing and acquisition transactions. The management agreement includes customary indemnification provisions in favor of Bain Capital Partners, LLC and its affiliates. The Company under this agreement paid management fees of $1.8 million during the eleven months ended December 31, 2006, which is included in supplies, facilities and other operating costs. In connection with the Aspen Acquisition and the associated financing transactions, the Company paid an affiliate of Bain Capital an aggregate transaction fee of $3.2 million. Of the $3.2 million, approximately $1.8 million is related to the Company entering into the Amended and Restated Credit Agreement (see Note 9), which is capitalized and is recorded in other assets in the Company’s consolidated balance sheet and $0.3 million is included in the Aspen Acquisition related expenses (see Note 3) and is recorded as a component of goodwill. In addition, $1.1 million is related to the Group’s PIK loan financing costs (see Note 12), which is treated as a reduction in the capital contribution.

In addition, under a separate management agreement with two of the former stockholders of the Predecessor Company, the Predecessor Company paid management fees of $0.1 million and $1.2 million during the one month ended January 31, 2006 and year ended December 31, 2005, respectively, which is included in supplies, facilities and other operating costs. This agreement was terminated as part of the Bain Merger.

In connection with the closing of the Bain Merger on February 6, 2006, and pursuant to a rollover and subscription agreement, certain members of the Company’s management converted options with an aggregate value of $9.1 million to purchase stock of the Predecessor Company into options to purchase stock of the Group.

The Company in connection with his service has granted to a Director options to purchase 13,435 shares of Class A common stock and 1,492 shares of Class L common stock of the Group, with an exercise price of $1 per share and $9 per share, respectively. In addition, the Director receives a salary of $10,000 per month for consulting services.

The Company has acquired operating leases with certain employees resulting primarily from Aspen Education Group’s historic acquisitions. Such related party leases are due and payable on a monthly basis on similar terms and conditions as the Company’s other leasing arrangements (see Note 11).

In connection with the closing of the Aspen Acquisition on November 17, 2006 and pursuant to a rollover and subscription agreement, certain employees of Aspen Education Group, Inc. converted options to purchase stock of Aspen Education Group, Inc. into options to purchase stock of the Group with an aggregate value of approximately $1.8 million. Included in the $1.8 million, approximately $0.6 million relates to the options converted by one of the Company’s directors.

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16. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

As of December 31, 2006, the Company had outstanding $200.0 million aggregate principal amount of Notes due 2016. The Notes are fully and unconditionally guaranteed, jointly and severally on an unsecured senior subordinated basis, by all of the Company’s subsidiaries.

The following supplemental tables present consolidating balance sheets for the Company and its subsidiary guarantors as of December 31, 2006 and 2005, and the consolidating statements of operations for the eleven months ended December 31, 2006 (Successor Company), one month ended January 31, 2006 (Predecessor Company) and for the years ended December 31, 2005 and 2004 (Predecessor Company), and the consolidating statement of cash flows for the eleven months ended December 31, 2006 (Successor Company), one month ended January 31, 2006 (Predecessor Company) and for the years ended December 31, 2005 and 2004 (Predecessor Company).

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Consolidating Balance Sheet as of December 31, 2006 (Successor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors		Subsidiary Non-Guarantors			Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—		$	4,167	$	39		$	—		$	4,206
Accounts receivable—net of allowance		4			33,309		492						33,805
Prepaid expenses		3,977			3,676		22						7,675
Other current assets		152			2,096		13						2,261
Income taxes receivable		6,110			386								6,496
Deferred income taxes		5,873			1,179								7,052
Total current assets		16,116			44,813		566			—			61,495
PROPERTY AND EQUIPMENT—Net		4,258			89,835		883						94,976
GOODWILL					702,425								702,425
INTANGIBLE ASSETS—Net		43			400,671								400,714
OTHER ASSETS		26,953			2,205		20						29,178
INVESTMENT IN SUBSIDIARIES—At cost		577,739								(577,739	)
TOTAL ASSETS	$	625,109		$	1,239,949	$	1,469		$	(577,739	)	$	1,288,788
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,990		$	2,662	$	62		$	—		$	6,714
Accrued liabilities		13,473			20,544		810						34,827
Current portion of long-term debt		7,793			2,950								10,743
Other current liabilities		332			27,215		394						27,941
Total current liabilities		25,588			53,371		1,266			—			80,225
LONG-TERM DEBT—Less current portion		611,329			4,456								615,785
OTHER LONG-TERM LIABILITIES		90			5,436								5,526
DEFERRED INCOME TAXES		109,992			39,835								149,827
Total liabilities		746,999			103,098		1,266			—			851,363
MINORITY INTEREST					66		185						251
STOCKHOLDER’S EQUITY:
Common stock
Additional paid-in capital(1)		(118,916	)		1,130,185		122			(577,739	)		433,652
(Accumulated deficit) retained earnings		(2,974	)		6,600		(104	)					3,522
Total stockholder’s equity		(121,890	)		1,136,785		18			(577,739	)		437,174
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	625,109		$	1,239,949	$	1,469		$	(577,739	)	$	1,288,788

(1) Includes intercompany balances

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Consolidating Balance Sheet as of December 31, 2005 (Predecessor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors		Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,946		$	131	$	—		$	5,077
Accounts receivable—net of allowance		3			23,415					23,418
Prepaid expenses		4,001			509					4,510
Other current assets		2,743			89					2,832
Deferred income taxes		4,264								4,264
Total current assets		15,957			24,144					40,101
PROPERTY AND EQUIPMENT—Net		2,819			46,255					49,074
GOODWILL					265,977					265,977
INTANGIBLE ASSETS—Net					60,008					60,008
OTHER ASSETS		8,889			105					8,994
INVESTMENT IN SUBSIDIARIES—At cost		219,531					(219,531	)
TOTAL ASSETS	$	247,196		$	396,489	$	(219,531	)	$	424,154
LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	5,348		$	—	$	—		$	5,348
Accrued liabilities		8,776			5,624					14,400
Income taxes payable		3,384								3,384
Current portion of long-term debt		11,550								11,550
Other current liabilities		1			3,134					3,135
Total current liabilities		29,059			8,758					37,817
LONG-TERM DEBT—Less current portion		248,381								248,381
OTHER LONG-TERM LIABILITIES		100			369					469
DEFERRED INCOME TAXES		9,877								9,877
Total liabilities		287,417			9,127		—			296,544
MANDATORILY REDEEMABLE STOCK		115,625								115,625
STOCKHOLDER’S EQUITY:
Series A common stock
Additional paid-in capital(1)		(116,305	)		336,051		(219,531	)		215
(Accumulated deficit) retained earnings		(39,541	)		51,311					11,770
Total stockholder’s equity		(155,846	)		387,362		(219,531	)		11,985
TOTAL LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDER’S EQUITY	$	247,196		$	396,489	$	(219,531	)	$	424,154

(1) Includes intercompany balances

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Consolidating Statements of Operations

For the Eleven Months Ended December 31, 2006 (Successor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
NET REVENUE:
Net client service revenue	$	33		$	245,779		$	1,068		$	—		$	246,880
Other revenue		11			4,429			8						4,448
Management fee revenue		52,786									(52,786	)
Net revenue		52,830			250,208			1,076			(52,786	)		251,328
OPERATING EXPENSES:
Salaries and benefits		10,842			107,666			446						118,954
Supplies, facilities and other operating costs		6,114			62,468			749						69,331
Provision for doubtful accounts		1			5,098			7						5,106
Depreciation and amortization		784			9,392			17						10,193
Management fee expense					52,786						(52,786	)
Total operating expenses		17,741			237,410			1,219			(52,786	)		203,584
INCOME FROM OPERATIONS		35,089			12,798			(143	)					47,744
INTEREST EXPENSE, NET		(41,295	)		(44	)		1						(41,338	)
OTHER INCOME		89												89
(LOSS) INCOME FROM OPERATIONS BEFORE INCOME TAXES		(6,117	)		12,754			(142	)					6,495
INCOME TAX (BENEFIT) EXPENSE		(3,143	)		6,154									3,011
MINORITY INTEREST IN LOSS OF A SUBSIDIARY								(38	)					(38	)
NET (LOSS) INCOME	$	(2,974	)	$	6,600		$	(104	)	$	—		$	3,522

79

Consolidating Statements of Operations

For the One Month Ended January 31, 2006 (Predecessor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors		Eliminations			Consolidated
NET REVENUE:
Net client service revenue	$	5		$	19,355	$	—		$	19,360
Other revenue		1			489					490
Management fee revenue		1,110					(1,110	)
Net revenue		1,116			19,844		(1,110	)		19,850
OPERATING EXPENSES:
Salaries and benefits		666			8,599					9,265
Supplies, facilities and other operating costs		324			4,237					4,561
Provision for doubtful accounts					285					285
Depreciation and amortization		40			321					361
Acquisition related costs		43,710								43,710
Management fee expense					1,110		(1,110	)
Total operating expenses		44,740			14,552		(1,110	)		58,182
(LOSS) INCOME FROM OPERATIONS		(43,624	)		5,292					(38,332	)
INTEREST EXPENSE, NET		(2,505	)							(2,505	)
OTHER FINANCING COSTS		(10,655	)							(10,655	)
OTHER INCOME		55								55
(LOSS) INCOME FROM OPERATIONS BEFORE INCOME TAXES		(56,729	)		5,292					(51,437	)
INCOME TAX (BENEFIT) EXPENSE		(13,723	)		1,279					(12,444	)
NET (LOSS) INCOME	$	(43,006	)	$	4,013	$	—		$	(38,993	)

80

Consolidating Statements of Operations

For the Year Ended December 31, 2005 (Predecessor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors			Eliminations			Consolidated
NET REVENUE:
Net client service revenue	$	304		$	205,529		$	—		$	205,833
Other revenue		13			3,176						3,189
Management fee revenue		28,346						(28,346	)
Net revenue		28,663			208,705			(28,346	)		209,022
OPERATING EXPENSES:
Salaries and benefits		6,920			89,321						96,241
Supplies, facilities and other operating costs		5,829			49,811						55,640
Provision for doubtful accounts					3,041						3,041
Depreciation and amortization		554			3,296						3,850
Acquisition related costs		1,636									1,636
Management fee expense					28,346			(28,346	)
Total operating expenses		14,939			173,815			(28,346	)		160,408
INCOME FROM OPERATIONS		13,724			34,890						48,614
INTEREST EXPENSE, NET		(19,744	)								(19,744	)
OTHER FINANCING COSTS		(2,185	)								(2,185	)
OTHER INCOME (EXPENSE)		2,247			(15	)					2,232
(LOSS) INCOME FROM OPERATIONS BEFORE INCOME TAXES		(5,958	)		34,875						28,917
INCOME TAX (BENEFIT) EXPENSE		(2,249	)		13,165						10,916
NET (LOSS) INCOME	$	(3,709	)	$	21,710		$	—		$	18,001

81

Consolidating Statements of Operations

For the Year Ended December 31, 2004 (Predecessor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors		Eliminations			Consolidated
NET REVENUE:
Net client service revenue	$	127		$	163,578	$	—		$	163,705
Other revenue					1,898					1,898
Management fee revenue		21,017					(21,017	)
Net revenue		21,144			165,476		(21,017	)		165,603
OPERATING EXPENSES:
Salaries and benefits		5,590			72,308					77,898
Supplies, facilities and other operating costs		4,930			39,066					43,996
Provision for doubtful accounts					2,834					2,834
Depreciation and amortization		547			3,152					3,699
Management fee expense					21,017		(21,017	)
Total operating expenses		11,067			138,377		(21,017	)		128,427
INCOME FROM OPERATIONS		10,077			27,099					37,176
INTEREST EXPENSE, NET		(13,970	)		4					(13,966	)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(3,893	)		27,103					23,210
INCOME TAX (BENEFIT) EXPENSE		(1,677	)		11,673					9,996
(LOSS) INCOME FROM CONTINUING OPERATIONS		(2,216	)		15,430					13,214
DISCONTINUED OPERATIONS:
Loss from discontinued operations, including loss on disposal of $2,241 in 2004		(2,015	)							(2,015	)
Income tax benefit		(257	)							(257	)
Net loss from discontinued operations		(1,758	)							(1,758	)
NET (LOSS) INCOME	$	(3,974	)	$	15,430	$	—		$	11,456

82

Consolidating Statements of Cash Flows

For the Eleven Months Ended December 31, 2006 (Successor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(51,231	)	$	47,343		$	(598	)	$	—	$	(4,486	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment—net		(1,707	)		(11,052	)		(27	)				(12,786	)
Proceeds from sale of property and equipment					41								41
Acquisition of businesses, net of cash acquired		(316,111	)		11,250								(304,861	)
Prior period acquisition adjustments		(14	)										(14	)
Payment of purchase price to former shareholders		(429,191	)										(429,191	)
Net cash used in investing activities		(747,023	)		239			(27	)		—		(746,811	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		42,575			(43,205	)		630
Equity contribution from Bain Capital		294,475											294,475
Capital contributed by parent		135,711											135,711
Payment of transaction related costs		(5,354	)										(5,354	)
Debt financing costs		(29,527	)										(29,527	)
Repayments of capital lease obligations					(43	)							(43	)
Net repayments under revolving line of credit		(900	)										(900	)
Proceeds from issuances of long-term debt		617,522											617,522
Repayments of long-term debt		(256,248	)		(556	)							(256,804	)
Net cash provided by (used in) financing activities		798,254			(43,804	)		630			—		755,080
INCREASE IN CASH AND CASH EQUIVALENTS					3,778			5					3,783
CASH AND CASH EQUIVALENTS—Beginning of period					389			34					423
CASH AND CASH EQUIVALENTS—End of period	$	—		$	4,167		$	39		$	—	$	4,206

83

Consolidating Statements of Cash Flows

For the One Month Ended January 31, 2006 (Predecessor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(3,563	)	$	4,764		$	—	$	1,201
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment—net		(30	)		(285	)				(315	)
Net cash used in investing activities		(30	)		(285	)		—		(315	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		4,187			(4,187	)
Stock options exercised		7								7
Debt financing costs		(547	)							(547	)
Net repayments under revolving line of credit		(5,000	)							(5,000	)
Net cash used in financing activities		(1,353	)		(4,187	)		—		(5,540	)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(4,946	)		292					(4,654	)
CASH AND CASH EQUIVALENTS—Beginning of period		4,946			131					5,077
CASH AND CASH EQUIVALENTS—End of period	$	—		$	423		$	—	$	423

84

Consolidating Statements of Cash Flows

For the Year Ended December 31, 2005 (Predecessor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities	$	1,431		$	22,471		$	—	$	23,902
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment—net		(1,101	)		(9,607	)				(10,708	)
Acquisition of businesses, net of cash acquired					(148,520	)				(148,520	)
Net cash used in investing activities		(1,101	)		(158,127	)				(159,228	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		(135,002	)		135,002
Stock options exercised		86								86
Debt financing costs		(6,267	)							(6,267	)
Repayments of capital lease obligations					(78	)				(78	)
Repayments of promissory notes		(2,007	)							(2,007	)
Net borrowings under revolving line of credit		9,500								9,500
Proceeds from issuance of long-term debt		205,000								205,000
Repayments of long-term debt		(76,394	)							(76,394	)
Net cash (used in) provided by financing activities		(5,084	)		134,924			—		129,840
DECREASE IN CASH AND CASH EQUIVALENTS		(4,754	)		(732	)				(5,486	)
CASH AND CASH EQUIVALENTS—Beginning of period		9,700			863					10,563
CASH AND CASH EQUIVALENTS—End of period	$	4,946		$	131		$	—	$	5,077

85

Consolidating Statements of Cash Flows

For the Year Ended December 31, 2004 (Predecessor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities	$	4,604		$	20,980		$	—	$	25,584
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment—net		(1,029	)		(6,300	)				(7,329	)
Acquisition of businesses, net of cash acquired					(16,890	)				(16,890	)
Proceeds from sale of discontinued operations		1,478								1,478
Net cash provided by (used in) investing activities		449			(23,190	)				(22,741	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		(2,130	)		2,130
Proceeds from issuance of Series C convertible preferred stock—net		5,559								5,559
Stock options exercised		12								12
Repayments of capital lease obligations					(84	)				(84	)
Repayment of long-term debt		(4,630	)							(4,630	)
Repayment of promissory notes		(258	)							(258	)
Net cash (used in) provided by financing activities		(1,447	)		2,046			—		599
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,606			(164	)				3,442
CASH AND CASH EQUIVALENTS—Beginning of period		6,094			1,027					7,121
CASH AND CASH EQUIVALENTS—End of period	$	9,700		$	863		$	—	$	10,563

86

17. SEGMENT INFORMATION

In accordance with the criteria of SFAS No. 131 the Company has determined that it operates three reportable segments: (1) residential treatment division (“Residential”) (2) outpatient treatment division (“Outpatient”) and (3) youth treatment division (“Youth”). The Company has aggregated operations into three reportable segments based on the characteristics of the services provided. The reportable segments of Residential and Outpatient have not changed as a result of the consummation of the Bain Merger. A new reportable segment Youth has been formed after the Aspen Acquisition.

Reportable segments are based upon the Company’s internal organizational structure, the manner in which the operations are managed, the criteria used by the Company’s chief operating decision-maker to evaluate segment performance and the availability of separate financial information. The Company’s chief operating decision-maker is its Chief Executive Officer.

The financial information used by the Company’s chief operating decision-maker includes net revenue, operating expenses, income (loss) from operations and capital expenditures.

Residential—The Residential segment specializes in the treatment of chemical dependency and other behavioral health disorders both on an inpatient, residential basis and on an outpatient basis. Services offered in this segment include: inpatient/residential care, partial/day treatment, intensive outpatient groups, therapeutic living/half-way house environments, aftercare centers and detoxification. As of December 31, 2006, the Residential segment provided substance abuse and behavioral health services to patients at 46 facilities located in 12 states.

Outpatient—The Outpatient segment provides strictly monitored medication, combined with psychosocial rehabilitation services on an outpatient basis to aid in the treatment of opiate and narcotic addictions. As of December 31, 2006, the Outpatient segment provided medication and counseling services to patients at 59 facilities located in 18 states.

Youth—The Youth segment provides a wide variety of therapeutic programs through settings and solutions that match individual needs with the appropriate learning and therapeutic environment. As of December 31, 2006, the Youth segment operates 32 educational facilities in 12 states and 1 in the United Kingdom and its offerings include boarding schools, experiential outdoor education programs, weight-loss residential high schools and summer weight-loss camps.

Corporate/Other—In addition to the three reportable segments as described above, the Company has activities classified as Corporate/Other which represent revenue and expenses associated with eGetgoing, an online internet startup and certain corporate-level operating general and administrative costs (i.e., expenses associated with the corporate offices in Cupertino, California, which provides management, financial, human resources and information system support) and stock option-based compensation expense that are not allocated to the segments.

Major Customers—No single customer represented 10% or more of the Company’s total net revenue in any period presented.

Geographic Information—The Company’s business operations are primarily in the United States.

87

Selected segment financial information for the Company’s reportable segments were as follows (in thousands):

	Successor			Predecessor
	Eleven Months Ended December 31, 2006			One Month Ended January 31, 2006			Year Ended December 31, 2005			Year Ended December 31, 2004
Net revenue:
Residential	$	151,200		$	12,693		$	124,858		$	86,551
Outpatient		84,404			7,125			83,847			78,925
Youth		15,200			—			—			—
Corporate/other		524			32			317			127
Total consolidated net revenue	$	251,328		$	19,850		$	209,022		$	165,603
Operating expenses:
Residential	$	112,273		$	9,112		$	92,494		$	67,405
Outpatient		56,905			4,447			53,011			49,955
Youth		16,136			—			—			—
Corporate/other		18,270			44,623			14,903			11,067
Total consolidated operating expenses	$	203,584		$	58,182		$	160,408		$	128,427
Income (loss) from operations:
Residential	$	38,927		$	3,581		$	32,364		$	19,146
Outpatient		27,499			2,678			30,836			28,970
Youth		(936	)		—			—			—
Corporate/other		(17,746	)		(44,591	)		(14,586	)		(10,940	)
Total consolidated income (loss) from operations	$	47,744		$	(38,332	)	$	48,614		$	37,176
Income (loss) from continuing operations before income taxes:
Total consolidated income (loss) from operations	$	47,744		$	(38,332	)	$	48,614		$	37,176
Interest expense, net		(41,338	)		(2,505	)		(19,744	)		(13,966	)
Other financing costs		—			(10,655	)		(2,185	)		—
Other income		89			55			2,232			—
Total consolidated income (loss) from continuing operations before income taxes	$	6,495		$	(51,437	)	$	28,917		$	23,210
Capital expenditures:
Residential	$	8,181		$	336		$	7,533		$	4,350
Outpatient		2,678			45			1,979			1,950
Youth		1,498			—			—			—
Corporate/other		1,832			30			1,968			1,029
Total consolidated capital expenditures	$	14,189		$	411		$	11,480		$	7,329

	December 31, 2006		December 31, 2005
	(Successor)		(Predecessor)
Total assets:
Residential	$	545,110	$	253,754
Outpatient		331,491		146,308
Youth		361,319		—
Corporate/other		50,868		24,092
Total consolidated assets	$	1,288,788	$	424,154

88

18. QUARTERLY SUMMARY (Unaudited)

	Quarter Ended
	March 31(1)			June 30		September 30		December 31(2)
	(In thousands)
2006
Net Revenue	$	58,452		$	62,132	$	65,500	$	85,094
(Loss) Income from Operations		(30,839	)		13,616		13,909		12,726
Net (Loss) Income		(37,968	)		1,727		439		331
2005
Net Revenue	$	44,478		$	50,721	$	55,878	$	57,945
Income from Operations		9,883			12,192		13,710		12,829
Net Income		3,687			3,451		6,010		4,853

(1) The quarter ended March 31, 2006 operating results is the mathematical addition of the operating results for January 2006 (“Predecessor Company”) to the operating results of the two months ended March 31, 2006 (“Successor Company”).

(2) The quarter ended December 31, 2006 operating results includes the operating results of Aspen from November 17, 2006, acquisition date.

89

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

ITEM 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Annual Report. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that material information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The company’s management, including the CEO and CFO, does not expect that our Disclosure Controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

ITEM 9B. Other Information

Not applicable

90

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

All of our directors serve until a successor is duly elected and qualified or until the earlier of his death,` resignation or removal. Our executive officers are appointed and serve at the discretion of our board of directors. There are no family relationships between any of our directors or executive officers.

Executive Officers and Directors

The following table sets forth information with respect to our directors and executive officers:

Name	Age	Position
Dr. Barry W. Karlin	52	Chairman, Chief Executive Officer and President
Kevin Hogge	49	Chief Financial Officer, Vice President and Treasurer
Philip L. Herschman	59	President, Outpatient Treatment Division
Jerome E. Rhodes	49	President, Residential Treatment Division
Elliot Sainer	61	Director and President, Youth Treatment Division
Kathleen Sylvia	61	Executive Vice President of Business Development
Dr. Thomas J. Brady	54	Chief Medical Officer
Pamela B. Burke	39	Vice President, General Counsel and Secretary
General Barry R. McCaffrey (ret.)	64	Director
Steven Barnes	46	Director
John Connaughton	41	Director
Chris Gordon	34	Director

The following biographies describe the business experience of our executive officers and directors:

Dr. Barry W. Karlin, Chairman, Chief Executive Officer and President. Dr. Karlin has served as our chairman, chief executive officer and president since January 2002. From January 2002 to June 2003, Dr. Karlin also served as our secretary, treasurer and chief financial officer. Before our formation in January 2002, Dr. Karlin was the chairman and chief executive officer of eGetgoing, Inc. and CRC Health Corporation from May 2000 and November 2000, respectively, to January 2002. Dr. Karlin also served as chairman and chief executive officer of CRC Recovery, Inc., the general partner of The Camp Recovery Centers, L.P. from July 1995 to January 2001. From 1993 to 1995, Dr. Karlin acted as an independent consultant providing strategic consulting services to Fortune 100 companies. From 1992 to 1993, Dr. Karlin served as chairman and chief executive officer of Karlin and Collins, Inc., an emerging growth high-technology company which he founded. In 1990, Dr. Karlin joined Corporate Technology Partners, a venture capital firm specializing in the wireless communications industry, where he served as a general partner until 1992. From 1984 to 1990, Dr. Karlin served as chairman and chief executive officer of Navigation Technologies, Inc., a provider of maps for vehicle navigation. Dr. Karlin began his career as a strategy management consultant in 1981, first with Strategic Decisions Group and subsequently with Decision Processes, Inc. Dr. Karlin holds Ph.D. and M.S. degrees from Stanford University in the department of engineering economic systems, specializing in decision analysis, and a B.S. in electrical engineering from University of Witwatersrand in South Africa.

Kevin Hogge, Chief Financial Officer, Vice President and Treasurer. Mr. Hogge has served as our chief financial officer since June 2003. From September 1999 to June 2003, Mr. Hogge was the chief financial officer for Epoch Senior Living, Inc., an assisted living and skilled nursing company. From April 1996 to January 1999, he served as controller of the hospital division of Horizon/CMS Healthcare Corporation, a provider of specialty healthcare services, maintaining his position following the acquisition of this division by Regency Health Services, Inc. and the subsequent acquisition of Regency Health Services, Inc. by Sun Healthcare Group, Inc. From October 1992 to April 1996, Mr. Hogge worked as vice president of planning for Tenet Healthcare Corporation, an owner and operator of acute care hospitals and related healthcare services. Prior to working in

91

healthcare, Mr. Hogge was a certified public accountant with Ernst & Whinney. Mr. Hogge holds a B.S. in accounting from Virginia Polytechnic Institute.

Philip L. Herschman, President, Outpatient Treatment Division. Mr. Herschman has served as the president of our outpatient treatment division since May 2002. From August 1993 to May 2002, Mr. Herschman served as chief executive officer of Behavioral Health Concepts, a national mental health management company which he founded in 1993. From 1984 to 1992, Mr. Herschman worked in operations and business development for Republic Health Corporation, a healthcare company, where he was responsible for implementing the company’s strategy of joint venturing its acute care hospitals with physician groups. During this time, Mr. Herschman was also responsible for the operations of three acute care hospitals with over 500 beds for OrNda Health Corp. Prior to OrNda/Republic, Mr. Herschman was a regional vice president of operations with Horizon Health Corporation, a multi-unit psychiatric management company. Mr. Herschman holds a Ph.D. in psychology from the University of California, Irvine and a B.A. from the University of California, San Diego.

Jerome E. Rhodes, President, Residential Treatment Division. Mr. Rhodes has served as the president of our residential treatment division since January 2004. From August 2003 to January 2004, he was president of our eastern division. From September 1993 to February 2003, Mr. Rhodes served as chief executive officer of Comprehensive Addiction Programs, Inc., a behavioral healthcare treatment company. We acquired Comprehensive Addiction Programs, Inc. in February 2003. From 1991 to 1993, Mr. Rhodes was the senior vice president of operations and from 1987 to 1991 he served as the senior vice president of acquisitions and development for Comprehensive Addiction Programs, Inc. From 1982 to 1987, Mr. Rhodes was the director of development for Beverly Enterprises, Inc., a publicly held nursing home company. From 1980 to 1982, Mr. Rhodes was the chief development consultant at Wilmot Bower and Associates, an architectural and development firm specializing in healthcare facilities. From 1978 to 1980, Mr. Rhodes was a project coordinator and analyst with Manor Care, Inc., a publicly held nursing home company. Mr. Rhodes holds a B.A. in business administration from Columbia Union College.

Elliot Sainer, Director and President, Youth Treatment Division. Mr. Sainer has served as a director and the president of our youth treatment division since November 2006. From 1998 to 2006, he served as chief executive officer of Aspen Education Group, Inc. We acquired Aspen Education Group, Inc. in November 2006. From 1991 to 1998, Mr. Sainer was Chief Executive Officer of College Health Enterprises. Mr. Sainer holds an M.B.A. in health care administration from George Washington University and a B.A. in Political Science from the University of Pittsburgh.

Kathleen Sylvia, Executive Vice President of Business Development. Ms. Sylvia has served as our executive vice president of business development since June 2003. From May 1995 to June 2003, Ms. Sylvia served as our chief operating officer. From January 1993 to May 1995, Ms. Sylvia was the executive director of The Camp Recovery Centers, L.P. From 1988 to 1993, Ms. Sylvia was the assistant administrator at National Medical Enterprise Hospitals and Community Psychiatric Centers. Ms. Sylvia holds a nursing degree from the University of California, Los Angeles, Harbor College, School of Nursing, a B.A. in sociology and anthropology from Old Dominion University and a masters of public administration from the University of Oklahoma.

Dr. Thomas J. Brady, Chief Medical Officer. Dr. Brady has served as our chief medical officer since October 2004. From June 1997 to October 2004, Dr. Brady held various positions with MHN, Inc., a mental and behavioral health services company, including acting corporate medical director from June 2003 through September 2003, and regional medical director from June 1997 to October 2004. From 1988 to 1999, Dr. Brady held various positions at St. Mary’s Medical Center in San Francisco, including chair of the department of psychiatry and medical director of Child and Adolescent Psychiatric Services, the Children’s Psychiatric Inpatient Unit and the Adolescent Day Treatment Center. Dr. Brady holds an M.B.A. from Golden Gate University, an M.D. from the University of Alabama, Birmingham School of Medicine, a B.S. in biology from the University of Alabama and a B.A. in psychology from the University of California, Berkeley. Dr. Brady is American Society of Addiction Medicine certified and board certified in General, Child and Adolescent and Forensic Psychiatry.

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Pamela B. Burke, Vice President, General Counsel and Secretary. Ms. Burke has served as our vice president, general counsel and secretary since February 2005. Prior to joining us in February 2005, Ms. Burke was a partner at the law firm DLA Piper Rudnick Gray Cary US LLP, which she joined in September 1996. From September 1993 to April 1996, Ms. Burke worked for Deloitte & Touche in its National Tax Office. Ms. Burke received her B.A. in government from Cornell University and her J.D. from George Washington University.

General Barry R. McCaffrey (ret), Director. General McCaffrey has served as a director since August 2002. From March 2001 to the present, General McCaffrey has served as president of BR McCaffrey Associates, LLC, an international consulting firm. General McCaffrey served as the Director of the White House Office of National Drug Control Policy from March 1996 to March 2001, and as the Bradley Distinguished Professor of National Security Studies at the U.S. Military Academy from March 2001 to June 2005. General McCaffrey has also served as an analyst for NBC News since September 2001. During his time at the White House, General McCaffrey was a member of both the President’s Cabinet and the National Security Council for drug-related issues. General McCaffrey graduated from the U.S. Military Academy at West Point. He holds an M.A. in civil government from American University and attended the Harvard University National Security Program as well as the Business School Executive Education Program.

Steven Barnes, Director. Mr. Barnes has served as a director since February 2006. Mr. Barnes has been associated with Bain Capital since 1988 and has been a managing director since 2000. In addition to working for Bain Capital, he also held senior operating roles of several Bain Capital portfolio companies including chief executive officer of Dade Behring, Inc., president of Executone Business Systems, Inc. and president of Holson Burnes Group, Inc. Mr. Barnes currently serves on several boards including Unisource Worldwide, Inc., SigmaKalon Group BV, United Way, Make-A-Wish Foundation and Children’s Hospital Trust. Mr. Barnes received a B.S. from Syracuse University.

John Connaughton, Director. Mr. Connaughton has served as a director since February 2006. Mr. Connaughton has been a managing director of Bain Capital since 1997 and a member of the firm since 1989. Prior to joining Bain Capital, Mr. Connaughton was a consultant at Bain & Company, Inc., where he worked in the consumer products and business services industries. Mr. Connaughton currently serves as a director of Hospital Corporation of America, M/C Communications, LLC, ProSiebenSat.1.Media AG, AMC Entertainment Inc., Sungard Data Systems Inc., Warner Music Group Corp., Warner Chilcott Corporation, Cumulus Media Partners, LLC, The Boston Celtics and Epoch Senior Living Inc. He also volunteers for a variety of charitable organizations, serving as a member of Children’s Hospital Board of Overseers, The Berklee College of Music Board of Trustees and UVa McIntire Foundation Board of Trustees. Mr. Connaughton received a B.S. in commerce from the University of Virginia and an M.B.A. from Harvard Business School.

Chris Gordon, Director. Mr. Gordon has served as a director since February 2006. Mr. Gordon is a principal of Bain Capital and joined the firm in 1997. Prior to joining Bain Capital, Mr. Gordon was a consultant at Bain & Company, Inc. and currently serves as a director of Hospital Corporation of America. Mr. Gordon received an M.B.A. from Harvard Business School where he was a Baker Scholar and graduated magna cum laude with an A.B. in economics from Harvard College.

Code of Conduct

We currently maintain a Code of Conduct that focuses on our responsibilities to our patients and the high standards of ethics that we require from all employees. This Code of Conduct is compliant with the requirements of our accrediting bodies, but it does not address all requirements of the Sarbanes-Oxley Act of 2002. In 2007, we intend to adopt a written code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions that is fully compliant with the requirements set forth in the Sarbanes-Oxley Act.

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Section 16(a) Compliance

There is no established public trading market for our common stock. We are a wholly-owned subsidiary of CRC Health Group, Inc. which holds all of our outstanding common stock. CRC Health Group, Inc. is a privately held corporation.

Audit Committee

The audit committee selects the independent auditors to be nominated for election by the stockholders and reviews the independence of such auditors, approves the scope of the annual audit activities of the independent auditors, approves the audit fee payable to the independent auditors and reviews such audit results with the independent auditors. The audit committee is currently composed of Steven Barnes and Chris Gordon. We currently have no designated “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K. The current members of our audit committee do, however, have significant experience both analyzing and working with financial statements of both public and private companies.

ITEM 11. Executive Compensation

Compensation Discussion and Analysis

This section discusses the principles underlying our executive compensation policies and decisions. In this section, we address the members and role of our compensation committee, our compensation setting process, our compensation philosophy and policies regarding executive compensation, the components of our executive compensation program and our compensation decisions for fiscal year 2006. We address the compensation paid or awarded during fiscal year 2006 to our chief executive officer, our chief financial officer and the three other most highly compensated executive officers in fiscal year 2006. We refer to these five executive officers as our named executive officers.

On February 6, 2006, we were acquired by private equity investments funds associated with Bain Capital Partners (the “Bain Merger”). We refer to Bain Capital Partners as our “Sponsor.” As discussed in more detail below, various aspects of the compensation of our named executive officers was negotiated and determined at the time of the Bain Merger. There is no established public trading market for our common stock. We are a wholly-owned subsidiary of CRC Health Group, Inc. which holds all of our outstanding common stock. CRC Health Group, Inc. is a privately held corporation. Our parent company’s outstanding capital stock consists of Class A common stock and Class L common stock. All references to options herein refer to options to purchase Class A common stock and Class L common stock of our parent company.

The Compensation Committee and Compensation Setting Practice

The compensation committee operates under a written charter adopted by our Board of Directors and has responsibility for discharging the responsibilities of the Board of Directors relating to the compensation of our executive officers and related duties. Compensation decisions are designed to promote our fundamental business objectives and strategy and align the interests of management with the interests of our stakeholders. Our chief executive officer works with senior management to evaluate employee performance, establish business performance targets and objectives and recommend salary levels and then presents cash and equity compensation recommendations to the Compensation Committee for its consideration and approval. We have not engaged a compensation consultant or benchmarked our compensation against other companies to date but may consider doing so in the future. The Compensation Committee reviews these proposals and makes all final compensation decisions for the executive officers by exercising its discretion in accepting, modifying or rejecting any management recommendations.

The Board of Directors created a compensation committee in January 2007. The current members of the compensation committee are John Connaughton, Steven Barnes and Barry Karlin. 2007 was the first fiscal year

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in which the Compensation Committee reviewed and established annual executive compensation. In 2006, compensation decisions were performed by the whole Board of Directors.

Our Compensation Philosophy

Compensation decisions are designed to promote our fundamental business objectives and strategy and align the interests of management with the interests of our stakeholders. We believe that compensation should focus management on achieving strong short-term (annual) performance in a manner that supports and ensures CRC’s long-term success and profitability. We also believe that pay should be directly linked to performance and that pay should be at competitive levels necessary to attract and retain exceptional leadership talent. This philosophy has guided many compensation related decisions:

• A substantial portion of executive officer compensation is contingent on achievement of objective corporate, division and individual performance objectives.

• Our annual incentive bonus program and equity incentive bonus program emphasize performance-based compensation that promotes the achievement of short-term and long-term business objectives which are aligned with our long term strategic plan.

• Total compensation is higher for individuals with greater responsibility and greater ability to influence CRC’s achievement of targeted results and strategy; further, as position and responsibility increases, a greater portion of the executive officer’s total compensation is performance based pay and equity based pay, making a significant portion of their total compensation dependent on the achievement of performance objectives.

Components of Executive Compensation Plan

In 2006, the principal elements of annual compensation for our named executive officers consisted of base salary and performance based incentive bonuses, long term equity incentive compensation and benefits.

Base Salary. Base pay is a critical element of executive compensation because it provides executives with a base level of monthly income. In determining base salaries, we consider the executive’s qualification and experience, scope of responsibilities and future potential, the goals and objectives established for the executive, the executive’s past performance, competitive salary practices. Further, for our most senior executives, we establish base salaries at a level so that a significant portion of the total compensation that such executives can earn is performance based pay. Dr. Barry Karlin’s base salary was determined in his employment agreement which was negotiated at the time of the Bain Merger and is reviewed annually by the Compensation Committee. For all of our other named executive officers, base salary increases are at the discretion of the Compensation Committee. Base salary is reviewed annually at the beginning of the calendar year and any increases are based on CRC’s overall performance and the executive’s individual performance during the preceding year. At its January 2007 meeting, the compensation committee reviewed recommendations for salary adjustments for all executive officers. Aggregate base salaries for our named executives increased by 4% in 2007 compared to aggregate base salaries for 2006.

2006 Incentive Bonus Plan. Our 2006 Incentive Bonus Plan is designed to reward our employees for the achievement of 2006 EBITDA goals related to the business. EBITDA represents actual earnings before interest, taxes, depreciation and amortization and certain other adjustments as agreed upon with Bain Capital. The bonus payment for our chief executive officer is governed by his employment agreement and is wholly dependent on the achievement of certain EBITDA targets. Pursuant to his employment agreement, our target annual incentive bonus for our chief executive officer is 100% of his base salary in the event that our actual EBITDA is 100% of our budgeted EBITDA; he may earn an annual incentive bonus of up to a maximum 150% of his base salary in the event that our actual EBITDA is 110% of our budgeted EBITDA but also may earn nothing in the event that financial milestones are not achieved. Bonus payments for Kevin Hogge, Philip Herschman, Jerome Rhodes and

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Kathleen Sylvia are based on our overall achievement of our EBITDA targets (target bonus assumes our actual EBITDA is 100% of budgeted EBITDA and the maximum bonus assumes that our actual EBITDA is 110% or greater than budgeted EBITDA) and individual contributions. These officers have a target annual incentive bonus of 35%-50% of base salary; they may earn a maximum annual incentive bonus of up to 52.5%-75% of base salary but may also earn nothing in the event our financial milestones are not achieved. If our actual EBITDA is less than 90% of our budgeted EBITDA, then the bonus pool is zero provided that the Compensation Committee may authorize bonuses in their sole discretion. In the event that our actual EBITDA for the year is less than 100% of our budgeted EBITDA but greater than 90% then the bonus pool will be prorated and all bonus payment amounts are in the discretion of the Board of Directors. Consistent with our focus on pay for performance, additional amounts can be earned when actual EBITDA exceeds our budgeted EBITDA. The Compensation Committee has determined that for the 2006 calendar year, actual EBITDA was 97.8% of budgeted EBITDA and, accordingly, bonus amounts were in the discretion of the Compensation Committee.

Equity Based Compensation. We believe that equity compensation is a critical tool in aligning the interests of our stockholders and executive officers in building share value and in retaining key executives. We have designed an equity plan that promotes the achievement of both short-term and long-term business objectives which are aligned with our strategic plan. We have elected to use stock options as the equity compensation vehicle.

As a result of the Bain Merger in February 2006, all options to purchase common stock held by employees as of February 6, 2006 fully vested and were cancelled in exchange for a single lump sum cash payment, which was treated as ordinary compensation, equal to (x) the excess, if any, of the merger consideration per share over the per share exercise price of such option, multiplied by (y) the number of shares of common stock covered by such option.

Upon consummation of the Bain Merger, our parent company established the 2006 Executive Incentive Plan and the 2006 Management Incentive Plan. These plans provide for the granting of either incentive stock options or nonincentive stock options to our key employees, directors, consultants and advisors. At the time of the closing of the Bain Merger, our executive officers and other managers and key employees were granted options pursuant to these plans. These grants were intended to cover the period between the grant date and December 31, 2011, absent promotions, exceptional performance or other unusual circumstances. In determining the number of options to be granted to employees, we take into account the individual’s position, scope of responsibility, ability to affect profits and shareholder value and the individual’s historic and recent performance and the value of the stock options in relation to other elements of total compensation. All of our executive officers and generally any employee with profit and loss responsibility received options under the 2006 Executive Incentive Plan. Each option is an option to purchase a unit which consists of 9 shares of Class A Stock and one share of Class L Stock. The options are exercisable only for whole units and cannot be separately exercised for the individual classes of stock. The grant date of the stock options is always the date of approval of the grants.

All stock options under each of the 2006 Executive and Management Incentive Plans have the following features: the term of grant does not exceed 10 years, the grant price is not less than the fair market value on the date of grant, repricing of options is prohibited, unless approved by the shareholders, vesting is generally over a 5 year period and options generally will remain exercisable for three months following the participant’s termination of service other than for cause, except that if service terminates as a result of the participant’s death or disability, the option generally will remain exercisable for twelve months, but in any event not beyond the expiration of its term. In general, options granted under the Executive Plan vest and become exercisable at the rate of 10% on the one year anniversary of the date of grant and 5% on each six-month anniversary thereafter until 50% of the options granted are vested. An additional 25% shall vest upon our stock price reaching a certain level during a sale event or at certain times after an initial public offering. An additional 25% shall vest over a five year time horizon upon our EBITDA reaching certain levels. In general, options granted under the Management Plan vest and become exercisable at the rate of 20% on the one year anniversary of the date of grant and 10% on each six-month anniversary thereafter until 100% of the options granted are vested.

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CRC does not have a formal policy requiring stock ownership by management. However, our senior executives, including our named executive officers, have committed significant personal capital to CRC. In connection with the closing of the Bain Merger on February 6, 2006, and pursuant to a rollover and subscription agreement, certain members of our management, including all of the named executive officers, converted options to purchase stock of our predecessor company into options to purchase stock of Holdings with an aggregate value of approximately $9.1 million.

Other Compensation Information. We provide employees, including our named executive officers, with a variety of other benefits, including medical, dental and vision plans, life insurance and holidays and vacation. These benefits are generally provided to employees on a company-wide basis. We do not offer any retirement plans to our directors or executive officers, other than the 401(k) plan generally available to employees. In accordance with the terms of the our 401(k) plan, we match, in cash, 25% of amounts contributed to that plan by each plan participant, up to 5% of eligible pay. The matching contribution made by us is subject to vesting, based on continued employment, with 25% scheduled to vest on each of the four anniversaries of the employee’s date of hire.

Accounting and Tax Implications

The accounting and tax treatment of particular forms of compensation do not materially affect the Compensation Committee’s compensation decisions. However, we evaluate the effect of such accounting and tax treatment on an ongoing basis and will make appropriate modifications to compensation policies where appropriate.

Compensation Committee Report

The following report of the Compensation Committee is included in accordance with the rules and regulations of the Securities Exchange Commission. It is not incorporated by reference into any of our registration statements under the Securities Act of 1933.

Compensation Committee Report

The Committee has reviewed and discussed the Compensation Discussion and Analysis (CD&A) with management. Based upon the review and discussions, the Committee recommended to the Board of Directors, and the Board approved, that the CD&A be included in the Form 10-K for the calendar year ended December 31, 2006.

Respectfully submitted on April 2, 2007 by the members of the Compensation Committee of the Board of Directors:

Dr. Barry Karlin

John Connaughton

Steven Barnes

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2006 Summary Compensation Table

The following table summarizes the compensation paid to our chief executive officer, chief financial officer and our three other most highly compensated executive officers, whom we refer to as our “named executive officers,” for the years ended December 31, 2006.

Name and Principal Position	Year*	Salary ($)(1)	Bonus ($)(2)	Stock Awards	Option Awards ($)(3)	Non-equity Incentive Plan Compensation(4)		Change in Pension Value and Nonqualified Deferred Compensation Earnings	All other Compensation ($)		Total ($)
Dr. Barry W. Karlin	2006	549,038	1,400,000	—	9,320,563	430,446	(5)	—	29,817	(6)	11,729,865
Chairman and Chief Executive Officer
Kathleen Sylvia	2006	245,394	26,000	—	657,980	69,827	(7)	—	4,782	(8)	1,003,983
Executive Vice President of Business Development
Philip L. Herschman	2006	270,961	450,000	—	2,342,409	73,431	(9)	—	2,752	(10)	3,139,554
President, Outpatient Treatment Division
Jerome E. Rhodes	2006	270,961	450,000	—	2,342,409	120,849	(11)	—	17,932	(12)	3,202,152
President, Residential Treatment Division
Kevin Hogge	2006	270,961	300,000	—	2,342,409	103,372	(13)	—	1,822	(14)	3,018,565
Chief Financial Officer, Vice President and Treasurer

NOTES TO TABLE:

* Includes 11 months of “successor” company information following the Bain Merger and one month of “predecessor” company information prior to the Bain Merger.

(1) Salaries reflect amounts earned in 2006. Salaries were adjusted at the time of the Bain Merger. Salaries for our named executive officers were negotiated at the time of the Bain Merger and were effective as of February 6, 2006. The salaries for our named executive officers are: (1) Dr. Barry Karlin—$575,000, (ii) Kathleen Sylvia—$246,750, (iii) Philip Herschman—$275,000, (iv) Jerome Rhodes—$275,000, and Kevin Hogge—$275,000.

(2) Amounts listed under this column reflect one time performance bonuses made in connection with the Bain Merger.

(3) The amounts included in this column reflect the compensation costs associated with stock option awards recognized as expense in our financial statements in accordance with FAS 123R. These costs relate to option awards granted in February 2006 under the 2006 Executive Incentive Plan. Under SFAS 123R, the full grant date fair value of the February 2006 option awards is recognized over a 5 year period. For a discussion of the assumptions made in the valuation, please see Note 13 to our Consolidated Financial Statements.

(4) The amounts in this column are the amounts for 2006 incentive bonus plan which will be paid out in early April 2007 upon completion of our 2006 audit. Bonuses paid pursuant to the 2006 Incentive Bonus Plan are accrued in the fiscal year earned and paid in the following fiscal year.

(5) Represents a 2006 annual incentive bonus of $430,446, which will be paid in April 2007.

(6) Represents $12,500 for premium costs on a life insurance policy for which the beneficiaries are his family, $14,122 in medical, dental and vision contributions, and $3,195 in company contributions pursuant to our 401(k) Plan for 2006.

(7) Represents a 2006 annual incentive bonus of $69,827, which will be paid in April 2007.

(8) Represents $1,831 in medical, dental and vision contributions and $2,951 in company contributions pursuant to our 401(k) Plan for 2006.

(9) Represents a 2006 annual incentive bonus of $73,431, which will be paid in April 2007.

(10) Represents $2,752 in company contributions pursuant to our 401(k) Plan for 2006.

(11) Represents a 2006 annual incentive bonus of $120,849, which will be paid in April 2007.

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(12) Represents $10,400 in car allowance and $7,532 in company contributions pursuant to our 401(k) Plan for 2006.

(13) Represents a 2006 annual incentive bonus of $103,372, which will be paid in April 2007.

(14) Represents $1,822 in company contributions pursuant to our 401(k) Plan for 2006.

Grants of Plan-Based Awards in 2006

The following table contains information concerning grants of plan-based awards to our named executive officers during 2006:

		Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)			Estimated Future Payouts Under Equity Incentive Plan Awards(2)			All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Sh)(4)	Grant Date Fair Value of Stock and Option Awards ($)(5)
Name	Grant Date(3)	Threshold ($)	Target ($)	Maximum ($)	Threshold (#)	Target (#)	Maximum (#)
Dr. Barry Karlin	1/1/06	0	549,038	823,557	—	—	—	—	—	—	—
	2/6/06	—	—	—	169,172	169,172	169,172	—	—	90.00	9,320,563
Kathleen Sylvia	1/1/06	0	85,888	128,832	—	—	—	—	—	—	—
	2/6/06	—	—	—	11,942	11,942	11,942	—	—	90.00	657,980
Philip Herschman	1/1/06	0	135,481	203,222	—	—	—	—	—	—	—
	2/6/06	—	—	—	42,515	42,515	42,515	—	—	90.00	2,342,409
Jerome Rhodes	1/1/06	0	135,481	203,222	—	—	—	—	—	—	—
	2/6/06	—	—	—	42,515	42,515	42,515	—	—	90.00	2,342,409
Kevin Hogge	1/1/06	0	135,481	203,222	—	—	—	—	—	—	—
	2/6/06	—	—	—	42,515	42,515	42,515	—	—	90.00	2,342,409

NOTES TO TABLE:

(1) Amounts reflect the cash awards to the named executive officers pursuant to our 2006 Incentive Bonus Plan which is based on the achievement of the EBITDA targets for the period January 1, 2006 through December 31, 2006. The threshold amount equals 90% of achievement of the target and the Target amount equals 100% of achievement of the target. The Maximum amount assumes that our actual EBITDA exceeded 110% of budgeted EBITDA.

(2) Option awards to the named executive officers were issued pursuant to the 2006 Executive Incentive Plan. See “Outstanding Equity Awards of 2006 Fiscal Year End.”

(3) The grant date provided is the date that the plan year began for the 2006 Incentive Bonus Plan.

(4) The exercise price is equal to the fair market value per Unit on the date that the stock option was granted. As more fully discussed in the Compensation Discussion and Analysis, each option is an option to purchase one Unit consisting of 9 shares of Class A Stock and one share of Class L Stock.

(5) The grant date fair value was calculated in accordance with SFAS 123R. Under SFAS 123R, the full grant date fair value of the February 2006 option awards is recognized over a 5 year period. For a discussion of the assumptions made in the valuation, please see Note 13 to our Consolidated Financial Statements.

The material terms of our stock option awards, 2006 Annual Incentive Bonus Plan and our employment agreement with Dr. Barry Karlin are described in Compensation Discussion and Analysis.

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Outstanding Equity Awards at Fiscal Year-End 2006

The following table sets forth certain information with respect to the value of all unexercised options and unvested stock awards previously awarded to our named executive officers as of December 31, 2006.

	Option Awards(1)							Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of unearned Shares, Units or Other Rights That Have Not Vested ($)
Dr. Barry Karlin	22,855	(2)(3)	146,317	(2)	—	90.00	2/6/16	—	—	—	—
	61,554	(4)	—		—	8.77	12/14/14	—	—	—	—
Kathleen Sylvia	1,613	(2)(3)	10,329		—	90.00	2/6/16	—	—	—	—
	6,155	(4)	—		—	8.77	12/14/14	—	—	—	—
Philip Herschman	5,743	(2)(3)	36,771	(2)	—	90.00	2/6/16	—	—	—	—
	11,079	(4)	—		—	8.77	12/14/14	—	—	—	—
Jerome Rhodes	5,743	(2)(3)	36,771	(2)	—	90.00	2/6/16	—	—	—	—
	11,079	(4)	—		—	8.77	12/14/14	—	—	—	—
Kevin Hogge	5,743	(2)(3)	36,771	(2)	—	90.00	2/6/16	—	—	—	—
	11,079	(4)	—		—	8.77	12/14/14

NOTES TO TABLE:

(1) All information in this table relates to nonqualified stock options. We have not granted any incentive stock options or stock appreciation rights. Each option is an option to purchase one Unit consisting of 9 shares of Class A Common Stock and one share of Class L Common Stock.

(2) Option issued pursuant to the 2006 Executive Incentive Plan. The exercisable options include all options that have vested. All unexercisable options have not yet vested. Pursuant to such plan, options vest as follows: (i) fifty percent of the option (the Tranche 1 Options) is time based and vests over five years with 20% vesting on February 6, 2007, one year from the date of grant, and 10% of the remaining balance vesting every 6 months thereafter, (ii) twenty-five percent of the option is performance based and vests based on the attainment of a certain value of the Company (the Tranche 2 Options), as discussed in the Compensation Discussion and Analysis and (iii) the remaining twenty-five percent (the Tranche 3 Options) of the option is performance based and vests on the attainment of certain annual goals for the Company during the 5 year period beginning January 1, 2006, as discussed in the Compensation Discussion and Analysis.

(3) Vested options represents 20% of the Tranche 1 Options vesting based on time and 14.04% of the Tranche 3 Options vesting based on achievement of EBITDA milestones.

(4) Rollover options are fully vested. To the extent that outstanding options were not cancelled in the Bain Merger, such options converted into fully vested options to purchase equity units in Holdings. Each rollover option is an option to purchase one Unit consisting of 9 shares of Class A Common Stock and 1 share of Class L Common Stock.

Option Exercises and Stock Vested in 2006

The following table sets forth information about stock options exercised by the named executives in fiscal year 2006 and stock awards that vested or were paid in fiscal year 2006 to the named executives.

	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)(1)	Value Realized on Exercise ($)	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)
Dr. Barry Karlin	—	4,371,247	—	—
Kathleen Sylvia	—	1,148,751	—	—
Philip Herschman	—	951,195	—	—
Jerome Rhodes	—	970,923	—	—
Kevin Hogge	—	970,923	—	—

(1) In connection with the Bain Merger, options held by our named executive officers were cancelled and the named executive officers received an aggregate value equal to product of (i) the total number of options cancelled and (ii) the fair market value per share of common stock less the exercise price.

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Pension Benefits

None of the Named Executive Officers receive nonqualified deferred compensation benefits.

Potential Payments Upon Termination or a Change in Control

Employment Agreement

Pursuant to our employment agreement with Dr. Karlin, in the event of Dr. Karlin’s termination without cause or his resignation for good reason (both defined in his employment agreement), we must pay Dr. Karlin a lump sum equal to his base salary for a period of 36 months and provided further that if Dr. Karlin signs a general release of all claims, we shall also pay to Dr. Karlin for a period of 18 months all premiums due for COBRA premiums for Dr. Karlin and his insured dependents, all premiums relating to our group disability plan and all premiums relating to his life insurance policy, an aggregate amount of approximately $1.775 million calculated as of December 31, 2006. In the event of a termination due to death, disability or cause or if Dr. Karlin resigns without good reason, we must pay Dr. Karlin any base salary earned but not paid through the date of termination, any vacation time accrued but not used through the date of termination, any bonus compensation earned but unpaid on the date of termination and any business expenses incurred but un-reimbursed on the date of termination.

We have no employment agreement with Kevin Hogge, Kathleen Sylvia, Philip Herschman or Jerome Rhodes.

2006 Annual Incentive Bonus Plan

An employee is only eligible to receive a bonus pursuant to the 2006 Annual Incentive Bonus plan if such employee is an employee of CRC or a subsidiary of CRC at the time of completion of our annual audit (typically in early April).

Stock Options

In general, option grants under the Executive Plan stipulate that in the event of a change in control of Holdings in which Bain Capital achieves liquidity, up to 100% of the options will vest; provided however, that options that did not vest in years prior to the change of control because of the failure to attain the EBITDA targets do not vest upon the change of control. In general, option grants under the Management Plan stipulate that in the event of a change in control of Holdings in which Bain Capital achieves liquidity, up to 100% of the options will vest. In the event of a change of control in which Bain Capital does not achieve liquidation, options issued to our executive officers will fully vest in the event that there is a termination or constructive termination of employment of the executive within 12 months after the change in control.

The successor entity may assume or continue in effect options outstanding under the Executive Plan or Management Plan or substitute substantially equivalent options for the successor’s stock. Any options which are not assumed or continued in connection with a change in control or exercised prior to the change in control will terminate effective as of the time of the change in control. The Executive Plan and Management Plan also authorize the administrator to treat as satisfied any vesting condition in the event of a change of control.

Restrictions Upon Termination or a Change of Control

During the course of employment and for a period of 18 months following the end of employment, Dr. Karlin may not participate in any other chemical or alcohol dependency business or any behavioral health business in a field in which we have plans to become engaged. For the same period, Dr. Karlin may also not solicit any of our employees, customers, referral sources or suppliers.

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Director Compensation

None of our directors except General Barry McCaffrey receive compensation for serving as a director. The members of our board of directors are not separately compensated for their services as directors, other than reimbursement for out-of-pocket expenses incurred in connection with rendering such services. The following table contains compensation received by General Barry McCaffrey during the year ended December 31, 2006 for serving as a director of, and providing consulting services to, CRC and Holdings.

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)	Option Awards ($)		Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
General Barry McCaffrey	120,000	(1)	—	82,523	(2)	—	—	—	202,523

NOTES TO TABLE:

(1) General McCaffrey receives a salary of $10,000 per month for consulting services rendered to us. He does not receive cash payments for attendance at board meetings.

(2) On May 3, 2006, General McCaffrey was granted options under the 2006 Executive Plan to purchase 13,435 shares of Class A common stock and 1,492 shares of Class L common stock, with an exercise price of $1 per share of Class A common stock and $9 per share of Class L common stock. The amounts included in this column reflect the compensation costs associated with stock option awards recognized as expense in our financial statements in accordance with SFAS 123R. These costs relate to option awards granted in February 2006 under the 2006 Executive Incentive Plan. Under SFAS 123R, the full grant date fair value of the February 2006 option awards is recognized over a 5 year period. For a discussion of the assumptions made in the valuation, please see Note 13 to our Consolidated Financial Statements.

Compensation Committee Interlocks and Insider Participation

Our Compensation Committee is currently comprised of Messrs. Connaughton, Barnes and Karlin. Dr. Barry Karlin is the chief executive officer of CRC and the Group. Messrs. Connaughton and Barnes have not been at any time an officer or employee of CRC or an affiliate of CRC. During 2006, we had no compensation committee “interlocks”—meaning that it was not the case that an executive officer of ours served as a director or member of the compensation committee of another entity and an executive officer of the other entity served as a director or member of our Compensation Committee.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Beneficial Ownership

All of our outstanding common stock is held by our parent company. Our parent company’s outstanding capital stock consists of Class A common shares and Class L common shares.

The table below sets forth, as of December 31, 2006, the number and percentage of shares of our parent company’s common stock beneficially owned by (i) each person known by us to beneficially own more than 5% of the outstanding shares of common stock of our parent company, (ii) each of our directors, (iii) each of our named executive officers and (iv) all our directors and executive officers as a group.

Notwithstanding the beneficial ownership of common stock presented below, our stockholders agreement governs the stockholders exercise of their voting rights with respect to election of directors and certain other material events. The parties to our stockholders agreement have agreed to vote their shares to elect the board of directors as set forth therein. In addition, our stockholders agreement governs certain stockholders’ exercise of voting rights with respect to effecting a change of control transaction. See “Certain Relationships and Related Party Transactions.”

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The amounts and percentages of shares beneficially owned are reported on the basis of SEC regulations governing the determination of beneficial ownership of securities. Under SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.

Except as described in the agreements mentioned above or as otherwise indicated in a footnote, each of the beneficial owners listed has, to our knowledge, sole voting and investment power with respect to the indicated shares of common stock. Unless otherwise indicated in a footnote, the address for each individual listed below is c/o CRC Health Corporation, 20400 Stevens Creek Boulevard, Suite 600, Cupertino, California 95014.

Name and Address	Shares of Class A Common Stock	Percent of Class A Common Stock		Shares of Class L Common Stock	Percent of Class L Common Stock
Bain Capital Partners VIII, L.P. and Related Funds(1)	32,547,498.77	95.6	%	3,616,388.75	95.6	%
Dr. Barry W. Karlin(2)	759,691.88	2.2	%	84,410.21	2.2	%
Kathleen Sylvia(3)	69,920.56	*		7,768.95	*
Philip L. Herschman(4)	151,414.08	*		16,823.79	*
Jerome E. Rhodes(5)	151,414.08	*		16,823.79	*
Kevin Hogge(6)	151,414.08	*		16,823.79	*
Barry R. McCaffrey	1,815.13	*		201.68	*
Elliot Sainer	54,787.20	*		6,087.47	*
Steven Barnes(7)	—	—		—	—
John Connaughton(7)	—	—		—	—
Chris Gordon(7)	—	—		—	—
All directors and executive officers as a group	1,396,320	4.1	%	155,146	4.1	%

* indicates less than 1% of common stock

(1) Represents shares owned by the following groups of investment funds affiliated with Bain Capital Partners, LLC: (i) 27,861,389.88 shares of Class A common stock and 3,095,709.94 shares of Class L common stock owned by Bain Capital Fund VIII, LLC, a Delaware limited liability company (“BCF VIII”), whose sole member is Bain Capital Fund VIII, L.P., a Cayman Islands exempted limited partnership (“BCF VIII Cayman”), whose sole general partner is Bain Capital Partners VIII, L.P., a Cayman Islands exempted limited partnership (“BCP VIII”), whose sole general partner is Bain Capital Investors, LLC, a Delaware limited liability company (“BCI”); (ii) 3,666,862.04 shares of Class A common stock and 407,429.12 shares of Class L common stock owned by Bain Capital VIII Coinvestment Fund, LLC, a Delaware limited liability company (“BC VIII Coinvest”), whose sole member is Bain Capital VIII Coinvestment Fund, L.P., a Cayman Islands exempted limited partnership (“BC VIII Coinvest Cayman”), whose sole general partner is BCP VIII; (iii) 10,287.59 shares of Class A common stock and 1,143.08 shares of Class L common stock owned by BCIP Associates-G (`BCIP-G”), whose managing partner is BCI; (iv) 787,645.94 shares of Class A common stock and 69,256.98 shares of Class L common stock owned by BCIP Associates III, LLC, a Delaware limited liability company (“BCIP IIP”), whose manager is BCIP Associates III, a Cayman Islands partnership (“BCIP III Cayman”), whose managing partner is BCI; (v) 118,584 shares of Class A common stock and 31,435.32 shares of Class L common stock owned by BCIP T Associates III, LLC a Delaware limited liability company (“BCIP T III”), whose manager is BCIP Trust Associates III, a Cayman Islands partnership (“BCIP T III Cayman”), whose managing partner is BCI; (vi) 65,975.32 shares of Class A common stock and 9,482.95 shares of Class L common stock owned by BCIP Associates III-B, LLC, a Delaware limited liability company (`BCIP III-B”), whose manager is BCIP Associates III-B, a Cayman Islands partnership (“BCIP III-B Cayman”), whose managing partner is BCI and (vii) 36,754 shares of Class A common stock and 1,931 shares of Class L common stock owned by BCIP T Associates III-B, LLC, a Delaware limited liability company (“BCIP T III-B” and together with BCF VIII, BC VIII Coinvest, BCIP-G, BCIP III, BCIP T III and BCIP III-B, the “Bain Funds”), whose manager is BCIP Trust Associates III-B, a Cayman Islands partnership (“BCIP T III-B Cayman”), whose sole general partner is BCI.

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BCF VIII Cayman, BCP VIII and BCI, by virtue of the relationships described above, may be deemed to beneficially own the shares held by BCF VIII. BCF VIII Cayman, BCP VIII and BCI disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein.

BCF VIII Coinvest Cayman, BCP VIII and BCI, by virtue of the relationships described above, may be deemed to beneficially own the shares held by BCP VIII Coinvest. BCF VIII Coinvest Cayman, BCP VIII and BCI disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein.

BCI, by virtue of the relationships described above, may be deemed to beneficially own the shares held by BCIP-G. BCI disclaims beneficial ownership of such shares except to the extent of their pecuniary interest therein.

BCIP III Cayman and BCI, by virtue of the relationships described above, may be deemed to beneficially own the shares held by BCIP III. BCIP III Cayman and BCI disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein.

BCIP T III Cayman and BCI, by virtue of the relationships described above, may be deemed to beneficially own the shares held by BCIP T III. BCIP T III Cayman and BCI disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein.

BCIP III-B Cayman and BCI, by virtue of the relationships described above, may be deemed to beneficially own the shares held by BCIP III-B. BCIP III-B Cayman and BCI disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein.

BCIP T III-B Cayman and BCI, by virtue of the relationships described above, may be deemed to beneficially own the shares held by BCIP T III-B. BCIP T II1-B Cayman and BCI disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein.

(2) Represents options to purchase 84,410.21 Units consisting of 759,691.88 shares of Class A common stock issuable pursuant to options exercisable within 60 days and 84,410.21 shares of Class L common stock issuable pursuant to options exercisable within 60 days.

(3) Represents options to purchase 7,768.95 Units consisting of 69,920.56 shares of Class A common stock issuable pursuant to options exercisable within 60 days and 7,768.95 shares of Class L common stock issuable pursuant to options exercisable within 60 days.

(4) Represents options to purchase 16,823.79 Units consisting of 151,414.08 shares of Class A common stock issuable pursuant to options exercisable within 60 days and 16,823.79 shares of Class L common stock issuable pursuant to options exercisable within 60 days.

(5) Represents options to purchase 16,823.79 Units consisting of 151,414.08 shares of Class A common stock issuable pursuant to options exercisable within 60 days and 16,823.79 shares of Class L common stock issuable pursuant to options exercisable within 60 days.

(6) Represents options to purchase 16,823.79 Units consisting of 151,414.08 shares of Class A common stock issuable pursuant to options exercisable within 60 days and 16,823.79 shares of Class L common stock issuable pursuant to options exercisable within 60 days.

(7) Represents options to purchase 201.68 Units consisting of 1,815.13 shares of Class A common stock issuable pursuant to options exercisable within 60 days and 201.68 shares of Class L common stock issuable pursuant to options exercisable within 60 days.

(8) Mr. Barnes, Mr. Connaughton and Mr. Gordon are each a managing director or principal of Bain Capital Partners, LLC. They disclaim any beneficial ownership of any shares beneficially owned by any entity affiliated with Bain Capital Partners, LLC in which they do not have a pecuniary interest. Mr. Barnes, Mr. Connaughton and Mr. Gordon each have an address c/o Bain Capital Partners, LLC, 111 Huntington Avenue, Boston, Massachusetts 02199.

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Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes the securities authorized for issuance as of December 31, 2006 under our 2006 Executive Incentive Plan and our 2006 Management Incentive Plan, the number of shares of our Class A common stock and Class L common stock issuable upon the exercise of outstanding options, the weighted average exercise price of such options and the number of additional shares of our common stock still authorized for issuance under such plans. Both the 2006 Executive Incentive Plan and our 2006 Management Incentive Plan have been approved by our shareholders.

	(a)				(b)				(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	Class A common stock		Class L common stock		Class A common stock		Class L common stock		Class A common stock	Class L common stock
2006 Executive Incentive Plan	5,319,978	(1)	591,108	(1)	$	0.82	$	65.03	(2)	(2)
2006 Management Incentive Plan	359,524		39,947		$	1.00	$	81.00	(2)	(2)
Equity compensation plans not approved by security holders	—		—			—		—	—	—

(1) This amount consists of 1,184,808 shares of Class A common stock and 131,647 shares of Class L common stock that were issued in connection with rolled over options at the time of the Bain Merger and Aspen Acquisition. It also includes 4,135,169 shares of Class A common stock and 459,463 shares of Class L common stock issued pursuant to the 2006 Executive Incentive Plan.

(2) The number of securities remaining available for future issuance under either the 2006 Executive Incentive Plan or the 2006 Management Incentive Plan is an aggregate of 879,357 shares of Class A common stock and 97,706 shares of Class L common stock.

ITEM 13. Certain Relationships and Related Transactions and Director Independence

Pursuant to our Compliance Code Manual, all employees and directors (including our named executive officers) who have, or whose immediate family members have, any financial interests in other entities where such involvement is or may appear to cause a conflict of interest situation are required to report to us the conflict. If the conflict involves a director or executive officer or is considered material, the situation will be reviewed by the Audit Committee. The Audit Committee will determine whether a conflict exists or will exist, and if so, what action should be taken to resolve the conflict or potential conflict.

Arrangements with Our Investors

On February 6, 2006, investment funds managed by Bain Capital Partners, LLC and certain members of our management entered into a stockholders agreement related to the purchase of shares of capital stock of Holdings. The stockholders agreement contains agreements among the parties with respect to the election of our directors and the directors of our direct parent company, restrictions on the issuance or transfer of shares, including tag-along rights and drag-along rights, other special corporate governance provisions (including the right to approve various corporate actions), registration rights (including customary indemnification provisions) and call options. Three of our directors, Steven Barnes, John Connaughton and Chris Gordon hold the position of managing director or principal with Bain Capital Partners, LLC.

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Rollover of Certain Management Equity Interests

In connection with the closing of the Bain Merger on February 6, 2006, and pursuant to a rollover and subscription agreement, certain members of our management converted options to purchase stock of our predecessor company into options to purchase stock of Holdings with an aggregate value of approximately $9.1 million. Dr. Barry W. Karlin, Jerome E. Rhodes, Kevin Hogge, Philip L. Herschman, Kathleen Sylvia, Dr. Thomas J. Brady and Pamela B. Burke converted options with a value of $5.0 million, $0.9 million, $0.9 million, $0.9 million, $0.5 million, $185,000 and $125,000, respectively.

In connection with the closing of the Aspen Acquisition on November 17, 2006 and pursuant to a rollover and subscription agreement, certain employees of Aspen Education Group, Inc. converted options to purchase stock of Aspen Education Group, Inc. into options to purchase stock of the Group with an aggregate value of approximately $1.8 million. Mr. Elliot Sainer converted options with a value of $0.6 million.

Management Agreement

Upon the consummation of the Bain Merger, we and our parent companies entered into a management agreement with an affiliate of Bain Capital Partners, LLC pursuant to which such entity or its affiliates will provide management services. Pursuant to such agreement, an affiliate of Bain Capital Partners, LLC will receive an aggregate annual management fee of $2.0 million, and reimbursement for out-of-pocket expenses incurred in connection with the Transactions prior to the closing of the Transactions and in connection with the provision of services pursuant to the agreement. In addition, pursuant to such agreement, an affiliate of Bain Capital Partners, LLC also received aggregate transaction fees of approximately $7.2 million in connection with services provided by such entity related to the Transactions. The management agreement has a five year, evergreen term, however, in certain circumstances, such as an initial public offering or change of control of Holdings, we may terminate the management agreement and buy out our remaining obligations under the agreement to Bain Capital Partners, LLC and its affiliates. In addition, the management agreement provides that an affiliate of Bain Capital Partners, LLC may receive fees in connection with certain subsequent financing and acquisition transactions. In connection with the Aspen Acquisition and the related amending and restating of our then existing senior secured credit facility, an affiliate of Bain Capital Partners, LLC received aggregate transaction fees of $3,200,000. The management agreement includes customary indemnification provisions in favor of Bain Capital Partners, LLC and its affiliates.

Director Independence

CRC is a privately held corporation. None of our directors meet the standards for “independent directors” of a national stock exchange.

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ITEM 14. Principal Accountant Fees and Services

For the fiscal years ended December 31, 2006 and December 31, 2005, Deloitte & Touche LLP, and its affiliates, the Company’s independent registered public accounting firm and principal accountant, billed the fees set forth below.

	Year Ended December 31, 2006		Year Ended December 31, 2005
Audit Fees(1)	$	1,331,000	$	794,000
Audit-Related Fees(2)		409,000		962,000
Tax Fees(3)		—		38,000
All Other Fees(4)		—		—
Total Fees	$	1,741,000	$	1,794,000

(1) Audit Fees billed in the fiscal year ended December 31, 2006 represented fees for the following services: the audit of the Company’s annual financial statements, reviews of the Company’s quarterly financial statements, and other services normally provided in connection with statutory and regulatory filings. Audit Fees billed in the fiscal year ended December 31, 2005 represented fees for the following services: the audit of the Company’s annual consolidated financial statements, reviews of the Company’s quarterly financial statements, consents and other services related to SEC matters.

(2) Audit-Related Fees billed in the fiscal year ended December 31, 2006 represented fees for the following services: due diligence related to mergers and acquisitions and financial accounting and reporting consultations. Audit-Related Fees billed in the fiscal year ended December 31, 2005 represented fees for the services related to a private offering memorandum.

(3) The Company did not incur any Tax Fees for the year ended December 31, 2006. Tax Fees for the year ended December 31, 2005 represented fees for tax compliance and consultations for federal and state income taxes.

(4) The Company did not incur any “All Other Fees” in the fiscal years ended December 31, 2006 and 2005.

The audit committee was formed in May 2006. All audit and non-audit services performed after such date have been pre-approved by the audit committee.

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PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(a) Financial Statements

The financial statements are filed as part of this Annual Report on Form 10-K under Item 8 – “Financial Statements and Supplementary Data.”

(b) Financial Statement Schedules:

Financial statement schedules have been omitted since they are either not required, not applicable, or the information is presented in the consolidated financial statements and the notes thereto in Item 8 above.

(c) Exhibit Index

2.1	Agreement and Plan of Merger among CRCA Holdings, Inc., CRCA Merger Corporation and CRC Health Group, Inc. dated as of October 8, 2005 (incorporated by reference to Exhibit 2.1 of Form S-4 (File No. 333-1351712) filed June 21, 2006)
2.1a	Agreement and Plan of Merger dated as of September 22, 2006, by and among Aspen Education Group, Inc., Frazier Healthcare II, L.P., as Shareholders’ Representative, Madrid Merger Corporation and CRC Health Corporation (incorporated by reference to Exhibit 2.1 of Form 8-K (File No. 333-135172) filed September 28, 2006)
3.1	Certificate of Incorporation of CRC Health Corporation, with amendments (incorporated by reference to Exhibit 3.1 of Form S-4 (File No. 333-1351712) filed June 21, 2006)
3.2	By-Laws of CRC Health Corporation (incorporated by reference to Exhibit 3.3 of Form S-4 (File No. 333-1351712) filed June 21, 2006)
4.1	Indenture, dated as of February 6, 2006, by and among CRCA Merger Corporation, CRC Health Corporation, the Guarantors named therein and U.S. Bank National Association, as Trustee, with respect to the 10 3/4 % Senior Subordinated Notes due 2016 (incorporated by reference to Exhibit 4.1 of Form S-4 (File No. 333-135172) filed June 21, 2006)
4.1a	First Supplemental Indenture dated as of July 7, 2006, by and among CRC Health Corporation, the Guarantors named therein, the New Guarantors named therein and U.S. Bank National Association, as Trustee, with respect to the 10 3 / 4 % Senior Subordinated Notes due 2016 (incorporated by reference to Exhibit 4.4 of Form S-4 (File No. 333-1351712) filed June 21, 2006)
4.1b	Second Supplemental Indenture dated as of September 28, 2006, by and among CRC Health Corporation, the Guarantors named therein, the New Guarantors named therein and U.S. Bank National Association, as Trustee, with respect to the 10 3/4% Senior Subordinated Notes due 2016 (incorporated by reference to Exhibit 4.1 of Form 10-Q filed November 14, 2006)
4.1c	Third Supplemental Indenture dated as of October 24, 2006, by and among CRC Health Corporation, the Guarantors named therein, the New Guarantors named therein and U.S. Bank National Association, as Trustee, with respect to the 10 3/4% Senior Subordinated Notes due 2016 (incorporated by reference to Exhibit 4.1 of Form 10-Q filed November 14, 2006)
4.1d	Fourth Supplemental Indenture dated as of November 17, 2006 among CRC Health Corporation, a Delaware corporation (the “Company”), the Guarantors, the New Guarantors named therein and U.S. Bank National Association, as trustee with respect to the 10 3/4% Senior Subordinated Notes due 2016

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4.2	Registration Rights Agreement, dated as of February 6, 2006, by and among CRCA Merger Corporation, CRC Health Corporation, the Guarantors named therein and the Initial Purchasers named therein (incorporated by reference to Exhibit 4.2 of Form S-4 (File No. 333-135172) filed June 21, 2006)
4.3	Form of 10 3/4% Senior Subordinated Notes due 2016 (contained in Exhibit 4.1) (incorporated by reference to Exhibit 4.3 of Form S-4 (File No. 333-135172) filed June 21, 2006)
10.1	Credit Agreement, dated as of February 6, 2006, by and among CRC Health Group, Inc. (to be renamed CRC Health Corporation), CRC Intermediate Holdings, Inc., Citibank, N.A., the other lenders party thereto, JPMorgan Chase Bank, N.A., as syndication agent and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse as co-documentation agents and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. as co-lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.1 of Form S-4 (File No. 333-1351712) filed June 21, 2006)
10.1a	Amendment No. 1 to Credit Agreement, dated as of May 19, 2006 among CRC Intermediate Holdings, Inc., CRC Health Corporation and Citibank, N.A. in its capacity as administrative agent for the Lenders and as collateral agent for the Secured Parties (incorporated by reference to Exhibit 10.15 of Form S-4 (File No. 333-1351712) filed June 21, 2006)
10.1b	AMENDMENT AGREEMENT, dated as of November 17, 2006 among CRC Health Group, Inc., CRC Health Corporation, the Subsidiary Guarantors, as defined therein, and Citibank, N.A., in its capacity as administrative agent for the Lenders and as collateral agent for the Secured Parties, and the lenders party hereto and under the Credit Agreement dated as of February 6, 2006
10.1c	AMENDED AND RESTATED CREDIT AGREEMENT (“Agreement”) entered into as of November 17, 2006, among CRC Health Group, Inc., CRC Health Corporation, Citibank, N.A., as administrative agent, collateral agent, swing line lender and L/C issuer, each lender from time to time party thereto, JPMorgan, Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as documentation agent.
10.2	Security Agreement, dated as of February 6, 2006, between CRC Health Group, Inc. (to be renamed CRC Health Corporation), CRC Intermediate Holdings, Inc., the Subsidiaries identified therein and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.2 of Form S-4 (File No. 333-1351712) filed June 21, 2006)
10.2a	Form of SUPPLEMENT NO. 1 dated as of June 22, 2006, to the Security Agreement dated as of February 6, 2006 among CRC Health Corporation (f/k/a CRC Health Group, Inc.), CRC Intermediate Holdings, Inc., and the Subsidiaries of the Borrower identified therein and Citibank, N.A., as Collateral Agent for the Secured Parties as defined therein
10.2b	Form of SUPPLEMENT NO. 2 dated as of June 22, 2006, to the Security Agreement dated as of February 6, 2006 among CRC Health Corporation (f/k/a CRC Health Group, Inc.), CRC Intermediate Holdings, Inc., and the Subsidiaries of the Borrower identified therein and Citibank, N.A., as Collateral Agent for the Secured Parties as defined therein
10.2c	Form of SUPPLEMENT NO. 3 dated as of September 27, 2006, to the Security Agreement dated as of February 6, 2006 among CRC Health Corporation (f/k/a CRC Health Group, Inc.), CRC Health Group, Inc. (f/k/a/ CRCA Holdings, Inc.) and the Subsidiaries of the Borrower identified therein and Citibank, N.A., as Collateral Agent for the Secured Parties as defined therein.
10.2d	Form of SUPPLEMENT NO. 4 dated as of October 18, 2006, to the Security Agreement dated as of February 6, 2006 among CRC Health Corporation (f/k/a CRC Health Group, Inc.), CRC Health Group, Inc. (f/k/a/ CRCA Holdings, Inc.) and the Subsidiaries of the Borrower identified therein and Citibank, N.A., as Collateral Agent for the Secured Parties as defined therein.
10.2e	SUPPLEMENT NO. 5 dated as of November 17, 2006, to the Security Agreement dated as of February 6, 2006 among CRC Health Corporation (f/k/a CRC Health Group, Inc.), CRC Health Group, Inc. (f/k/a/ CRCA Holdings, Inc.), and the Subsidiaries of the Borrower identified therein and Citibank, N.A., as collateral Agent for the Secured Parties, as defined therein.

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10.3	Guarantee Agreement, dated as of February 6, 2006, among CRC Health Group, Inc. (to be renamed CRC Health Corporation), CRC Intermediate Holdings, Inc., the Subsidiaries named therein and Citibank, N.A. as administrative agent (incorporated by reference to Exhibit 10.3 of Form S-4 (File No. 333-1351712) filed June 21, 2006)
10.3a	Form of SUPPLEMENT NO. 1 dated as of June 22, 2006, to the Guarantee Agreement dated as of February 6, 2006, among CRC Intermediate Holdings, Inc., CRC Health Corporation, the Subsidiaries of the Borrower identified therein and Citibank, N.A., as Administrative Agent.
10.3b	Form of SUPPLEMENT NO. 2 dated as of June 22, 2006, to the Guarantee Agreement dated as of February 6, 2006, among CRC Intermediate Holdings, Inc., CRC Health Corporation, the Subsidiaries of the Borrower identified therein and Citibank, N.A., as Administrative Agent.
10.3c	Form of SUPPLEMENT NO. 3 dated as of September 27, 2006, to the Guarantee Agreement dated as of February 6, 2006, among CRC Health Group, Inc., CRC Health Corporation, the Subsidiaries of the Borrower identified therein and Citibank, N.A., as Administrative Agent.
10.3d	Form of SUPPLEMENT NO. 4 dated as of October 18, 2006, to the Guarantee Agreement dated as of February 6, 2006, among CRC Health Group, Inc., CRC Health Corporation, the Subsidiaries of the Borrower identified therein and Citibank, N.A., as Administrative Agent.
10.3e	SUPPLEMENT NO. 5 dated as of November 17, 2006, to the Guarantee Agreement dated as of February 6, 2006, among CRC Health Group, Inc., CRC Health Corporation, the Subsidiaries of the Borrower , as defined herein and Citibank, N.A., as Administrative Agent.
10.4	Management Agreement dated as of February 6, 2006, by and among CRCA Holdings, Inc. (to be renamed CRC Health Group, Inc.), CRC Intermediate Holdings, Inc., CRCA Merger Corporation and Bain Capital Partners, LLC (incorporated by reference to Exhibit 10.4 of Form S-4 (File No. 333-1351712) filed June 21, 2006)
10.5	Employment Agreement between Dr. Barry W. Karlin, CRC Health Group, Inc. and CRC Health Corporation, dated February 6, 2006 (incorporated by reference to Exhibit 10.5 of Form S-4 (File No. 333-1351712) filed June 21, 2006)*
10.6	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.), the Investors, Other Investors, and Managers named therein, dated as of February 6, 2006 (incorporated by reference to Exhibit 10.6 of Form S-4 (File No. 333-1351712) filed June 21, 2006)
10.7	Form of Executive Letter Agreement re: Fair Market Value Determination of Shares dated February 6, 2006 (incorporated by reference to Exhibit 10.7 of Form S-4 (File No. 333-1351712) filed June 21, 2006)*
10.8	2006 Executive Incentive Plan of CRC Health Group, Inc. (incorporated by reference to Exhibit 10.8 of Form S-4 (File No. 333-1351712) filed June 21, 2006)*
10.8a	2006 Executive Incentive Plan of CRC Health Group, Inc., as amended*
10.9	2006 Management Incentive Plan of CRC Health Group, Inc. (incorporated by reference to Exhibit 10.9 of Form S-4 (File No. 333-1351712) filed June 21, 2006)*
10.9a	2006 Management Incentive Plan of CRC Health Group, Inc., as amended*
10.10	Form of Senior Executive Option Certificate (incorporated by reference to Exhibit 10.10 of Form S-4 (File No. 333-1351712) filed June 21, 2006)*
10.10a	Form of 2007 Senior Executive Option Certificate, as amended*

110

10.11	Form of Executive Option Certificate (incorporated by reference to Exhibit 10.11 of Form S-4 (File No. 333-1351712) filed June 21, 2006)*
10.11a	Form of 2007 Executive Option Certificate, as amended*
10.12	Form of Management Time Vesting Option Certificate (incorporated by reference to Exhibit 10.12 of Form S-4 (File No. 333-1351712) filed June 21, 2006)*
10.13	Form of Substitute Option Certificate (incorporated by reference to Exhibit 10.13 of Form S-4 (File No. 333-1351712) filed June 21, 2006)*
10.14	Rollover and Subscription Agreement, dated as of February 6, 2006, between CRCA Holdings, Inc. and the investors in CRC Health Group, Inc. listed therein (incorporated by reference to Exhibit 10.14 of Form S-4 (File No. 333-1351712) filed June 21, 2006)*
10.15	EMPLOYMENT AGREEMENT dated as of February 1, 2004, between Aspen Education Group, Inc. and Elliot A. Sainer*
10.16	FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of November 17, 2006, made and entered into by and between Aspen Education Group, Inc. and Elliot A Sainer*
12	Statement of Computation of Ratio of Earnings to Fixed Charges ‡
31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer ‡
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer and Principal Accounting Officer ‡
32.1	Section 1350 Certification of Principal Executive Officer †
32.2	Section 1350 Certification of Principal Financial Officer and Principal Accounting Officer †

‡ Filed herewith.

† Furnished herewith.

* Management contract or compensatory plan or arrangement.

111

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 2, 2007

CRC HEALTH CORPORATION
	(Registrant)
By	/S/    KEVIN HOGGE
	Kevin Hogge, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer and duly authorized signatory)

Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on April 2, 2007.

Signature	Title
Principal Executive Officer: /s/    DR. BARRY W. KARLIN         Dr. Barry W. Karlin	Chairman, Chief Executive Officer and President
Principal Financial and Accounting Officer:
/s/    KEVIN HOGGE         Kevin Hogge	Chief Financial Officer
/s/    STEVEN BARNES         Steven Barnes	Director
/s/    JOHN CONNAUGHTON         John Connaughton	Director
/s/    CHRIS GORDON         Chris Gordon	Director
/s/    BARRY R. MCCAFFREY         Barry R. McCaffrey	Director
/s/    ELLIOT SAINER         Elliot Sainer	Director

EX-4.I (D)

EXHIBIT 4.1d

FOURTH SUPPLEMENTAL INDENTURE

THIS FOURTH SUPPLEMENTAL INDENTURE dated as of November 17, 2006 among CRC Health Corporation, a Delaware corporation (the “Company”), the Guarantors, the New Guarantors listed on Schedule A hereto (the “New Guarantors”) and U.S. Bank National Association, as trustee (the “Trustee”).

WHEREAS, the Company and the Guarantors have heretofore executed and delivered to the Trustee an indenture dated as of February 6, 2006 (the “Indenture”), providing for the issuance of $200 million aggregate principal amount of the Company’s 10.75% Senior Subordinated Notes due 2016 (the “Notes”), as supplemented by the First Supplemental Indenture, dated as of July 7, 2006 (the “First Supplemental Indenture”), the Second Supplemental Indenture, dated as of September 28, 2006 (the “Second Supplemental Indenture”) and the Third Supplemental Indenture, dated as of October 24, 2006 (the “Third Supplemental Indenture”);

WHEREAS, the Company and the Guarantors propose to further amend and supplement the Indenture to join the New Guarantors, each a direct or indirect subsidiary of the Company, as a party to the Indenture, each as a Guarantor thereunder;

WHEREAS, pursuant to Section 8.01 of the Indenture, the Company and the Trustee may amend, waive or supplement the Indenture, the Notes or the Guarantees without the consent of any Holders to make any change that would provide additional rights or benefits to the holders of Notes or that does not adversely affect the legal rights under the Indenture of any such holder;

WHEREAS, the Company, each Guarantor and the New Guarantors have been authorized by their respective board of directors, managers, members, partners, or general partners, as applicable, to enter into this Fourth Supplemental Indenture;

WHEREAS, all other acts and proceedings required by law, by the Indenture and by the respective certificates of incorporation, certificates of formation, limited liability company agreements, partnership agreements, limited partnership agreements, by-laws and other organizational documents of the Company, each Guarantor and the New Guarantors to make this Fourth Supplemental Indenture a valid and binding agreement for the purposes expressed herein, in accordance with its terms, have been duly performed;

WHEREAS, pursuant to Section 8.06 of the Indenture, the Trustee is authorized to execute and deliver this Fourth Supplemental Indenture;

WHEREAS, the Company hereby requests that the Trustee execute and deliver this Fourth Supplemental Indenture;

NOW, THEREFORE, for in consideration of the premises herein contained and in order to effect the proposed amendment to join the New Guarantors to the Indenture pursuant to Section 8.01 of the Indenture, the Company, the New Guarantors and the Guarantors agree with the Trustee as follows:

ARTICLE I

Amendment of Indenture

1.1. Amendment of Indenture. As of the date hereof, this Fourth Supplemental Indenture amends the Indenture by joining the New Guarantors as parties to the Indenture, each as a Guarantor thereunder.

1.2. Execution and Delivery of Note Guarantee. Upon the effectiveness of this Fourth Supplemental Indenture, each New Guarantors agrees that a notation of their Guarantee substantially in the form attached as Exhibit G to the Indenture, will be endorsed by a duly authorized officer of each of the New Guarantors on each Note authenticated and delivered by the Trustee under the Indenture.

ARTICLE II

Miscellaneous Provisions

2.1. Instruments to be Read Together. This Fourth Supplemental Indenture is an indenture supplemental to and in implementation of the Indenture, and said Indenture, the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture and this Fourth Supplemental Indenture shall henceforth be read together.

2.2. Confirmation. The Indenture as amended and supplemented by the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture and further amended and supplemented by this Fourth Supplemental Indenture is in all respects confirmed and preserved.

2.3. Terms Defined. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2.4. Counterparts. This Fourth Supplemental Indenture may be signed in any number of counterparts each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

2.5. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof.

2.6. Effectiveness. The provisions of this Fourth Supplemental Indenture will take effect immediately upon execution thereof by the parties hereto.

2.7. Trust Indenture Act Controls. If any provision of this Fourth Supplemental Indenture limits, qualifies or conflicts with another provision that is required by or deemed to be included in this Fourth Supplemental Indenture by the Trust Indenture Act, the required or incorporated provision shall control.

2.8. Governing Law. THIS FOURTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK.

2.9. Trustee. The Trustee makes no representations as to the validity or sufficiency of this Fourth Supplemental Indenture. The recitals and statements herein are deemed to be those of the Company, the Guarantors and the New Guarantors and not of the Trustee.

[the remainder of this page intentionally left blank]

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IN WITNESS WHEREOF, the undersigned have executed this Fourth Supplemental Indenture this 17th day of November, 2006.

CRC HEALTH CORPORATION
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fourth Supplemental Indenture]

CORPORATE SUBSIDIARIES:

4therapy.com NETWORK

ADVANCED TREATMENT SYSTEMS, INC.

ATS OF CECIL COUNTY, INC.

ATS OF DELAWARE, INC.

ATS OF NORTH CAROLINA, INC.

BATON ROUGE TREATMENT CENTER, INC.

BECKLEY TREATMENT CENTER, INC.

BGI OF BRANDYWINE, INC.

BOWLING GREEN INN OF PENSACOLA, INC.

BOWLING GREEN INN OF SOUTH DAKOTA, INC.

CAPS OF VIRGINIA, INC.

CARTERSVILLE CENTER, INC.

CHARLESTON TREATMENT CENTER INC.

CLARKSBURG TREATMENT CENTER, INC.

COMPREHENSIVE ADDICTION PROGRAMS, INC.

CORAL HEALTH SERVICES, INC.

CRC ED TREATMENT, INC.

CRC HEALTH OREGON, INC.

CRC HEALTH TENNESSEE, INC.

CRC RECOVERY, INC.

EAST INDIANA TREATMENT CENTER, INC.

EVANSVILLE TREATMENT CENTER INC.

GALAX TREATMENT CENTER, INC.

GREENBRIER TREATMENT CENTER, INC.

HUNTINGTON TREATMENT CENTER, INC.

INDIANAPOLIS TREATMENT CENTER, INC.

JAYCO ADMINISTRATION, INC.

JEFF-GRAND MANAGEMENT CO., INC.

KANSAS CITY TREATMENT CENTER, INC.

By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fourth Supplemental Indenture]

CORPORATE SUBSIDIARIES (cont.):

MINERAL COUNTY TREATMENT CENTER, INC.

MWB ASSOCIATES-MASSACHUSETTS, INC.

NATIONAL SPECIALTY CLINICS, INC.

NSC ACQUISITION CORP.

PARKERSBURG TREATMENT CENTER, INC.

RICHMOND TREATMENT CENTER, INC.

SAN DIEGO HEALTH ALLIANCE

SHELTERED LIVING INCORPORATED

SIERRA TUCSON INC.

SOBER LIVING BY THE SEA, INC.

SOUTHERN INDIANA TREATMENT CENTER INC.

SOUTHERN WEST VIRGINIA TREATMENT CENTER, INC.

SOUTHWEST ILLINOIS TREATMENT CENTER, INC.

STONEHEDGE CONVALESCENT CENTER, INC.

TRANSCULTURAL HEALTH DEVELOPMENT, INC.

TREATMENT ASSOCIATES, INC.

VIRGINIA TREATMENT CENTER, INC.

VOLUNTEER TREATMENT CENTER, INC.

WCHS OF COLORADO (G), INC.

WCHS, INC.

WHEELING TREATMENT CENTER, INC.

WHITE DEER REALTY, LTD.

WHITE DEER RUN, INC.

WICHITA TREATMENT CENTER INC.

WILLIAMSON TREATMENT CENTER, INC.

WILMINGTON TREATMENT CENTER, INC.

By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fourth Supplemental Indenture]

CORPORATE SUBSIDIARIES (cont.):

ASPEN EDUCATION GROUP, INC.

ASPEN YOUTH, INC.

AYS MANAGEMENT, INC.

AHS OF IDAHO, INC.

LONE STAR EXPEDITIONS, INC.

SUWS OF THE CAROLINAS, INC.

WILDERNESS THERAPY PROGRAMS, INC.

MOUNT BACHELOR EDUCATIONAL CENTER, INC.

NEW LEAF ACADEMY, INC.

NORTHSTAR CENTER, INC.

SUNHAWK ACADEMY OF UTAH, INC.

TALISMAN SCHOOL, INC.

TEXAS EXCEL ACADEMY, INC.

TURN-ABOUT RANCH, INC.

YOUTH CARE OF UTAH, INC.

By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fourth Supplemental Indenture]

LIMITED LIABILITY COMPANY SUBSIDIARIES:

ACADEMY OF THE SIERRAS, LLC

EATING DISORDER VENTURE, LLC

ADIRONDACK LEADERSHIP EXPEDITIONS, LLC

ASPEN ACHIEVEMENT ACADEMY, LLC

FOUR CIRCLES RECOVERY CENTER, LLC

OUTBACK THERAPEUTIC EXPEDITIONS, LLC

PASSAGES TO RECOVERY, LLC

TALISMAN SUMMER CAMP, LLC

ASPEN RANCH, LLC

BROMLEY BROOK SCHOOL, LLC

CEDARS ACADEMY, LLC

COPPER CANYON ACADEMY, LLC

ISLAND VIEW RESIDENTIAL TREATMENT CENTER, LLC

NEW LEAF ACADEMY OF NORTH CAROLINA, LLC

ASPEN INSTITUTE FOR BEHAVIORAL ASSESSMENT, LLC

OAKLEY SCHOOL, LLC

SWIFT RIVER ACADEMY, L.L.C.

By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fourth Supplemental Indenture]

SAN DIEGO TREATMENT SERVICES
By:	Jayco Administration, Inc.
Its:	Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Treatment Associates, Inc.
Its:	Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fourth Supplemental Indenture]

CALIFORNIA TREATMENT SERVICES
By:	Jayco Administration, Inc.
Its:	Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Treatment Associates, Inc.
Its:	Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fourth Supplemental Indenture]

MILWAUKEE HEALTH SERVICES SYSTEM
By:	WCHS, Inc.
Its:	Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Coral Health Services, Inc.
Its:	Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fourth Supplemental Indenture]

THE CAMP RECOVERY CENTERS, L.P.
By:	CRC Recovery, Inc.
Its:	General Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	CRC Health Corporation
Its:	Limited Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fourth Supplemental Indenture]

STONEHEDGE CONVALESCENT CENTER LIMITED PARTNERSHIP
By:	Stonehedge Convalescent Center, Inc.
Its:	General Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Comprehensive Addiction Programs, Inc.
Its:	Limited Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fourth Supplemental Indenture]

U.S. BANK NATIONAL ASSOCIATION,     as Trustee
By:	/s/    RICHARD PROKOSCH
Name:	Richard Prokosch
Title:	Vice President

[Signature Page to Fourth Supplemental Indenture]

SCHEDULE A

Name of New Guarantor	State of Incorporation or Organization
Academy of the Sierras, LLC	Delaware
Adirondack Leadership Expeditions, LLC	Delaware
AHS of Idaho, Inc.	Idaho
Aspen Achievement Academy, LLC	Delaware
Aspen Education Group, Inc.	California
Aspen Institute for Behavioral Assessment, LLC	Delaware
Aspen Ranch, LLC	Delaware
Aspen Youth, Inc.	California
AYS Management, Inc.	California
Bromley Brook School, LLC	Delaware
Cedars Academy, LLC	Delaware
Copper Canyon Academy, LLC	Delaware
Eating Disorder Venture, LLC	Delaware
Four Circles Recovery Center, LLC	Delaware
Island View Residential Treatment Center, LLC	Delaware
Lone Star Expeditions, Inc.	Delaware
Mount Bachelor Educational Center, Inc.	Oregon
New Leaf Academy of North Carolina, LLC	Delaware
New Leaf Academy, Inc.	Oregon
NorthStar Center, Inc.	Delaware
Oakley School, LLC	Delaware
Outback Therapeutic Expeditions, LLC	Delaware
Passages to Recovery, LLC	Delaware
SunHawk Academy of Utah, Inc.	Delaware
SUWS of the Carolinas, Inc.	Delaware
Swift River Academy, L.L.C.	Delaware
Talisman School, Inc.	Delaware
Talisman Summer Camp, LLC	Delaware
Texas Excel Academy, Inc.	Delaware
Turn-About Ranch, Inc.	Delaware
Wilderness Therapy Programs, Inc.	Oregon
Youth Care of Utah, Inc.	Delaware

EX-10.1(B)

EXHIBIT 10.1b

AMENDMENT AGREEMENT

THIS AMENDMENT AGREEMENT, dated as of November 17, 2006 (this “Amendment”), is entered into among CRC HEALTH GROUP, INC., a Delaware corporation (“Holdings”), CRC HEALTH CORPORATION, a Delaware corporation (the “Borrower”), the Subsidiary Guarantors (as defined in the Original Credit Agreement (as defined below) and, together with Holdings and the Borrower, the “Loan Parties”) and CITIBANK, N.A., in its capacity as administrative agent for the Lenders and as collateral agent for the Secured Parties (in such capacity, the “Administrative Agent”), and the lenders party hereto and under the Credit Agreement dated as of February 6, 2006 (as amended immediately prior to the Restatement Effective Date (as defined below), the “Original Credit Agreement”) entered into among CRC Intermediate Holdings, Inc., as Holdings, the Borrower, CITIBANK, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each lender from time to time party thereto (collectively, the “Lenders”), JPMORGAN CHASE BANK, N.A., as Syndication Agent, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED and CREDIT SUISSE, as Co-Documentation Agents, CITIGROUP GLOBAL MARKETS INC. and J.P. MORGAN SECURITIES INC. as Co-Lead Arrangers, and CITIGROUP GLOBAL MARKETS INC. and J.P. MORGAN SECURITIES INC. as Joint Bookrunners. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in the Amended and Restated Credit Agreement (as defined below) shall have such meanings when used in this Amendment and terms for which reference is made to the Original Credit Agreement shall have the meanings provided in the Original Credit Agreement when used in this Amendment.

W I T N E S S E T H:

WHEREAS, pursuant to Amendment No. 1 (“Amendment No. 1”), dated as of May 19, 2006, to the Original Credit Agreement, among other things, Holdings was permitted to hold the capital stock of Borrower;

WHEREAS, the parties wish to amend and restate the Original Credit Agreement in its entirety in order to incorporate the applicable terms of Amendment No. 1 and to further amend the Original Credit Agreement on the terms set forth in the Amended and Restated Credit Agreement, among other things, to provide for the New Term Loans; and

WHEREAS, the parties hereto intend that (i) all Loans, Letters of Credit or other Credit Extensions outstanding under the Original Credit Agreement (each as defined in the Original Credit Agreement) shall continue as Loans, Letters of Credit or other Credit Extensions, as applicable, under the Amended and Restated Credit Agreement, (ii) all amounts owing by the Borrower under the Original Credit Agreement to any Person in respect of accrued and unpaid interest and fees on the Loans, Commitments and Letters of Credit (each as defined in the Original Credit Agreement) shall continue to be due and owing on such Loans, Commitments and Letters of Credit under the Amended and Restated Credit Agreement and (iii) any Person entitled to the benefits of Article III or Section 10.05 of the Original Credit Agreement shall continue to be entitled to the benefits of the corresponding provisions of the Amended and Restated Credit Agreement. Upon the effectiveness of this Amendment and the Amended and Restated Credit Agreement, each Loan Document other than the Original Credit Agreement that was in effect immediately prior to the Restatement Effective Date shall continue to be effective.

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto hereby agree as follows:

Section 1. Amendment and Restatement of Original Credit Agreement

On the Restatement Effective Date, the Original Credit Agreement shall be and is hereby amended and restated to read in its entirety as set forth in Annex I hereto (as set forth in such Annex I, the “Amended and Restated Credit Agreement”), and as so amended and restated is hereby ratified, approved and confirmed in each

and every respect. The rights and obligations of the parties to the Original Credit Agreement with respect to the period prior to the Restatement Effective Date shall not be affected by such amendment and restatement. By executing this Amendment each Lender party hereto hereby consents and agrees to the amendments and modifications to the Original Credit Agreement contained in this Amendment and in the Amended and Restated Credit Agreement.

Section 2. Conditions Precedent to Effectiveness

This Amendment and the New Term Loan Commitments shall become effective when each of the conditions set forth below shall have been satisfied (the first date as of which each such condition has been satisfied being herein called the “Restatement Effective Date”).

(a) Executed Counterparts. (i) The Administrative Agent shall have received this Amendment, duly executed by Holdings, the Borrower, the Administrative Agent and the Required Lenders (as defined in the Original Credit Agreement); and

(ii) The Administrative Agent shall have received the New Term Lender Addendum signed by the New Term Lenders, the Administrative Agent, the Borrower and Holdings for New Term Commitments of $180,000,000.

(b) Corporate and Other Proceedings. All corporate and other proceedings, and all documents, instruments and other legal matters required in connection with the transactions contemplated by this Amendment shall be executed and delivered and shall be reasonably satisfactory in all respects to the Administrative Agent.

(c) Fees. The Commitment Parties (as defined in the Fee Letter referred to below) and the Administrative Agent shall have received all the fees due under the Fee Letter dated as of September 22, 2006 by and among Borrower, Holdings, J.P. Morgan Securities Inc., JPMorgan Chase Bank, N.A., Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Capital Corporation, and reimbursement or payment of all reasonable out-of-pocket expenses (including the reasonable fees and expenses of Cahill Gordon & Reindel LLP, special counsel to the Administrative Agent and Holdings), and the reasonable fees and expenses of any local counsel or foreign counsel required to be reimbursed or paid by Borrowers hereunder or under the Amended and Restated Credit Agreement or any other Loan Document, in each case to the extent invoiced.

(d) Conditions in Amended and Restated Credit Agreement. The conditions set forth in Section 4.01B of the Amended and Restated Credit Agreement shall have been satisfied.

Section 3. Representations and Warranties

On and as of the Restatement Effective Date, after giving effect to this Amendment, each Loan Party hereby jointly and severally represents and warrants to the Administrative Agent and each Lender as follows:

(a) this Amendment has been duly authorized, executed and delivered by each Loan Party and constitutes the legal, valid and binding obligations of each Loan Party enforceable against such Loan Party in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and by general principles of equity, and the Amended and Restated Credit Agreement and each other Loan Document executed by any Loan Party in connection with this Amendment constitute legal, valid and binding obligations of such Loan Party enforceable against such Loan Party in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and by general principles of equity;

2

(b) after giving effect to this Amendment, neither the modification of the Original Credit Agreement effected pursuant to this Amendment and the Amended and Restated Credit Agreement nor the execution, delivery, performance or effectiveness of this Amendment and the Amended and Restated Credit Agreement:

(i) impairs the validity, effectiveness or priority of the Liens granted pursuant to any Loan Document, and such Liens continue unimpaired with the same priority to secure repayment of all Obligations, whether heretofore or hereafter incurred; or

(ii) requires that any new filings be made or other action taken to perfect or to maintain the perfection of such Liens, other than the Mortgage Amendments.

Section 4. Acknowledgments

(a) Each Loan Party hereby (i) expressly acknowledges the terms of the Amended and Restated Credit Agreement, (ii) ratifies and affirms after giving effect to this Amendment its obligations under the Loan Documents executed by such Loan Party, (iii) acknowledges, renews and extends its continued liability under all such Loan Documents and agrees such Loan Documents remain in full force and effect and (iv) agrees that the Security Agreement secures all obligations of the Loan Parties under the Loan Documents.

(b) Each Loan Party hereby reaffirms, as of the Restatement Effective Date, (i) the covenants and agreements contained in each Loan Document to which it is a party, including, in each case, such covenants and agreements as in effect immediately after giving effect to this Amendment and the transactions contemplated thereby, and (ii) its Guarantee, if any, of payment of the Obligations pursuant to the Guaranty and its grant of Liens on the Collateral to secure the Obligations pursuant to the Collateral Documents.

Section 5. Reference to the Effect on the Loan Documents

(a) As of the Restatement Effective Date, each reference in the Loan Documents to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of like import (including, without limitation, by means of words like “thereunder,” “thereof” and words of like import), shall mean and be a reference to the Amended and Restated Credit Agreement as amended hereby, and this Amendment and the Amended and Restated Credit Agreement shall be read together and construed as a single instrument.

(b) Except as expressly amended hereby, all of the terms and provisions of the Original Credit Agreement and all other Loan Documents are and shall remain in full force and effect and are hereby ratified and confirmed until, with respect to the Original Credit Agreement, such is superseded by the Amended and Restated Credit Agreement.

(c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lenders, the Borrower or the Administrative Agent under any of the Loan Documents, nor constitute a waiver or amendment of any other provision of any of the Loan Documents.

(d) This Amendment is a Loan Document.

Section 6. Execution in Counterparts

This Amendment may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are attached to the same document. Delivery of an executed counterpart by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment.

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Section 7. Governing Law

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

Section 8. Section Titles

The section titles contained in this Amendment are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement among the parties hereto, except when used to reference a section. Any reference to the number of a clause, subclause or subsection of any Loan Document immediately followed by a reference in parenthesis to the title of the section of such Loan Document containing such clause, subclause or subsection is a reference to such clause, subclause or subsection and not to the entire section; provided, however, that, in case of direct conflict between the reference to the title and the reference to the number of such section, the reference to the title shall govern absent manifest error. If any reference to the number of a section (but not to any clause, subclause or subsection thereof) of any Loan Document is followed immediately by a reference in parenthesis to the title of a section of any Loan Document, the title reference shall govern in case of direct conflict absent manifest error.

Section 9. Notices

All communications and notices hereunder shall be given as provided in the Amended and Restated Credit Agreement.

Section 10. Severability

The fact that any term or provision of this Amendment is held invalid, illegal or unenforceable as to any person in any situation in any jurisdiction shall not affect the validity, enforceability or legality of the remaining terms or provisions hereof or the validity, enforceability or legality of such offending term or provision in any other situation or jurisdiction or as applied to any person.

Section 11. Successors

The terms of this Amendment shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

[SIGNATURE PAGES FOLLOW]

4

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first written above.

CRC HEALTH GROUP, INC.,
	as Holdings
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
CRC HEALTH CORPORATION,
	as the Borrower
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

5

CORPORATE SUBSIDIARIES

4therapy.com NETWORK

ADVANCED TREATMENT SYSTEMS, INC.

ATS OF CECIL COUNTY, INC.

ATS OF DELAWARE, INC.

ATS OF NORTH CAROLINA, INC.

BATON ROUGE TREATMENT CENTER, INC.

BECKLEY TREATMENT CENTER, INC.

BGI OF BRANDYWINE, INC.

BOWLING GREEN INN OF PENSACOLA, INC.

BOWLING GREEN INN OF SOUTH DAKOTA,

INC.

CAPS OF VIRGINIA, INC.

CARTERSVILLE CENTER, INC.

CHARLESTON TREATMENT CENTER INC.

CLARKSBURG TREATMENT CENTER, INC.

COMPREHENSIVE ADDICTION PROGRAMS, INC.

CORAL HEALTH SERVICES, INC.

CRC ED TREATMENT, INC.

CRC RECOVERY, INC.

EAST INDIANA TREATMENT CENTER, INC.

EGETGOING, INC.

EVANSVILLE TREATMENT CENTER, INC.

GALAX TREATMENT CENTER, INC.

GREENBRIER TREATMENT CENTER, INC.

HUNTINGTON TREATMENT CENTER, INC.

INDIANAPOLIS TREATMENT CENTER, INC.

JAYCO ADMINISTRATION, INC.

JEFF-GRAND MANAGEMENT CO., INC.

KANSAS CITY TREATMENT CENTER, INC.

MADRID MERGER CORPORATION

MINERAL COUNTY TREATMENT CENTER, INC.

MWB ASSOCIATES-MASSACHUSETTS, INC.

NATIONAL SPECIALTY CLINICS, INC.

NSC ACQUISITION CORP.

PARKERSBURG TREATMENT CENTER, INC.

RICHMOND TREATMENT CENTER, INC.

SAN DIEGO HEALTH ALLIANCE

SHELTERED LIVING INCORPORATED

SIERRA TUCSON INC.

SOBER LIVING BY THE SEA, INC.

SOUTHERN INDIANA TREATMENT CENTER, INC.

SOUTHERN WEST VIRGINIA TREATMENT CENTER, INC.

SOUTHWEST ILLINOIS TREATMENT CENTER, INC.

STONEHEDGE CONVALESCENT CENTER, INC.

6

TRANSCULTURAL HEALTH DEVELOPMENT, INC.

TREATMENT ASSOCIATES, INC.

VIRGINIA TREATMENT CENTER, INC.

VOLUNTEER TREATMENT CENTER, INC.

WCHS OF COLORADO (G) INC.

WCHS, INC.

WHEELING TREATMENT CENTER, INC.

WHITE DEER REALTY, LTD.

WHITE DEER RUN, INC.

WICHITA TREATMENT CENTER, INC.

WILLIAMSON TREATMENT CENTER, INC.

WILMINGTON TREATMENT CENTER, INC.

By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

7

SAN DIEGO TREATMENT SERVICES
By:	Jayco Administrative, Inc., its Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Treatment Associates, Inc., its Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

8

CALIFORNIA TREATMENT SERVICES
By:	Jayco Administrative, Inc., its Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Treatment Associates, Inc., its Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

9

MILWAUKEE HEALTH SERVICES SYSTEM
By:	WCHS, Inc., its Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Coral Health Services, Inc., its Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

10

THE CAMP RECOVERY CENTERS L.P.
By:	CRC Recovery, Inc., its General Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	CRC Health Corporation, its Limited Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

11

STONEHEDGE CONVALESCENT CENTER, LIMITED PARTNERSHIP
By:	Stonehedge Convalescent Center, Inc., its General Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Comprehensive Addiction Programs, Inc., its Limited Partner
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

12

CITIBANK, N.A.,
	as Administrative Agent and Lender
By:	/s/    SUZANNE CRYMES
Name:	Suzanne Crymes
Title:	Vice President

13

JPMORGAN CHASE BANK N.A.,
	as a Lender
By:	/s/    BARBARA R. MARKS
Name:	Barbara R. Marks
Title:	Vice President
MERRILL LYNCH CAPITAL CORPORATION,
	as a Lender
By:	/s/    MICHAEL E. O’BRIEN
Name:	Michael E. O’Brien
Title:	Vice President

14

ANNEX I to

Amendment Agreement

AMENDED AND RESTATED CREDIT AGREEMENT

[SEE ATTACHED]

Amendment No.1

EX-10.1(C)

EXHIBIT 10.1c

EXECUTION VERSION

CREDIT AGREEMENT

Dated as of February 6, 2006

As Amended and Restated on November 17, 2006

among

CRC HEALTH CORPORATION,

as Borrower,

CRC HEALTH GROUP, INC.,

as Holdings,

CITIBANK, N.A.,

as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer,

THE OTHER LENDERS PARTY HERETO,

JPMORGAN CHASE BANK, N.A.,

as Syndication Agent,

and

MERRILL LYNCH, PIERCE, FENNER & SMITH

INCORPORATED

as Documentation Agent,

CITIGROUP GLOBAL MARKETS INC. and

J.P. MORGAN SECURITIES INC.,

as Joint Lead Arrangers,

and

CITIGROUP GLOBAL MARKETS INC.,

J.P. MORGAN SECURITIES INC.,

and

MERRILL LYNCH, PIERCE, FENNER & SMITH

INCORPORATED,

as Joint Bookrunners

CAHILL GORDON & REINDEL LLP

80 Pine Street

New York, NY 10005

808336

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01.	Defined Terms	2
SECTION 1.02.	Other Interpretive Provisions	38
SECTION 1.03.	Accounting Terms	38
SECTION 1.04.	Rounding	38
SECTION 1.05.	References to Agreements, Laws, Etc.	38
SECTION 1.06.	Times of Day	39
SECTION 1.07.	Timing of Payment of Performance	39
SECTION 1.08.	Cumulative Growth Amount Transactions	39
SECTION 1.09.	Effect of This Agreement on the Original Credit Agreement and the Other Loan Documents	39
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
SECTION 2.01.	The Loans	39
SECTION 2.02.	Borrowings, Conversions and Continuations of Loans	40
SECTION 2.03.	Letters of Credit	41
SECTION 2.04.	Swing Line Loans	47
SECTION 2.05.	Prepayments	49
SECTION 2.06.	Termination or Reduction of Commitments	51
SECTION 2.07.	Repayment of Loans	52
SECTION 2.08.	Interest	52
SECTION 2.09.	Fees	53
SECTION 2.10.	Computation of Interest and Fees	53
SECTION 2.11.	Evidence of Indebtedness	53
SECTION 2.12.	Payments Generally	54
SECTION 2.13.	Sharing of Payments	55
SECTION 2.14.	Incremental Credit Extensions	56
ARTICLE III
TAXES, INCREASED COSTS PROTECTION AND ILLEGALITY
SECTION 3.01.	Taxes	58
SECTION 3.02.	Illegality	60
SECTION 3.03.	Inability to Determine Rates	61
SECTION 3.04.	Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurocurrency Rate Loans	61
SECTION 3.05.	Funding Losses	62
SECTION 3.06.	Matters Applicable to All Requests for Compensation	62
SECTION 3.07.	Replacement of Lenders Under Certain Circumstances	63
SECTION 3.08.	Survival	64
ARTICLE IV
CONDITIONS PRECEDENT TO EFFECTIVENESS OF ORIGINAL CREDIT AGREEMENT AND TO AMENDMENT AND RESTATEMENT
SECTION 4.01A.	Conditions of Initial Credit Extension on the Original Closing Date	64

i

		Page
SECTION 4.01B.	Conditions of Credit Extension of New Term Loans on the Restatement Effective Date	64
SECTION 4.02.	Conditions to All Credit Extensions	67
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01.	Existence, Qualification and Power; Compliance with Laws	69
SECTION 5.02.	Authorization; No Contravention	71
SECTION 5.03.	Governmental Authorization; Other Consents	71
SECTION 5.04.	Binding Effect	71
SECTION 5.05.	Financial Statements; No Material Adverse Effect	72
SECTION 5.06.	Litigation	73
SECTION 5.07.	No Default	73
SECTION 5.08.	Ownership of Property; Liens	73
SECTION 5.09.	Environmental Matters	73
SECTION 5.10.	Taxes	74
SECTION 5.11.	ERISA Compliance	74
SECTION 5.12.	Subsidiaries; Equity Interests	75
SECTION 5.13.	Margin Regulations; Investment Company Act; Public Utility Holding Company Act	75
SECTION 5.14.	Disclosure	75
SECTION 5.15.	Intellectual Property; Licenses, Etc	75
SECTION 5.16.	Solvency	75
SECTION 5.17.	Insurance	75
SECTION 5.18.	Subordination of Junior Financing	76
SECTION 5.19.	Perfection, Etc	76
SECTION 5.20.	Labor Matters	76
SECTION 5.21.	Fraud and Abuse	76
SECTION 5.22.	Medicare and Medicaid Notices and Filings Related to Health Care Business	76
ARTICLE VI
AFFIRMATIVE COVENANTS
SECTION 6.01.	Financial Statements.	77
SECTION 6.02.	Certificates; Other Information	78
SECTION 6.03.	Notices	79
SECTION 6.04.	Payment of Obligations	79
SECTION 6.05.	Preservation of Existence, Etc	79
SECTION 6.06.	Maintenance of Properties	79
SECTION 6.07.	Maintenance of Insurance	79
SECTION 6.08.	Compliance with Laws	80
SECTION 6.09.	Books and Records	80
SECTION 6.10.	Inspection Rights	80
SECTION 6.11.	Covenant To Guarantee Obligations and Give Security	81
SECTION 6.12.	Compliance with Environmental Laws	82
SECTION 6.13.	Further Assurances	82
SECTION 6.14.	Interest Rate Hedging	83
SECTION 6.15.	Designation of Subsidiaries	83
SECTION 6.16.	Post-Closing Covenant	84
SECTION 6.17.	Dormant Subsidiaries	84

ii

		Page
ARTICLE VII
NEGATIVE COVENANTS
SECTION 7.01.	Liens	84
SECTION 7.02.	Investments	86
SECTION 7.03.	Indebtedness	88
SECTION 7.04.	Fundamental Changes	90
SECTION 7.05.	Dispositions	91
SECTION 7.06.	Restricted Payments	93
SECTION 7.07.	Change in Nature of Business	95
SECTION 7.08.	Transactions with Affiliates	95
SECTION 7.09.	Burdensome Agreements	96
SECTION 7.10.	Use of Proceeds	96
SECTION 7.11.	Financial Covenants	96
SECTION 7.12.	Accounting Changes	97
SECTION 7.13.	Prepayments, Etc. of Indebtedness	97
SECTION 7.14.	Equity Interests of the Borrower and Restricted Subsidiaries	97
SECTION 7.15.	Holding Company	98
SECTION 7.16.	Capital Expenditures	98
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.01.	Events of Default	99
SECTION 8.02.	Remedies Upon Event of Default	101
SECTION 8.03.	Exclusion of Immaterial Subsidiaries	101
SECTION 8.04.	Application of Funds	101
SECTION 8.05.	Borrower’s Right to Cure	102
ARTICLE IX
ADMINISTRATIVE AGENT AND OTHER AGENTS
SECTION 9.01.	Appointment and Authorization of Agents	102
SECTION 9.02.	Delegation of Duties	103
SECTION 9.03.	Liability of Agents	103
SECTION 9.04.	Reliance by Agents	104
SECTION 9.05.	Notice of Default	104
SECTION 9.06.	Credit Decision; Disclosure of Information by Agents	104
SECTION 9.07.	Indemnification of Agents	105
SECTION 9.08.	Agents in Their Individual Capacities	105
SECTION 9.09.	Successor Agents	105
SECTION 9.10.	Administrative Agent May File Proofs of Claim	106
SECTION 9.11.	Collateral and Guaranty Matters	106
SECTION 9.12.	Other Agents; Arrangers and Managers	107
ARTICLE X
MISCELLANEOUS
SECTION 10.01.	Amendments, Etc.	107
SECTION 10.02.	Notices and Other Communications; Facsimile Copies	109
SECTION 10.03.	No Waiver; Cumulative Remedies	110
SECTION 10.04.	Attorney Costs, Expenses and Taxes	110

iii

		Page
SECTION 10.05.	Indemnification by the Borrower	110
SECTION 10.06.	Payments Set Aside	111
SECTION 10.07.	Successors and Assigns	111
SECTION 10.08.	Confidentiality	114
SECTION 10.09.	Setoff	115
SECTION 10.10.	Interest Rate Limitation	115
SECTION 10.11.	Counterparts	115
SECTION 10.12.	Integration	116
SECTION 10.13.	Survival of Representations and Warranties	116
SECTION 10.14.	Severability	116
SECTION 10.15.	[Reserved]	116
SECTION 10.16.	GOVERNING LAW	116
SECTION 10.17.	Waiver of Right to Trial by Jury	116
SECTION 10.18.	Binding Effect	117
SECTION 10.19.	Lender Action	117
SECTION 10.20.	USA PATRIOT Act	117

iv

SCHEDULES

1.01A	Unrestricted Subsidiaries
1.01B	Mortgaged Properties
1.01C	Historical Adjustments
2.01(a)(ii)	New Term Commitments
4.01A(a)(v)	Original Closing Date Local Counsel Opinions
4.01B(a)(vi)	Restatement Effective Date Local Counsel Opinions
5.01(g)	Treatment Facilities
5.03	Governmental Authorization; Other Consents
5.05(a)	Financial Statements
5.05(d)	Certain Liabilities
5.09(b)	Environmental Matters
5.09(d)	Environmental Investigations
5.12	Subsidiaries and Other Equity Investments
6.16	Post-Closing Matters
7.01(b)	Existing Liens
7.02(f)	Existing Investments
7.03(b)	Existing Indebtedness
7.08	Transactions with Affiliates
7.09	Existing Restrictions
10.02	Administrative Agent’s Office; Certain Addresses for Notices
EXHIBITS1
Form of
A	Committed Loan Notice
B	Swing Line Loan Notice
C-1	Term Note
C-2	Revolving Credit Note
D	Compliance Certificate
E	Assignment and Assumption
F	Guaranty
G	Security Agreement
H	Mortgage
I	Opinion Matters—Counsel to Loan Parties
J	Intercompany Note
K-1	Perfection Certificate
K-2	Perfection Certificate Supplement
L	Joinder Agreement
M	New Term Lender Addendum

¹ All Exhibits, other than Exhibits L and M, refer to the corresponding Exhibits from the Original Credit Agreement.

v

CREDIT AGREEMENT

This AMENDED AND RESTATED CREDIT AGREEMENT (“Agreement”) is entered into as of November 17, 2006, among CRC HEALTH GROUP, INC., a Delaware corporation (“Holdings”), CRC HEALTH CORPORATION, a Delaware corporation (the “Borrower”), CITIBANK, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), JPMORGAN CHASE BANK, N.A., as Syndication Agent, and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Documentation Agent.

PRELIMINARY STATEMENTS

The Borrower, CRC Intermediate Holdings, Inc., as Holdings, CITIBANK, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, JPMORGAN CHASE BANK, N.A., as Syndication Agent, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Co-Documentation Agent, and the lenders party thereto (the “Original Lenders”) have previously entered into a credit agreement, dated as of February 6, 2006 (the “Original Credit Agreement”) (which term shall, unless the context otherwise requires, include any amendment thereto prior to the Restatement Effective Date (as defined below)).

Pursuant to Amendment No. 1 (“Amendment No. 1”) to the Original Credit Agreement, dated as of May 19, 2006, among other things, Holdings was permitted to replace CRC Intermediate Holdings, Inc. as Holdings under the Original Credit Agreement.

Immediately prior to the Restatement Effective Date, the Original Term Lenders under the Original Credit Agreement held Original Term Loans under the Original Credit Agreement in the aggregate principal amount of $243,775,000.

The Borrower has requested that simultaneously with the consummation of the merger of Madrid Merger Corporation, a California corporation with and into Aspen Education Group, Inc., a California corporation (“Aspen”), with Aspen as the surviving corporation (such transactions, the “Aspen Acquisition”), the New Term Lenders extend credit to the Borrower in the form of New Term Loans in an initial aggregate principal amount of $175,500,000, which New Term Loans shall have substantially identical terms and conditions as the Original Term Loans.

The proceeds of the New Term Loans made on the Restatement Effective Date, together with the proceeds of (i) the Holdings Loans and (ii) the Aspen Equity Contributions, will be used to finance the repayment of outstanding Revolving Credit Loans and certain existing Indebtedness of Aspen and its Subsidiaries, pay the Aspen Acquisition Consideration and the Aspen Transaction Expenses. The proceeds of Revolving Credit Loans made on or after the Restatement Effective Date will be used for working capital and other general corporate purposes of the Borrower and its Subsidiaries, including the financing of Permitted Acquisitions. Swing Line Loans and Letters of Credit will be used for general corporate purposes of the Borrower and its Subsidiaries.

The parties hereto wish to enter amend and restate the Original Credit Agreement in its entirety to (a) provide for the New Term Loans, (b) provide for certain other changes as set forth herein and (c) incorporate the applicable terms of Amendment No. 1.

The parties hereto intend that (i) all Loans, Letters of Credit or other Credit Extensions outstanding under the Original Credit Agreement (each as defined in the Original Credit Agreement) shall continue as Loans, Letters of Credit or other Credit Extensions, as applicable, under this Agreement, (ii) all amounts owing by the Borrower under the Original Credit Agreement to any Person in respect of accrued and unpaid interest and fees on the Loans, Commitments and Letters of Credit (each as defined in the Original Credit Agreement) shall continue to be due and owing on such Loans, Commitments and Letters of Credit under this Agreement and (iii) any Person entitled to the benefits of Article III or Section 10.05 of the Original Credit Agreement shall continue to be entitled to the benefits of the corresponding provisions of this Agreement.

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

“Acquired EBITDA” means, with respect to any Acquired Entity or Business for any period, the amount for such period of Consolidated EBITDA of such Acquired Entity or Business (determined as if references to the Borrower and the Restricted Subsidiaries in the definition of Consolidated EBITDA were references to such Acquired Entity or Business and its Subsidiaries), all as determined on a consolidated basis for such Acquired Entity or Business.

“Acquired Entity or Business” means any Person, property, business or asset acquired by the Borrower or any Restricted Subsidiary, to the extent not subsequently sold, transferred or otherwise disposed by the Borrower or such Restricted Subsidiary.

“Act” has the meaning specified in Section 10.20.

“Additional Guarantor” means any Subsidiary that the Borrower elects to enter into a Joinder Agreement to the Guaranty.

“Additional Lender” has the meaning specified in Section 2.14(a).

“Administrative Agent” means Citibank in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Agent-Related Persons” means the Agents, together with their respective Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates.

“Agents” means, collectively, the Administrative Agent, the Syndication Agent and the Documentation Agent.

“Aggregate Commitments” means the Commitments of all the Lenders.

“Agreement” means this Amended and Restated Credit Agreement.

“Amendment Agreement” means the Amendment Agreement dated as of the Restatement Effective Date among Holdings, the Borrower, the Original Subsidiary Guarantors, the Administrative Agent and certain Original Lenders.

2

“Amendment No. 1” has the meaning given such term in the preliminary statements hereto.

“Applicable Rate” means a percentage per annum equal to:

(a) with respect to Term Loans, (i) for Eurocurrency Rate Loans, 2.50% and (ii) for Base Rate Loans, 1.50%.

(b) with respect to Revolving Credit Loans, Letter of Credit fees and commitment fees in respect of unused Revolving Credit Commitments, (i) until delivery of financial statements for the first full fiscal quarter commencing on or after the Original Closing Date pursuant to Section 6.01, (A) for Eurocurrency Rate Loans, 2.50%, (B) for Base Rate Loans, 1.50%, (C) for Letter of Credit fees, 2.50% and (D) for commitment fees, 0.50% and (ii) thereafter, the following percentages per annum, based upon the Total Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(b):

Applicable Rate
Pricing         Level	Total Leverage Ratio	Eurocurrency     Rate and Letter of Credit Fees		Base Rate		Commitment     Fee Rate
1	<4.5:1	1.75	%	0.75	%	0.375	%
2	³4.5:1 but <5.0:1	2.00	%	1.00	%	0.50	%
3	³5.0:1 but <5.5:1	2.25	%	1.25	%	0.50	%
4	³5.5:1	2.50	%	1.50	%	0.50	%

Any increase or decrease in the Applicable Rate resulting from a change in the Total Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 6.02(b); provided that at the option of the Administrative Agent or the Required Lenders, the highest Pricing Level shall apply (x) as of the first Business Day after the date on which a Compliance Certificate was required to have been delivered but was not delivered, and shall continue to so apply to and including the date on which such Compliance Certificate is so delivered (and thereafter the Pricing Level otherwise determined in accordance with this definition shall apply) and (y) as of the first Business Day after an Event of Default under Section 8.01(a) shall have occurred and be continuing, and shall continue to so apply to but excluding the date on which such Event of Default is cured or waived (and thereafter the Pricing Level otherwise determined in accordance with this definition shall apply).

“Appropriate Lender” means, at any time, (a) with respect to Loans of any Class, the Lenders of such Class, (b) with respect to Letters of Credit, (i) the relevant L/C Issuers and (ii) with respect to any Letters of Credit issued pursuant to Section 2.03(a), the Revolving Credit Lenders and (c) with respect to the Swing Line Facility, (i) the Swing Line Lender and (ii) if any Swing Line Loans are outstanding pursuant to Section 2.04(a), the Revolving Credit Lenders.

“Approved Bank” has the meaning specified in clause (c) of the definition of “Cash Equivalents”.

“Approved Fund” means any Fund that is administered, advised or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers, advises or manages a Lender.

“Arrangers” means Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., each in its capacity as a Joint Lead Arranger under this Agreement.

“Aspen” has the meaning specified in the preliminary statements to this Agreement.

“Aspen Acquisition” has the meaning specified in the preliminary statements to this Agreement.

“Aspen Acquisition Consideration” means the total funds required to consummate the Aspen Acquisition.

3

“Aspen Equity Contributions” means, collectively, (a) the cash contribution by the Bain Entities and rollover equity by the Management Stockholders in the aggregate of not less than $35,000,000 to Holdings or one or more direct or indirect holding company parents of Holdings, and (b) the further contribution to the Borrower of any portion of such cash contribution proceeds not directly received by the Borrower or used by Holdings to pay Aspen Transaction Expenses or Aspen Acquisition Consideration or repay existing Indebtedness of Aspen and its Subsidiaries.

“Aspen Loan Parties” means, collectively, Aspen and each of its Subsidiaries that is a Guarantor.

“Aspen Transaction” means, collectively, (a) the Aspen Equity Contributions, (b) the Aspen Acquisition, (c) the funding of the Holdings Loans, (d) the funding of the New Term Loans on the Restatement Effective Date, (e) the consummation of any other transactions in connection with the foregoing, (f) the repayment of Revolving Credit Loans and of certain existing Indebtedness of Aspen and its subsidiaries, and (g) the payment of the fees and expenses incurred in connection with any of the foregoing.

“Aspen Transaction Expenses” means any fees or expenses incurred or paid by Holdings, the Borrower or any Restricted Subsidiary in connection with the Aspen Transaction, including any costs or expenses incurred by the Borrower or a Restricted Subsidiary pursuant to or with respect to any management equity plan or stock option plan or any other management or employee benefit plan or any stock subscription or shareholder agreement, this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby.

“Assignees” has the meaning specified in Section 10.07(b).

“Assignment and Assumption” means an Assignment and Assumption substantially in the form of Exhibit E.

“Attorney Costs” means and includes all reasonable fees, expenses and disbursements of any law firm or other external legal counsel.

“Attributable Indebtedness” means, on any date, in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP.

“Audited Financial Statements” means the Original Closing Date Audited Financial Statements and the Restatement Effective Date Audited Financial Statements.

“Auto-Renewal Letter of Credit” has the meaning specified in Section 2.03(b)(iii).

“Bain Entities” means, collectively, Bain Capital LLC, its Affiliates (other than other portfolio companies) and any investment funds advised or managed by any of the foregoing.

“Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Citibank as its “prime rate.” The “prime rate” is a rate set by Citibank based upon various factors including Citibank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Citibank shall take effect at the opening of business on the day specified in the public announcement of such change.

“Base Rate Loan” means a Loan that bears interest based on the Base Rate.

“Borrower” has the meaning specified in the introductory paragraph to this Agreement.

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“Borrower Parties” means the collective reference to the Borrower and the Restricted Subsidiaries, and “Borrower Party” means any one of them.

“Borrowing” means a Revolving Credit Borrowing, a Swing Line Borrowing, a New Term Borrowing or an Original Term Borrowing, as the context may require.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office with respect to Obligations denominated in Dollars is located and if such day relates to any interest rate settings as to a Eurocurrency Rate Loan denominated in Dollars, any fundings, disbursements, settlements and payments in Dollars in respect of any such Eurocurrency Rate Loan, or any other dealings in Dollars to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Loan, means any such day on which dealings in deposits in Dollars are conducted by and between banks in the London interbank eurodollar market.

“Capital Expenditures” means, for any period, the aggregate of (a) all expenditures by the Borrower and the Restricted Subsidiaries during such period that, in conformity with GAAP, are or are required to be included as additions during such period to property, plant or equipment reflected in the consolidated balance sheet of the Borrower and the Restricted Subsidiaries and (b) the value of all assets under Capitalized Leases incurred by the Borrower and the Restricted Subsidiaries during such period; provided that the term “Capital Expenditures” shall not include (i) expenditures made in connection with the replacement, substitution, restoration or repair of assets to the extent financed with (x) insurance proceeds paid on account of the loss of or damage to the assets being replaced, substituted, restored or repaired or (y) awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced, (ii) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller of such equipment for the equipment being traded in at such time, (iii) the purchase of plant, property or equipment to the extent financed with the proceeds of Dispositions that are not required to be applied to prepay Term Loans pursuant to Section 2.05(b), (iv) expenditures relating to the construction or acquisition of any property which has been transferred to a Person other than a Borrower Party during the same fiscal year in which such expenditures were made, or in the immediately succeeding year, pursuant to a sale-leaseback transaction permitted under Section 7.05(f), (v) expenditures that are accounted for as capital expenditures by the Borrower or any Restricted Subsidiary and that actually are paid for by a Person other than the Borrower or any Restricted Subsidiary and for which neither the Borrower nor any Restricted Subsidiary has provided or is required to provide or incur, directly or indirectly, any consideration or obligation to such Person or any other Person (whether before, during or after such period), (vi) the book value of any asset owned by the Borrower or any Restricted Subsidiary prior to or during such period to the extent that such book value is included as a capital expenditure during such period as a result of such Person reusing or beginning to reuse such asset during such period without a corresponding expenditure actually having been made in such period; provided that (x) any expenditure necessary in order to permit such asset to be reused shall be included as a Capital Expenditure during the period in which such expenditure actually is made and (y) such book value shall have been included in Capital Expenditures when such asset was originally acquired, (vii) expenditures that constitute Permitted Acquisitions, (viii) interest capitalized during such period or (ix) expenditures financed by the Net Cash Proceeds of Permitted Equity Issuances (other than Permitted Equity Issuances made pursuant to Section 8.05) after the Original Closing Date to the extent that such Net Cash Proceeds shall have actually been received by Borrower (including through capital contributions of such Net Cash Proceeds by Holdings to Borrower) and to the extent such proceeds are not used to make a Restricted Payment pursuant to Section 7.06(f), make an Investment pursuant to Section 7.02(o) or prepay Junior Financing pursuant to Section 7.13(v).

“Capitalized Leases” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases; provided that for all purposes hereunder the amount of obligations under any Capitalized Lease shall be the amount thereof accounted for as a liability in accordance with GAAP.

“Cash Collateral” has the meaning specified in Section 2.03(g).

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“Cash Collateral Account” means a blocked account at Citibank (or another commercial bank selected in compliance with Section 9.09) in the name of the Administrative Agent and under the sole dominion and control of the Administrative Agent, and otherwise established in a manner satisfactory to the Administrative Agent.

“Cash Collateralize” has the meaning specified in Section 2.03(g).

“Cash Equivalents” means any of the following types of Investments, to the extent owned by the Borrower or any Restricted Subsidiary:

(a) Dollars or, in the case of any Foreign Subsidiary, such local foreign currency used in the country of such Foreign Subsidiary held by it from time to time in the ordinary course of business;

(b) readily marketable obligations issued or directly and fully guaranteed or insured by the government or any agency or instrumentality of the United States, having average maturities of not more than 12 months from the date of acquisition thereof; provided that the full faith and credit of the United States is pledged in support thereof;

(c) time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) is a Lender or (ii) (A) is organized under the Laws of the United States, any state thereof, or the District of Columbia or is the principal banking Subsidiary of a bank holding company organized under the Laws of the United States, any state thereof, the District of Columbia, and is a member of the Federal Reserve System, and (B) has combined capital and surplus of at least $250,000,000 (any such bank in the foregoing clauses (i) or (ii) being an “Approved Bank”), in each case with average maturities of not more than 12 months from the date of acquisition thereof;

(d) commercial paper and variable or fixed rate notes issued by an Approved Bank (or by the parent company thereof) or any variable or fixed rate note issued by, or guaranteed by, a corporation rated A-2 (or the equivalent thereof) or better by S&P or P-2 (or the equivalent thereof) or better by Moody’s, in each case with average maturities of not more than 12 months from the date of acquisition thereof;

(e) repurchase agreements entered into by any Person with a bank or trust company (including any of the Lenders) or recognized securities dealer, in each case, having capital and surplus in excess of $250,000,000 for direct obligations issued by or fully guaranteed or insured by the government or any agency or instrumentality of the United States, in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations;

(f) securities with average maturities of 12 months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government having an investment grade rating from either S&P or Moody’s (or the equivalent thereof);

(g) Investments with average maturities of 12 months or less from the date of acquisition in money market funds rated AAA- (or the equivalent thereof) or better by S&P or Aaa3 (or the equivalent thereof) or better by Moody’s;

(h) instruments equivalent to those referred to in clauses (a) through (g) above denominated any other foreign currency that is the local foreign currency of a Foreign Subsidiary comparable in credit quality and tenor to those referred to above and customarily used by corporations for cash management purposes in any jurisdiction outside the United States to the extent reasonably required in connection with any business conducted by any Foreign Subsidiary organized in such jurisdiction; and

(i) Investments, classified in accordance with GAAP as current assets of the Borrower or any Restricted Subsidiary, in money market investment programs which are registered under the Investment Company Act of 1940 or which are administered by financial institutions having capital of at least

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$250,000,000, and, in either case, the portfolios of which are limited such that substantially all of such investments are of the character, quality and maturity described in clauses (a) through (i) of this definition.

“Cash Management Obligations” means obligations owed by Holdings, the Borrower or any Restricted Subsidiary to any Lender or any Affiliate of a Lender in respect of any overdraft and related liabilities arising from treasury, depository and cash management services or any automated clearing house transfers of funds.

“Casualty Event” means any event that gives rise to the receipt by Holdings, the Borrower or any Restricted Subsidiary of any insurance proceeds or condemnation awards in respect of any equipment, fixed assets or real property (including any improvements thereon) to replace or repair such equipment, fixed assets or real property.

“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as subsequently amended.

“CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency.

“Change of Control” means the earliest to occur of:

(a) the Permitted Holders ceasing to have the power, directly or indirectly, to vote or direct the voting of securities having a majority of the ordinary voting power for the election of directors of Holdings; provided that the occurrence of the foregoing event shall be deemed not a Change of Control if,

(i) any time prior to the consummation of a Qualifying IPO, and for any reason whatsoever, (A) the Permitted Holders otherwise have the right, directly or indirectly, to designate (and do so designate) a majority of the board of directors of Holdings or (B) the Permitted Holders own, directly or indirectly, of record and beneficially an amount of common stock of Holdings equal to an amount more than fifty percent (50%) of the amount of common stock of Holdings owned, directly or indirectly, by the Permitted Holders of record and beneficially as of the Original Closing Date and such ownership by the Permitted Holders represents the largest single block of voting securities of Holdings owned, of record and beneficially, by any Person or related group for purposes of Section 13(d) of the Exchange Act, or

(ii) at any time after the consummation of a Qualifying IPO, and for any reason whatsoever, (A) no Person (other than one or more Permitted Holders) or Persons (other than one or more Permitted Holders) that are together a group (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act) or are acting, for the purpose of acquiring, holding, or disposing of securities, as a group (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), but in any case excluding any employee benefit plan of such person and its Subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), by way of merger, consolidation or other business combination or purchase, shall become the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under such Act), directly or indirectly, of more than the greater of (x) thirty-five percent (35%) of the shares outstanding of Holdings and (y) the percentage of the then outstanding voting stock of Holdings owned, directly or indirectly, beneficially by the Permitted Holders, and (B) during each period of twelve (12) consecutive months, the board of directors of Holdings shall consist of a majority of the Continuing Directors; or

(b) any “Change of Control” (or any comparable term) in any document pertaining to the Senior Subordinated Notes, the Holdings Loans or any Junior Financing with an aggregate outstanding principal amount in excess of the Threshold Amount; or

(c) the Borrower ceasing to be a directly or indirectly wholly owned Subsidiary of Holdings.

“Citibank” means Citibank, N.A. and its successors.

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“Class” (a) when used with respect to Lenders, refers to whether such Lenders are Revolving Credit Lenders or Term Lenders, (b) when used with respect to Commitments, refers to whether such Commitments are Revolving Credit Commitments or Term Commitments and (c) when used with respect to Loans or a Borrowing, refers to whether such Loans, or the Loans comprising such Borrowing, are Revolving Credit Loans or Term Loans (it being understood that (x) the Original Term Lenders and the New Term Lenders are a single Class of Lenders, (y) the Original Term Commitments and the New Term Commitments are a single Class of Commitments and (z) the Original Term Loans and the New Term Loans are a single Class of Loans).

“CMS” means the Centers for Medicare and Medicaid Services of HHS and any successor thereof and any predecessor thereof, including the United States Health Care Financing Administration.

“Code” means the U.S. Internal Revenue Code of 1986 as amended from time to time and the regulations related thereto.

“Collateral” means all the “Collateral” as defined in any Collateral Document and shall include the Mortgaged Properties, and all other property of whatever kind and nature subject or purported to be subject from time to time to a Lien under any Collateral Document.

“Collateral Agent” means Citibank, in its capacity as collateral agent under any of the Loan Documents, or any successor administrative agent.

“Collateral and Guarantee Requirement” means, at any time, the requirement that:

(a) the Administrative Agent shall have received each Collateral Document required to be delivered (i) on the Original Closing Date pursuant to Section 4.01A(a)(iii), (ii) on the Restatement Effective Date pursuant to Section 4.01B(a)(iii) or (iii) pursuant to Section 6.11 at such time, duly executed by each Loan Party thereto;

(b) all Obligations shall have been unconditionally guaranteed (the “Guarantees”) by the Required Guarantors;

(c) all guarantees issued or to be issued in respect of the Senior Subordinated Notes shall be subordinated to the Guarantees to the same extent that the Senior Subordinated Notes are subordinated to the Obligations;

(d) the Obligations and the Guarantees shall have been secured by a first-priority security interest in (i) all the Equity Interests of the Borrower and (ii) all Equity Interests (other than Equity Interests of any Unrestricted Subsidiaries) of each wholly owned Subsidiary directly owned by any Guarantor; provided that pledges of Equity Interests of each Foreign Subsidiary shall be limited to 65% of the issued and outstanding voting Equity Interests of such Foreign Subsidiary and 100% of the issued and outstanding non-voting Equity Interests of such Foreign Subsidiary at any time and to only a Foreign Subsidiary which is a direct subsidiary of the Borrower or any Guarantor;

(e) except to the extent otherwise permitted hereunder or under any Collateral Document, the Obligations and the Guarantees shall have been secured by a perfected security interest in, and mortgages on, substantially all tangible and intangible assets of Holdings, the Borrower and each other Guarantor (including, without limitation, accounts receivable, inventory, equipment, commercial tort claims, intercompany indebtedness, intellectual property, general intangibles, licensing agreements, owned real property, cash and proceeds of any of the foregoing (except that no leasehold mortgages, perfection pursuant to certificates of title statutes with respect to motor vehicles, or control agreements with respect to deposit accounts or securities accounts shall be required), in each case, with the priority required by the Collateral Documents; provided that security interests in real property shall be limited to the Mortgaged Properties;

(f) none of the Collateral shall be subject to any Liens other than Liens permitted by Section 7.01; and

(g) the Collateral Agent shall have received (i) counterparts of a Mortgage with respect to each owned property described on Schedule 1.01B or required to be delivered pursuant to Section 6.11 (the “Mortgaged

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Properties”) duly executed and delivered by the record owner of such property, (ii) a policy or policies of title insurance of the type provided for in Section 4.01A(j), and (iii) such surveys, legal opinions and other documents as the Administrative Agent may reasonably request with respect to each such Mortgaged Property.

The foregoing definition shall not require the creation or perfection of pledges of or security interests in, or the obtaining of title insurance or surveys with respect to, particular assets if and for so long as, in the reasonable judgment of the Administrative Agent (confirmed in writing by notice to the Borrower), the cost of creating or perfecting such pledges or security interests in such assets or obtaining title insurance or surveys in respect of such assets shall be excessive in view of the benefits to be obtained by the Lenders therefrom. The Administrative Agent may grant extensions of time for the perfection of security interests in or the obtaining of title insurance or surveys with respect to particular assets (including extensions beyond the Original Closing Date for the perfection of security interests in the assets of the Loan Parties on such date) where it reasonably determines, in consultation with the Borrower, that perfection cannot be accomplished without undue effort or expense by the time or times at which it would otherwise be required by this Agreement or the Collateral Documents.

“Collateral Documents” means, collectively, the Security Agreement, the Mortgages, each of the mortgages, deeds of trust, collateral assignments, Security Agreement Supplements, security agreements, pledge agreements or other similar agreements delivered to the Administrative Agent or Collateral Agent for the benefit of the Secured Parties pursuant to Section 6.11 or Section 6.13, the Guaranty and each of the other agreements, instruments or documents that creates or purports to create a Lien or Guarantee in favor of the Administrative Agent or Collateral Agent for the benefit of the Secured Parties.

“Commitment” means a Term Commitment, a New Term Commitment, an Original Term Commitment or a Revolving Credit Commitment, as the context may require.

“Committed Loan Notice” means a notice of (a) a Term Borrowing, (b) a Revolving Credit Borrowing, (c) a conversion of Loans from one Type to the other, or (d) a continuation of Eurocurrency Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

“Compensation Period” has the meaning specified in Section 2.12(c)(ii).

“Compliance Certificate” means a certificate substantially in the form of Exhibit D.

“Consolidated EBITDA” means, for any period, the Consolidated Net Income for such period, plus:

(a) without duplication and to the extent already deducted (and not added back) in arriving at such Consolidated Net Income, the sum of the following amounts for such period:

(i) total interest expense and, to the extent not reflected in such total interest expense, any losses on hedging obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, net of, to the extent not reflected in such total interest expense, interest income and gains on such hedging obligations or other derivative instruments,

(ii) provision for taxes based on income, profits or capital of the Borrower and the Restricted Subsidiaries, including state, franchise and similar taxes and withholding taxes paid or accrued during such period,

(iii) depreciation and amortization,

(iv) Non-Cash Charges,

(v) unusual or non-recurring charges (including, without limitation, expenses related to the Original Closing Date Transactions, the Aspen Transaction Expenses and severance, signing, retention or completion bonuses),

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(vi) restructuring charges or reserves (including restructuring costs related to acquisitions after the date hereof and to closure/consolidation of facilities), provided that such adjustments are certified as restructuring charges or reserves in a certificate of a Responsible Officer delivered to the Administrative Agent,

(vii) any deductions attributable to minority interests of third parties in non-wholly owned Subsidiaries, except to the extent of cash dividends declared or paid on Equity Interests of such Subsidiaries held by third parties,

(viii) to the extent permitted to be paid under Section 7.08(e), the amount of management, monitoring, consulting and advisory fees and related expenses and any other fees and expenses paid to the Sponsor (in cash, to the extent not added back in any prior period, or any accruals of such items),

(ix) any costs or expenses incurred by the Borrower or a Restricted Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such costs or expenses are funded with cash proceeds contributed to the capital of the Borrower or net cash proceeds of an issuance of Equity Interests of the Borrower (other than Disqualified Equity Interests),

(x) to the extent actually reimbursed, expenses incurred to the extent covered by indemnification provisions in any agreement in connection with the Original Closing Date Transaction, any acquisition consummated prior to the Original Closing Date or a Permitted Acquisition,

(xi) to the extent covered by insurance and actually reimbursed, or, so long as Borrower has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is in fact reimbursed within 120 days of the date of such evidence (with a deduction for any amount so added back to the extent not so reimbursed within such 120 days), expenses with respect to liability or casualty events or business interruption,

(xii) for purposes of determining compliance with Section 7.11 only, Permitted Equity Issuances pursuant to and in accordance with Section 8.05, and

(xiii) any expenses or charges related to any equity offering, permitted Investment, acquisition, disposition, recapitalization or Indebtedness permitted to be incurred hereunder (in each case whether or not consummated) or to the Original Closing Date Transactions (including any accruals and reserves that are established within twelve months after the Original Closing Date that are so required to be established as a result of the Original Closing Date Transactions in accordance with GAAP) and, in each case, deducted in such period in computing Consolidated Net Income, less

(b) without duplication and to the extent included in arriving at such Consolidated Net Income, the sum of the following amounts for such period:

(i) unusual or non-recurring gains,

(ii) non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced Consolidated EBITDA in any prior period or is in respect of cash received in a prior period and not added back in a prior period), and

(iii) all gains from investments recorded using the equity method, except to the extent of cash dividends or distributions received by Borrower or any Restricted Subsidiary in respect of such investments,

in each case, as determined on a consolidated basis for the Borrower and the Restricted Subsidiaries in accordance with GAAP.

For the purpose of the definition of Consolidated EBITDA, “Non-Cash Charges” means (a) non-cash losses on asset sales, disposals or abandonments, (b) any impairment charge or asset write-off or write-down

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related to intangible assets, long-lived assets, and investments in debt and equity securities pursuant to GAAP, (c) all non-cash losses from investments recorded using the equity method, (d) stock-based awards compensation expense, and (e) other non-cash charges (provided that if any non-cash charges, expenses and write-downs referred to in this clause (e) represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period shall be subtracted from Consolidated EBITDA to such extent, and excluding amortization of a prepaid cash item that was paid in a prior period).

For purposes of determining Consolidated EBITDA for any Test Period that includes the quarterly periods ending September 30, 2005 or December 31, 2005, the Consolidated EBITDA for each such quarterly period shall be deemed to be $17,048,000 and $16,292,000, respectively (it being understood that these amounts shall give effect to the historical adjustments described on Schedule 1.01C).

“Consolidated Interest Expense” means, for any period, the sum of (i) the cash interest expense (including that attributable to Capitalized Leases), net of cash interest income, of the Borrower and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, with respect to all outstanding Indebtedness of the Borrower and the Restricted Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Swap Contracts and (ii) any cash payments made during such period in respect of the interest expense on such obligations referred to in clause (b) below relating to Funded Debt that were amortized or accrued in a previous period (other than any such obligations resulting from the discounting of Indebtedness in connection with the application of purchase accounting in connection with the Original Closing Date Transaction, any acquisition consummated prior to the Original Closing Date or any Permitted Acquisition) but excluding, however, (a) amortization of deferred financing costs and any other amounts of non-cash interest, (b) the accretion or accrual of discounted liabilities during such period all as calculated on a consolidated basis in accordance with GAAP, and (c) all non-recurring cash interest expense consisting of liquidated damages for failure to timely comply with registration rights obligations and financing fees. Notwithstanding anything to the contrary contained herein, for purposes of determining Consolidated Interest Expense for any period ending prior to the first anniversary of the Original Closing Date, Consolidated Interest Expense shall be an amount equal to actual Consolidated Interest Expense from the Original Closing Date through the date of determination multiplied by a fraction the numerator of which is 365 and the denominator of which is the number of days from the Original Closing Date through the date of determination.

“Consolidated Net Income” means, for any period, the net income (loss) of the Borrower and the Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, excluding, without duplication,

(a) the cumulative effect of a change in accounting principles during such period to the extent included in Consolidated Net Income,

(b) any net after-tax income or loss for such period attributable to the early extinguishment of Indebtedness or hedging obligations or other derivative instruments,

(c) any net after-tax extraordinary gains, losses or charges,

(d) any non-cash unusual or non-recurring charges (provided that if any such non-cash charges represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period shall be subtracted from Consolidated Net Income to such extent),

(e) any net after-tax gains or losses realized upon the disposition of assets outside the ordinary course of business (including any gain or loss realized upon the sale or other disposition of any Equity Interests of any Person),

(f) non-cash compensation charges, including any such charges arising from stock options, restricted stock grants or other equity-incentive programs,

(g) the effect of any non-cash items resulting from any amortization, impairment, write-up, write-down or write-off of assets (including intangible assets, goodwill and deferred financing costs) in connection with

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the Original Close Date Transactions, any acquisition consummated prior to the Original Closing Date and any Permitted Acquisition or any merger, consolidation, disposition or similar transaction permitted by this Agreement (other than any such non-cash item to the extent that it represents an accrual of or reserve for cash expenditures in any future period except to the extent such item is subsequently reversed),

(h) (A) the income of (1) for purposes of calculating Cumulative Consolidated Net Income only, any Restricted Subsidiary (other than a Loan Party) to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of that income is not at the time permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, statute, rule or governmental regulation applicable to such Restricted Subsidiary or its stockholders (which has not been legally waived) and (2) any Joint Venture and any Unrestricted Subsidiary, except in each case to the extent of the amount of dividends or other distributions actually paid in cash to such Person or one of its Restricted Subsidiaries by such Subsidiary, Joint Venture or Unrestricted Subsidiary during such period; (B) the income or loss of any Person accrued prior to the date it becomes a Restricted Subsidiary of such Person or the date that such other Person’s assets are acquired by such Person or any Restricted Subsidiary of such Person; and (C) the loss of any Joint Venture accounted for by using the equity method of accounting to the extent not paid in cash by the Borrower or any Restricted Subsidiary,

(i) any non-cash income or charges resulting from mark-to-market accounting under Statement of Financial Accounting Standards No. 52—Foreign Currency Translation relating to Indebtedness denominated in foreign currencies,

(j) any reductions in respect of accretion of dividends of preferred Equity Interests, to the extent not paid in cash (provided that cash payments on such preferred Equity Interests after such accretion shall reduce Consolidated Net Income in the period paid in cash),

(k) in the case of any period that includes a period ending prior to or during the fiscal year ended December 31, 2006 and to the extent paid with the proceeds of the Original Closing Date Transactions, Original Closing Date Transaction Expenses, and

(l) in the case of any period that includes a period ending prior to or during the fiscal twelve months ended September 30, 2007 and to the extent paid with the proceeds of the Aspen Transactions, Aspen Transaction Expenses.

There shall be excluded from Consolidated Net Income for any period the purchase accounting effects of adjustments to property, inventory and equipment, software and other intangible assets and deferred revenue in component amounts required or permitted by GAAP and related authoritative pronouncements (including the effects of such adjustments pushed down to Holdings, the Borrower and the Restricted Subsidiaries), as a result of the Original Close Date Transaction, any acquisition consummated prior to the Original Closing Date, any Permitted Acquisitions, or the amortization, write-down or write-off of any amounts thereof.

“Consolidated Total Debt” means, as of any date of determination, (a) the aggregate principal amount of Indebtedness of the Borrower and the Restricted Subsidiaries out-standing on such date, determined on a consolidated basis, but only to the extent required to be recorded on a balance sheet, in accordance with GAAP (but excluding the effects of any discounting of Indebtedness resulting from the application of purchase accounting in connection with the Original Close Date Transaction, any acquisitions consummated prior to the Original Closing Date or any Permitted Acquisition), consisting of Indebtedness for borrowed money, obligations in respect of Capitalized Leases and debt obligations evidenced by promissory notes or similar instruments, minus (b) the aggregate amount of cash and Cash Equivalents (in each case, free and clear of all Liens, other than nonconsensual Liens permitted by Section 7.01 and Liens permitted by Sections 7.01(a), (l), (o) and (s) and clauses (i) and (ii) of Sections 7.01(u) and 7.01(w) (to the extent such Indebtedness is secured by cash collateral)) in excess of $500,000 included in the consolidated balance sheet of the Borrower and the Restricted Subsidiaries as of such date.

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“Consolidated Working Capital” means, at any date, the excess of (a) the sum of all amounts (other than cash and Cash Equivalents) that would, in conformity with GAAP, be set forth opposite the caption “total current assets” (or any like caption) on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries at such date over (b) the sum of all amounts that would, in conformity with GAAP, be set forth opposite the caption “total current liabilities” (or any like caption) on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries on such date, including deferred revenue but excluding, without duplication, (i) the current portion of any Funded Debt, (ii) all Indebtedness consisting of Loans and L/C Obligations to the extent otherwise included therein, (iii) the current portion of interest and (iv) the current portion of current and deferred income taxes.

“Continuing Directors” means the directors of Holdings on the Original Closing Date, as elected or appointed after giving effect to the Original Close Date Merger and the other transactions contemplated hereby, and each other director, if, in each case, such other directors’ nomination for election to the board of directors of Holdings (or the Borrower after a Qualifying IPO of the Borrower) is recommended by a majority of the then Continuing Directors or such other director receives the vote of one or more Permitted Holders in his or her election by the stockholders of Holdings (or the Borrower after a Qualifying IPO of the Borrower).

“Contract Consideration” has the meaning specified in the definition of “Excess Cash Flow”.

“Contract Provider” means any Person or any employee, agent or subcontractor of such Person who provides professional health care services under or pursuant to any contract with the Borrower or any Subsidiary.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control” has the meaning specified in the definition of “Affiliate.”

“Credit Extension” means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.

“Crowell Equity Documents” means the Subscription Agreement dated as of April 1, 2004 by and between Adirondack Leadership Expeditions, LLC and Sue Crowell, the Subscription Agreement dated as of April 1, 2004 by and between Lone Star Expeditions, Inc. and Sue Crowell and the Subscription Agreement dated as of July 11, 2006 by and between Four Circles Recovery Center, LLC and Sue Crowell.

“Crowell Subsidiaries” means Adirondack Leadership Expeditions, LLC, Four Circles Recovery, LLC, and Lone Star Expeditions, Inc.

“Cumulative Consolidated Net Income” means, as of any date of determination, Consolidated Net Income of the Borrower Parties for the period (taken as one accounting period) commencing on the beginning of the fiscal quarter including the Original Closing Date and ending on the last day of the most recent fiscal quarter for which financial statements required to be delivered pursuant to Section 6.01(a) or (b), and the related Compliance Certificate required to be delivered pursuant to Section 6.02(b), have been received by the Administrative Agent.

“Cumulative Growth Amount” shall mean, on any date of determination, the sum of, without duplication, (A) 50% of Cumulative Consolidated Net Income (or, in the case Cumulative Consolidated Net Income at the time of determination is a deficit, minus 100% of such deficit), provided that, for purposes of Sections 7.06(i) and 7.13(a)(v), the amount in this clause (A) shall only be available if the Total Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(b) was less than 5.0:1, determined on a Pro Forma Basis after giving effect to any Restricted Payment or prepayment, redemption or repurchase actually made pursuant to Sections 7.06(i) or 7.13(a)(v), plus (B) the amount of Net Cash Proceeds of Permitted Equity Issuances (other than Permitted Equity Issuances made pursuant to

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Section 8.05) after the Original Closing Date to the extent that such Net Cash Proceeds shall have been actually received by the Borrower (including through capital contribution of such Net Cash Proceeds by Holdings to the Borrower) on or prior to such date of determination and to the extent not used to reduce Capital Expenditures pursuant to clause (ix) of the definition thereof and not used to make Restricted Payments pursuant to Section 7.06(f) (any such Net Cash Proceeds that so increase the Cumulative Growth Amount, “Designated Equity Proceeds”), plus (C) the amount of Net Cash Proceeds from the issuance of Permitted Holdco Debt after the Original Closing Date to the extent that such Net Cash Proceeds shall have been actually received by the Borrower (including through capital contribution of such Net Cash Proceeds by Holdings to the Borrower) on or prior to such date of determination (any such Net Cash Proceeds that so increase the Cumulative Growth Amount, “Designated Holdco Debt Proceeds”) plus (D) an amount equal to any repayments, interest, returns, profits, distributions, income and similar amounts actually theretofore received in cash in respect of any Investment made since the Original Closing Date pursuant to Section 7.02(o), minus (E) the sum at the time of determination of (i) the aggregate amount of Investments made since the Original Closing Date pursuant to Section 7.02(o), (ii) the aggregate amount of Restricted Payments made since the Original Closing Date pursuant to Section 7.06(i) and (iii) the aggregate amount of prepayments, redemptions or repurchases made since the Original Closing Date pursuant to Section 7.13(a)(v).

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“Default Rate” means, with respect to Loans, an interest rate equal to (a) the Base Rate plus (b) the Applicable Rate, if any, applicable to Base Rate Loans plus (c) 2.0% per annum; provided that with respect to a Eurocurrency Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2.0% per annum, in each case, to the fullest extent permitted by applicable Laws. Overdue interest, fees and other amounts shall bear interest at 2.0% above the rate applicable to Base Rate Loans that are Term Loans.

“Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Term Loans, Revolving Credit Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one (1) Business Day of the date required to be funded by it hereunder, unless the subject of a good faith dispute or subsequently cured, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one (1) Business Day of the date when due, unless the subject of a good faith dispute or subsequently cured, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

“Designated Equity Proceeds” has the meaning specified in the definition of “Cumulative Growth Amount.”

“Designated Holdco Debt Proceeds” has the meaning specified in the definition of “Cumulative Growth Amount.”

“Designated Non-Cash Consideration” means the fair market value of non-cash consideration received by the Borrower or a Restricted Subsidiary in connection with a Disposition pursuant to Section 7.05(j) that is designated as Designated Non-Cash Consideration pursuant to a certificate of a Responsible Officer, setting forth the basis of such valuation (which amount will be reduced by the fair market value of the portion of the non-cash consideration converted to cash within 180 days following the consummation of the applicable Disposition).

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“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction and any sale of Equity Interests or issuance by a Subsidiary of Equity Interests) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith; provided that “Disposition” and “Dispose” shall not be deemed to include any issuance by Holdings of any of its Equity Interests to another Person.

“Disqualified Equity Interests” means any Equity Interest which, by its terms (or by the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (a) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Obligations that are accrued and payable and the termination of the Commitments), (b) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests), in whole or in part, (c) provides for the scheduled payments of dividends in cash, or (d) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is ninety-one (91) days after the Maturity Date of the Term Loans.

“Documentation Agent” means Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Documentation Agent under this Agreement.

“Dollar” and “$” mean lawful money of the United States.

“Domestic Subsidiary” means any Subsidiary that is organized under the Laws of the United States, any state thereof or the District of Columbia.

“Eligible Assignee” means any Assignee permitted by and consented to in accordance with Section 10.07(b).

“Environmental Laws” means any and all Federal, state, local, and foreign Laws, judgments, orders, decrees, concessions, grants, franchises, agreements or governmental restrictions relating to pollution, the protection of the environment, natural resources, or, to the extent relating to exposure to Hazardous Materials, human health or to the Release of or threatened Release of any Hazardous Materials into the environment.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Environmental Permit” means any permit, approval, identification number, license or other authorization required under any Environmental Law.

“Equity Interests” means, with respect to any Person, all of the shares, interests, rights, participations or other equivalents (however designated) of capital stock of (or other ownership or profit interests or units in) such Person and all of the warrants, options or other rights for the purchase, acquisition or exchange from such Person of any of the foregoing (including through convertible securities).

“Equity Investors” means the Bain Entities and the Management Stockholders.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

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“ERISA Affiliate” means any trade or business (whether or not incorporated) that is under common control with any Loan Party within the meaning of Section 414 of the Code or Section 4001 of ERISA.

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Loan Party or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Loan Party or any ERISA Affiliate.

“Eurocurrency Rate” means, for any Interest Period with respect to any Eurocurrency Rate Loan:

(a) the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate that appears on the page of the Dow Jones Market screen (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, or, if different, the date on which quotations would customarily be provided by leading banks in the London Interbank Market for deposits of amounts in the relevant currency for delivery on the first day of such Interest Period, or

(b) if the rate referenced in the preceding clause (a) does not appear on such page or service or such page or service shall not be available, the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, or, if different, the date on which quotations would customarily be provided by leading banks in the London Interbank Market for deposits of amounts in the relevant currency for delivery on the first day of such Interest Period, or

(c) if the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum determined by the Administrative Agent as the rate of interest at which deposits in Dollars for delivery on the first day of such Interest Period in Same Day Funds in the approximate amount of the Eurocurrency Rate Loan being made, continued or converted by Citibank and with a term equivalent to such Interest Period would be offered by Citibank’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period or, if different, the date on which quotations would customarily be provided by leading banks in the London Interbank Market for deposits of amounts in the relevant currency for delivery on the first day of such Interest Period.

“Eurocurrency Rate Loan” means a Loan that bears interest at a rate based on the Eurocurrency Rate.

“Event of Default” has the meaning specified in Section 8.01.

“Excess Cash Flow” means, for any period, an amount equal to the excess of:

(a) the sum, without duplication, of:

(i) Consolidated Net Income for such period,

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(ii) an amount equal to the amount of all non-cash expenses, charges or losses to the extent deducted in arriving at such Consolidated Net Income (other than an accrual or reserve for potential cash items in any future period),

(iii) an amount equal to any income or gain excluded from the calculation of Consolidated Net Income by virtue of the definition thereof to the extent realized in cash, and

(iv) decreases in Consolidated Working Capital for such period (other than any such decreases arising from acquisitions by the Borrower and the Restricted Subsidiaries completed during such period); over

(b) the sum, without duplication, of:

(i) an amount equal to the amount of all non-cash credits, income or gains included in arriving at such Consolidated Net Income and cash expenses, charges and losses that are added back to Consolidated Net Income by virtue of the definition thereof,

(ii) without duplication of amounts deducted pursuant to clause (x) below in prior fiscal years, the amount of Capital Expenditures made in cash and not deducted from Excess Cash Flow in a prior period or accrued during such period pursuant to Section 7.16, except to the extent that such Capital Expenditures were financed with the proceeds of Indebtedness of the Borrower or the Restricted Subsidiaries or Equity Interests of Holdings or Borrower,

(iii) the aggregate amount of all principal payments of Indebtedness of the Borrower or the Restricted Subsidiaries (including any Term Loans and the principal component of payments in respect of Capitalized Leases but excluding (A) prepayments of Term Loans pursuant to Section 2.05(b) and (B) repayments of Revolving Credit Loans, Swing Line Loans and prepayments of Term Loans pursuant to Section 2.05(a)) made during such period (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder) except to the extent financed with the proceeds of other Indebtedness of the Borrower or its Restricted Subsidiaries or Equity Interests of Holdings or Borrower,

(iv) increases in Consolidated Working Capital for such period (other than any such increases arising from acquisitions by the Borrower and the Restricted Subsidiaries during such period),

(v) cash payments by the Borrower and the Restricted Subsidiaries during such period in respect of long-term liabilities of the Borrower and the Restricted Subsidiaries other than Indebtedness,

(vi) without duplication of amounts deducted pursuant to clause (x) below in prior fiscal years, the amount of Investments and acquisitions made in cash during such period pursuant to Section 7.02 (other than Section 7.02(a)) to the extent that such Investments and acquisitions were financed with internally generated cash flow of the Borrower and the Restricted Subsidiaries,

(vii) the amount of Restricted Payments paid during such period pursuant to Section 7.06(h) or (i) to the extent such Restricted Payments were financed with internally generated cash flow of the Borrower and the Restricted Subsidiaries during such period and are not made with unswept Excess Cash Flow from previous periods,

(viii) the aggregate amount of expenditures actually made by the Borrower and the Restricted Subsidiaries in cash during such period (including expenditures for the payment of financing fees) to the extent that such expenditures are not expensed during such period,

(ix) the aggregate amount of any premium, make-whole or penalty payments actually paid in cash by the Borrower and the Restricted Subsidiaries during such period that are required to be made in connection with any prepayment of Indebtedness,

(x) without duplication of amounts deducted from Excess Cash Flow in prior periods, the aggregate consideration required to be paid in cash by the Borrower or any of the Restricted

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Subsidiaries pursuant to binding contracts (the “Contract Consideration”) entered into prior to or during such period relating to Permitted Acquisitions or Capital Expenditures to be consummated or made during the period of four consecutive fiscal quarters of the Borrower following the end of such period, provided that to the extent the aggregate amount of internally generated cash actually utilized to finance such Capital Expenditures or Permitted Acquisitions during such period of four consecutive fiscal quarters is less than the Contract Consideration, the amount of such shortfall shall be added to the calculation of Excess Cash Flow at the end of such period of four consecutive fiscal quarters,

(xi) the amount of cash taxes paid in such period to the extent they exceed the amount of tax expense deducted in determining Consolidated Net Income for such period, and

(xii) cash expenditures in respect of Swap Contracts during such fiscal year to the extent not reflected in the computation of Consolidated Net Income.

“Exchange Act” means the Securities Exchange Act of 1934.

“Excluded Subsidiary” means (a) any Subsidiary that is not a wholly owned Subsidiary, (b) any Subsidiary that is prohibited by applicable Law from guaranteeing the Obligations, (c) any Domestic Subsidiary that is a Subsidiary of a Foreign Subsidiary and Aspen Solutions, Inc. and (d) any Crowell Subsidiary under the circumstances described in Section 7.14.

“Exclusion Event” means any event or events resulting in the exclusion of the Borrower or any Restricted Subsidiary or any of the Treatment Facilities from participation in any Medical Reimbursement Program.

“Facility” means the Term Loans, the Revolving Credit Facility, the Swing Line Sublimit or the Letter of Credit Sublimit, as the context may require.

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Citibank on such day on such transactions as determined by the Administrative Agent.

“Foreign Lender” has the meaning specified in Section 3.01(d).

“Foreign Subsidiary” means any direct or indirect Restricted Subsidiary of the Borrower that is not a Domestic Subsidiary.

“FRB” means the Board of Governors of the Federal Reserve System of the United States.

“Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course.

“Funded Debt” means all Indebtedness of the Borrower and the Restricted Subsidiaries for borrowed money that matures more than one year from the date of its creation or matures within one year from such date that is renewable or extendable, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including Indebtedness in respect of the Loans.

“GAAP” means generally accepted accounting principles in the United States of America, as in effect from time to time; provided, however, that if the Borrower notifies the Administrative Agent that the Borrower

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requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Original Closing Date in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then (i) such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith and (ii) upon the Administrative Agent’s request, the Borrower shall provide to the Administrative Agent and the Lenders a written reconciliation in form and substance reasonably satisfactory to the Administrative Agent, between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Granting Lender” has the meaning specified in Section 10.07(h).

“Guarantee” means, as to any Person, without duplication, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other monetary obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other monetary obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other monetary obligation of the payment or performance of such Indebtedness or other monetary obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other monetary obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other monetary obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other monetary obligation of any other Person, whether or not such Indebtedness or monetary other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien); provided that the term “Guarantee” shall not include endorsements for collection or deposit, in either case in the ordinary course of business, or customary and reasonable indemnity obligations in effect on the Original Closing Date or entered into in connection with any acquisition or disposition of assets permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

“Guarantees” has the meaning specified in the definition of “Collateral and Guarantee Requirement.”

“Guarantors” means the Required Guarantors and any Additional Guarantors.

“Guaranty” means, collectively, (a) the Guaranty made by Holdings and the Subsidiary Guarantors that are Guarantors in favor of the Administrative Agent on behalf of the Secured Parties, substantially in the form of Exhibit F and (b) each other guaranty and guaranty supplement delivered pursuant to Section 6.11.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all other substances, wastes, pollutants, contaminants, chemicals, materials, constituents, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes of

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any nature and in any form regulated pursuant to, or which can give rise to liability under, any Environmental Law.

“Hedge Bank” means any Person that is a Lender or an Affiliate of a Lender at the time it enters into a Secured Hedge Agreement, in its capacity as a party thereto.

“HHS” means the United States Department of Health and Human Services and any successor thereof.

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191, Aug. 21, 1996, 110 Stat. 1936.

“Holdings” has the meaning specified in the introductory paragraph to this Agreement.

“Holdings Loan Agreement” means the Term Loan Agreement relating to the Holdings Loans, by and among Holdings, as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto.

“Holdings Loan Documents” means the Holdings Loan Agreement and all “Loan Documents” under the Holdings Loan Agreement.

“Holdings Loans” means $105,000,000 in aggregate principal amount of loans made to Holdings under the Holdings Loan Documents.

“Honor Date” has the meaning specified in Section 2.03(c)(i).

“Incremental Amendment” has the meaning specified in Section 2.14(a).

“Incremental Facility Closing Date” has the meaning specified in Section 2.14(a).

“Incremental Term Loans” has the meaning specified in Section 2.14(a).

“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b) the maximum amount (after giving effect to any prior drawings or reductions which may have been reimbursed) of all letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds, performance bonds and similar instruments issued or created by or for the account of such Person;

(c) net obligations of such Person under any Swap Contract;

(d) all obligations of such Person to pay the deferred purchase price of property or services (other than (i) trade accounts payable in the ordinary course of business and (ii) any earn-out obligation or purchase price adjustment until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP, for purposes of Section 7.03 only, as in effect on the Original Closing Date);

(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements and mortgage, industrial revenue bond, industrial development bond and similar financings), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f) all Attributable Indebtedness;

(g) all obligations of such Person in respect of Disqualified Equity Interests; and

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(h) all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, except to the extent such Person’s liability for such Indebtedness is otherwise limited and only to the extent such Indebtedness would be included in the calculation of Consolidated Total Debt. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of Indebtedness of any Person for purposes of clause (e) shall be deemed to be equal to the lesser of (i) the aggregate unpaid amount of such Indebtedness and (ii) the fair market value of the property encumbered thereby as determined by such Person in good faith.

“Indemnified Liabilities” has the meaning specified in Section 10.05.

“Indemnitees” has the meaning specified in Section 10.05.

“Information” has the meaning specified in Section 10.08.

“Intercompany Note” means a promissory note substantially in the form of Exhibit J.

“Interest Coverage Ratio” means, with respect to the Borrower and the Restricted Subsidiaries on a consolidated basis, as of the end of any fiscal quarter of the Borrower for the Test Period ending on such date, the ratio of (a) Consolidated EBITDA to (b) Consolidated Interest Expense.

“Interest Payment Date” means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date of the Facility under which such Loan was made; provided that if any Interest Period for a Eurocurrency Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the last Business Day of each March, June, September and December and the Maturity Date of the Facility under which such Loan was made.

“Interest Period” means, as to each Eurocurrency Rate Loan, the period commencing on the date such Eurocurrency Rate Loan is disbursed or converted to or continued as a Eurocurrency Rate Loan and ending on the date one, two, three or six months thereafter, or to the extent available to each Lender of such Eurocurrency Rate Loan, nine or twelve months, as selected by the Borrower in its Committed Loan Notice; provided that:

(a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period;

(c) no Interest Period shall extend beyond the Maturity Date of the Facility under which such Loan was made;

(d) unless the Administrative Agent shall otherwise agree, that prior to the earlier of (i) the initial syndication of the Original Term Loans and Revolving Credit Loans and (ii) the 31st day after the Original Closing Date, the Borrower shall only be permitted to request Interest Periods of seven days with respect to the Original Term Loans and Revolving Credit Loans;

(e) unless the Administrative Agent shall otherwise agree, that prior to the earlier of (i) the initial syndication of the New Term Loans and (ii) the 31st day after the Restatement Effective Date, the Borrower shall only be permitted to request Interest Periods of seven days with respect to the Term Loans; and

(f) unless shorter or longer Interest Periods are otherwise agreed by the Administrative Agent, the Borrower shall only be permitted to request Interest Periods of seven days with respect to the New Term

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Loans until the Interest Period with respect to the New Term Loans ends on the same day as the Interest Period with respect to the Original Term Loans, as contemplated by Section 2.02(g).

“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests or debt or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of Indebtedness of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person or (c) the purchase or other acquisition (in one transaction or a series of transactions) of all or substantially all of the property and assets or business of another Person or assets constituting a business unit, line of business or division of such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“IP Rights” has the meaning specified in Section 5.15.

“IRS” means the United States Internal Revenue Service.

“Joinder Agreement” means a Joinder Agreement, substantially in the form set forth on Exhibit L hereto.

“Joint Venture” means any Person that the Borrower owns an equity interest in that is not a Subsidiary.

“Junior Financing” has the meaning specified in Section 7.13.

“Junior Financing Documentation” means any documentation governing any Junior Financing.

“Knowledge” means the actual or constructive knowledge of a Responsible Officer.

“Laws” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“L/C Advance” means, with respect to each Revolving Credit Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Pro Rata Share.

“L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Revolving Credit Borrowing.

“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the renewal or increase of the amount thereof.

“L/C Issuer” means Citibank and any other Lender that becomes an L/C Issuer in accordance with Section 2.03(k) or 10.07(j), in each case, in its capacity as an issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.

“L/C Obligations” means, as at any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings.

“Lender” has the meaning specified in the introductory paragraph to this Agreement and, as the context requires, includes any New Term Lender, an L/C Issuer and the Swing Line Lender, and their respective successors and assigns as permitted hereunder, each of which is referred to herein as a “Lender”.

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“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.

“Letter of Credit” means any letter of credit issued hereunder. A Letter of Credit may be a commercial letter of credit or a standby letter of credit.

“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the relevant L/C Issuer.

“Letter of Credit Expiration Date” means the day that is five (5) Business Days prior to the scheduled Maturity Date then in effect for the Revolving Credit Facility (or, if such day is not a Business Day, the next preceding Business Day).

“Letter of Credit Sublimit” means an amount equal to the lesser of (a) $20,000,000 and (b) the aggregate amount of the Revolving Credit Commitments. The Letter of Credit Sublimit is part of, and not in addition to, the Revolving Credit Facility.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any Capitalized Lease having substantially the same economic effect as any of the foregoing).

“Loan” means an extension of credit by a Lender to the Borrower under Article II in the form of a Term Loan, a Revolving Credit Loan or a Swing Line Loan.

“Loan Documents” means, collectively, (i) this Agreement, (ii) the Notes, (iii) the Guaranty, (iv) the Collateral Documents and (v) each Letter of Credit Application.

“Loan Parties” means, collectively, the Borrower and each Guarantor.

“Management Stockholders” means the members of management of the Borrower or its Subsidiaries who are investors in Holdings or any direct or indirect parent thereof.

“Master Agreement” has the meaning specified in the definition of “Swap Contract.”

“Material Adverse Effect” means (a) a material adverse effect on the business, operations, assets, liabilities (actual or contingent) or financial condition of the Borrower and its Subsidiaries, taken as a whole, (b) a material adverse effect on the ability of the Borrower or the Loan Parties (taken as a whole) to perform their respective payment obligations under any Loan Document to which the Borrower or any of the Loan Parties is a party or (c) a material adverse effect on the rights and remedies of the Lenders under any Loan Document.

“Maturity Date” means (a) with respect to the Revolving Credit Facility, February 6, 2012 and (b) with respect to the Term Loans, February 6, 2013.

“Maximum Rate” has the meaning specified in Section 10.10.

“Medicaid” means that certain means-tested entitlement program under Title XIX of the Social Security Act, which provides federal grants to states for medical assistance based on specific eligibility criteria, as set forth at Section 1396, et seq. of Title 42 of the United States Code and any statute succeeding thereto.

“Medicaid Provider Agreement” means an agreement entered into between a state agency or other such entity administering the Medicaid program and a health care provider or supplier under which the health care

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provider or supplier agrees to provide items and services for Medicaid patients in accordance with the terms of the agreement and Medicaid Regulations.

“Medicaid Regulations” means, collectively, (a) all federal statutes (whether set forth in Title XIX of the Social Security Act or elsewhere) affecting the medical assistance program established by Title XIX of the Social Security Act and any statutes succeeding thereto; (b) all applicable provisions of all federal rules, regulations, manuals and orders of all Governmental Authorities promulgated pursuant to or in connection with the statutes described in clause (a) above and all federal administrative, reimbursement and other guidelines of all Governmental Authorities having the force of law promulgated pursuant to or in connection with the statutes described in clause (a) above; (c) all state statutes for medical assistance enacted in connection with the statutes and provisions described in clauses (a) and (b) above; and (d) all applicable provisions of all rules, regulations, manuals and orders of all Governmental Authorities promulgated pursuant to or in connection with the statutes described in clause (c) above and all state administrative, reimbursement and other guidelines of all Governmental Authorities having the force of Law promulgated pursuant to or in connection with the statutes described in clause (b) above, in each case as may be amended, supplemented or otherwise modified from time to time.

“Medical Reimbursement Programs” means a collective reference to the Medicare, Medicaid and TRICARE programs and any other health care program operated by or financed in whole or in part by any foreign or domestic federal, state or local government and any other non-government funded third party payor programs.

“Medicare” means that government-sponsored entitlement program under Title XVIII of the Social Security Act, which provides for a health insurance system for eligible elderly and disabled individuals, as set forth at Section 1395, et seq. of Title 42 of the United States Code and any statute succeeding thereto.

“Medicare Provider Agreement” means an agreement entered into between CMS or other such entity administering the Medicare program on behalf of CMS, and a health care provider or supplier under which the health care provider or supplier agrees to provide items and services for Medicare patients in accordance with the terms of the agreement and Medicare Regulations.

“Medicare Regulations” means, collectively, all federal statutes (whether set forth in Title XVIII of the Social Security Act or elsewhere) affecting the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act and any statutes succeeding thereto; together with all applicable provisions of all rules, regulations, manuals and orders and administrative, reimbursement and other guidelines having the force of law of all Governmental Authorities (including CMS, the OIG, HHS, or any Person succeeding to the functions of any of the foregoing) promulgated pursuant to or in connection with any of the foregoing having the force of Law, as each may be amended, supplemented or otherwise modified from time to time.

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

“Mortgage” means, collectively, the deeds of trust, trust deeds, hypothecs and mortgages or any other document, creating and evidencing a Lien on the Mortgaged Properties made by the Loan Parties in favor or for the benefit of the Administrative Agent on behalf of the Lenders substantially in the form of Exhibit H (with such changes as may be customary to account for local Law matters), and any other mortgages executed and delivered pursuant to Section 6.11.

“Mortgage Amendment” has the meaning specified in Section 4.01B(a)(iv)(A).

“Mortgage Policies” has the meaning specified in Section 4.01A(j).

“Mortgaged Properties” has the meaning specified in paragraph (g) of the definition of “Collateral and Guarantee Requirement.”

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“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“Net Cash Proceeds” means:

(a) with respect to the Disposition of any asset by Holdings, the Borrower or any Restricted Subsidiary or any Casualty Event, the excess, if any, of (i) the sum of cash and Cash Equivalents received in connection with such Disposition or Casualty Event (including any cash or Cash Equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received and, with respect to any Casualty Event, any insurance proceeds or condemnation awards in respect of such Casualty Event actually received by or paid to or for the account of Holdings, the Borrower or any Restricted Subsidiary) over (ii) the sum of (A) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness that is secured by the asset subject to such Disposition or Casualty Event and that is required to be repaid (and is timely repaid) in connection with such Disposition or Casualty Event (other than Indebtedness under the Loan Documents), (B) the out-of-pocket expenses (including attorneys’ fees, investment banking fees, survey costs, title insurance premiums, and related search and recording charges, transfer taxes, deed or mortgage recording taxes, other customary expenses and brokerage, consultant and other customary fees) actually incurred by Holdings, the Borrower or such Restricted Subsidiary in connection with such Disposition or Casualty Event, (C) taxes paid or reasonably estimated to be actually payable in connection therewith, and (D) any reserve for adjustment in respect of (x) the sale price of such asset or assets established in accordance with GAAP and (y) any liabilities associated with such asset or assets and retained by Holdings, the Borrower or any Restricted Subsidiary after such sale or other disposition thereof, including pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction and it being understood that “Net Cash Proceeds” shall include any cash or Cash Equivalents (i) received upon the Disposition of any non-cash consideration received by Holdings, the Borrower or any Restricted Subsidiary in any such Disposition and (ii) upon the reversal (without the satisfaction of any applicable liabilities in cash in a corresponding amount) of any reserve described in clause (D) of the preceding sentence or, if such liabilities have not been satisfied in cash and such reserve is not reversed within three hundred and sixty-five (365) days after such Disposition or Casualty Event, the amount of such reserve; provided that (x) no net cash proceeds calculated in accordance with the foregoing realized in a single transaction or series of related transactions shall constitute Net Cash Proceeds unless such net cash proceeds shall exceed $2,000,000 and (y) no such net cash proceeds shall constitute Net Cash Proceeds under this clause (a) in any fiscal year until the aggregate amount of all such net cash proceeds in such fiscal year shall exceed $5,000,000 (and thereafter only net cash proceeds in excess of such amount shall constitute Net Cash Proceeds under this clause (a));

(b) with respect to the incurrence or issuance of any Indebtedness by Holdings, the Borrower or any Restricted Subsidiary or any Permitted Equity Issuances, the excess, if any, of (i) the sum of the cash received in connection with such incurrence or issuance over (ii) the investment banking fees, underwriting discounts, commissions, costs and other out-of-pocket expenses and other customary expenses, incurred by Holdings, the Borrower or such Restricted Subsidiary in connection with such incurrence or issuance.

“New Intermediate Holdings” has the meaning specified in Section 7.04(h).

“New Term Borrowing” means a borrowing consisting of simultaneous New Term Loans of the same Type and, in the case of Eurocurrency Rate Loans, having the same Interest Period made by each of the New Term Lenders pursuant to Section 2.01(a)(ii).

“New Term Commitment” means, as to each New Term Lender, its obligation to make a New Term Loan to the Borrower pursuant to Section 2.01(a)(ii) in an aggregate amount not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01(a)(ii) under the caption “New Term Commitment” or in the

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Assignment and Assumption pursuant to which such New Term Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. The initial aggregate amount of the New Term Commitments is $175,500,000.

“New Term Lender” means each Person that has agreed to provide a New Term Commitment pursuant to a New Term Lender Addendum.

“New Term Lender Addendum” means a Lender Addendum, substantially in the form of Exhibit M signed by the Borrower, a New Term Lender and the Administrative Agent.

“New Term Loans” means a Loan made pursuant to Section 2.01(a)(ii).

“Non-Cash Charges” has the meaning specified in the definition of the term “Consolidated EBITDA”.

“Non-Consenting Lenders” has the meaning specified in Section 3.07(d).

“Nonrenewal Notice Date” has the meaning specified in Section 2.03(b)(iii).

“Note” means a Term Note or a Revolving Credit Note, as the context may require.

“Notice of Intent to Cure” has the meaning specified in Section 6.02(b).

“NPL” means the National Priorities List under CERCLA.

“Obligations” means all (x) advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party and its Subsidiaries arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit (including obligations to provide Cash Collateral), whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or Subsidiary of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding, (y) obligations of any Loan Party and its Subsidiaries arising under any Secured Hedge Agreement and (z) Cash Management Obligations. Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Loan Documents (and of their Subsidiaries to the extent they have obligations under the Loan Documents) include (a) the obligation (including guarantee obligations) to pay principal, interest, Letter of Credit commissions, reimbursement obligations, charges, expenses, fees, Attorney Costs, indemnities and other amounts payable by any Loan Party or its Subsidiaries under any Loan Document and (b) the obligation of any Loan Party or any of its Subsidiaries to reimburse any amount in respect of any of the foregoing that any Lender, in its sole discretion, may elect to pay or advance on behalf of such Loan Party or such Subsidiary.

“OIG” means the Office of Inspector General of HHS and any successor thereof.

“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

“Original Closing Date” means February 6, 2006.

“Original Closing Date Audited Financial Statements” means (a) the audited consolidated balance sheets of Borrower and its Subsidiaries as of each of September 30, 2005, December 31, 2004, 2003 and 2002, and the

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related audited consolidated statements of income, stockholders’ equity and cash flows for Borrower and its Subsidiaries for the nine months ended September 30, 2005 and the fiscal years ended December 31, 2004, 2003 and 2002, respectively, and (b) the audited consolidated balance sheets of Sierra Tucson Inc. and its Subsidiaries as of each of December 31, 2004, 2003 and 2002, and the related audited consolidated statements of income, stockholders’ equity and cash flows for Sierra Tucson Inc. and its Subsidiaries for the fiscal years ended December 31, 2004 and 2003 and for the nine months and six day period ended December 31, 2002, respectively.

“Original Closing Date Debt Prepayment” means the prepayment by the Borrower on the Original Closing Date of any Indebtedness outstanding under the Original Closing Date Existing Credit Agreement or under the 14% Senior Subordinated Notes due June 19, 2010 issued by CRC Health Corporation.

“Original Closing Date Equity Contributions” means, collectively, (a) the contribution by the Equity Investors of an aggregate amount of cash of not less than $290,000,000 to Holdings or one or more direct or indirect holding company parents of Holdings, and (b) the further contribution to the Borrower of any portion of such cash contribution proceeds not directly received by the Borrower or used by Holdings to pay Original Closing Date Transaction Expenses, Original Closing Date Merger Consideration or Original Closing Date Debt Prepayment.

“Original Closing Date Existing Credit Agreement” means the Credit Agreement dated as of May 11, 2005, among CRC Health Corporation, the other credit parties thereto, the lenders party thereto, BNP Paribas, as Sole Lead Arranger and Administrative Agent, Madison Capital Funding LLC, as Syndication Agent, and General Electric Capital Corporation, as Documentation Agent.

“Original Closing Date Material Adverse Change” means any change or effect that either individually or in the aggregate together with all other adverse changes or effects, is, or is reasonably likely to be, materially adverse to the business, financial condition or results of operations of the Borrower and its Subsidiaries taken as a whole, other than any change or effect that results or arises from (i) changes in (x) general economic or political conditions (including acts of war, declared or undeclared, armed hostilities and terrorism), financial, securities or capital market conditions (including prevailing interest rates), (y) the industry in which the Borrower operates that do not materially disproportionately affect the Borrower and its Subsidiaries, taken as a whole, compared to other companies in the industry or (z) laws, regulations or accounting standards, principles or interpretations, except in the case of clauses (y) and (z), to the extent the changes arise from or result from changes in laws or regulations affecting the industry in which the Borrower operates, and except in the case of clause (x), to the extent that any act of war or terrorism has a disproportionately negative effect on the Borrower and its Subsidiaries taken as a whole compared to other companies in the industry in which the Borrower operates or (ii) the announcement of the Original Closing Date Merger Agreement or the performance of the obligations thereunder.

“Original Closing Date Merger Agreement” means the Agreement and Plan of Merger dated as of October 8, 2005, among Borrower, CRCA Holdings, Inc. and CRCA Merger Corporation.

“Original Closing Date Merger Consideration” means the total funds required to consummate the Original Closing Date Transaction.

“Original Closing Date Pro Forma Balance Sheet” has the meaning specified in Section 5.05(a)(ii).

“Original Closing Date Pro Forma Financial Statements” has the meaning specified in Section 5.05(a)(ii).

“Original Closing Date Transaction” means, collectively, (a) the Original Closing Date Equity Contributions, (b) the Original Closing Date Merger, (c) the issuance of the Senior Subordinated Notes, (d) the funding of the Original Term Loans and up to $7,500,000 of Revolving Credit Loans on the Original Closing

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Date, (e) the consummation of any other transactions in connection with the foregoing, (f) the Original Closing Date Debt Prepayment, and (g) the payment of the fees and expenses incurred in connection with any of the foregoing.

“Original Closing Date Transaction Expenses” means any fees or expenses incurred or paid by Holdings, the Borrower or any Restricted Subsidiary in connection with the Original Close Date Transaction, including any costs or expenses incurred by the Borrower or a Restricted Subsidiary pursuant to or with respect to any management equity plan or stock option plan or any other management or employee benefit plan or any stock subscription or shareholder agreement, the Original Credit Agreement and the other Loan Documents and the transactions contemplated thereby.

“Original Closing Date Unaudited Financial Statements” has the meaning specified in Section 4.01A(f).

“Original Credit Agreement” has the meaning specified in the preliminary statements to this Agreement.

“Original Lenders” has the meaning specified in the preliminary statements hereto.

“Original Subsidiary Guarantor” means any “Guarantor” under the Original Credit Agreement as in effect immediately prior to the Restatement Effective Date.

“Original Term Commitment” means, as to each Original Term Lender, its obligation to make an Original Term Loan to the Borrower pursuant to Section 2.01(a) of the Original Credit Agreement in an aggregate amount not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 to the Original Credit Agreement under the caption “Term Commitment” or in the Assignment and Assumption pursuant to which such Original Term Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with the Original Credit Agreement. The initial aggregate amount of the Original Term Commitments is $245,000,000.

“Original Term Lender” means, at any time, any Lender that has an Original Term Commitment or an Original Term Loan at such time.

“Original Term Loans” means a Loan made pursuant to Section 2.01(a) of the Original Credit Agreement.

“Other Taxes” has the meaning specified in Section 3.01(b).

“Outstanding Amount” means (a) with respect to the Term Loans, Revolving Credit Loans and Swing Line Loans on any date, the amount thereof after giving effect to any borrowings and prepayments or repayments of Term Loans, Revolving Credit Loans (including any refinancing of outstanding unpaid drawings under Letters of Credit or L/C Credit Extensions as a Revolving Credit Borrowing) and Swing Line Loans, as the case may be, occurring on such date; and (b) with respect to any L/C Obligations on any date, the amount thereof on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes thereto as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit (including any refinancing of outstanding unpaid drawings under Letters of Credit or L/C Credit Extensions as a Revolving Credit Borrowing) or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date.

“Overnight Rate” means, for any day, the Federal Funds Rate.

“Participant” has the meaning specified in Section 10.07(e).

“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by

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any Loan Party or any ERISA Affiliate or to which any Loan Party or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five (5) plan years.

“Perfection Certificate” means a certificate in the form of Exhibit K-1 or any other form approved by the Collateral Agent, as the same shall be supplemented from time to time by a Perfection Certificate Supplement or otherwise.

“Perfection Certificate Supplement” means a certificate supplement in the form of Exhibit K-2 or any other form approved by the Collateral Agent.

“Permitted Acquisition” has the meaning specified in Section 7.02(i).

“Permitted Capital Expenditure Amount” has the meaning specified in Section 7.16(b).

“Permitted Equity Issuance” means any sale or issuance of any Qualified Equity Interests of Holdings (including contributions to the capital of Holdings) to the extent permitted hereunder.

“Permitted Holdco Debt” means any unsecured Indebtedness of Holdings that (A) is not subject to any Guarantee by the Borrower or any Restricted Subsidiary, (B) will not mature prior to the date that is ninety-one (91) days after the Maturity Date of the Term Loans, (C) has no scheduled amortization of principal prior to the date that is ninety-one days after the Maturity Date of the Term Loans, (D) does not permit any payments in cash of interest or other amounts in respect of the principal thereof for at least four (4) years from the date of issuance or incurrence thereof (other than optional redemption provisions customary for senior discount notes), and (E) has mandatory prepayment, repurchase or redemption, covenant, default and remedy provisions customary for senior discount notes of an issuer that is the parent of a borrower under senior secured credit facilities, and in any event, with respect to covenant, default and remedy provisions, no more restrictive than those set forth in the Senior Subordinated Notes Indenture taken as a whole (other than provisions customary for senior discount notes of a holding company) (it being understood that the Holdings Loans, pursuant to the Holdings Loan Documents in effect on the Restatement Effective Date, together with any Permitted Refinancing thereof that is otherwise satisfied by the requirements of this definition, satisfy all such criteria, notwithstanding any mandatory prepayment obligations under Section 2.04(c) of the Holdings Loan Agreement or any mandatory prepayment obligation in the documentation for any Permitted Refinancing thereof which is substantially similar to the mandatory prepayment obligations under Section 2.04(c) of the Holdings Loan Agreement).

“Permitted Holders” means the Equity Investors other than the Management Stockholders to the extent that the amount of the outstanding voting stock of Holdings owned beneficially or of record by such Management Stockholders in the aggregate at any time exceeds ten percent (10%) of the total amount of the outstanding voting stock of Holdings at such time.

“Permitted Refinancing” means, with respect to any Person, any modification, refinancing, refunding, renewal or extension of any Indebtedness of such Person; provided that (a) the principal amount (or accreted value, if applicable) thereof does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so modified, refinanced, refunded, renewed or extended except by an amount equal to unpaid accrued interest and premium thereon plus other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such modification, refinancing, refunding, renewal or extension and by an amount equal to any existing commitments unutilized thereunder, (b) other than with respect to a Permitted Refinancing in respect of Indebtedness permitted pursuant to Section 7.03(e), such modification, refinancing, refunding, renewal or extension has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being modified, refinanced, refunded, renewed or extended, (c) other than with respect to a Permitted Refinancing in respect of Indebtedness permitted pursuant to Section 7.03(e), at the time thereof, no Event of

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Default shall have occurred and be continuing, and (d) if such Indebtedness being modified, refinanced, refunded, renewed or extended is Indebtedness permitted pursuant to Section 7.03(b), 7.03(t) or 7.13 or is otherwise Junior Financing, (i) to the extent such Indebtedness being modified, refinanced, refunded, renewed or extended is subordinated in right of payment to the Obligations, such modification, refinancing, refunding, renewal or extension is subordinated in right of payment to the Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being modified, refinanced, refunded, renewed or extended, (ii) Indebtedness of a Subsidiary that is not a Guarantor shall not refinance Indebtedness of the Borrower or a Guarantor, (iii) Indebtedness of the Borrower or a Restricted Subsidiary shall not refinance Indebtedness of an Unrestricted Subsidiary, (iv) the terms and conditions (including, if applicable, as to collateral but excluding as to subordination, interest rate and redemption premium) of any such modified, refinanced, refunded, renewed or extended Indebtedness, taken as a whole, are not materially less favorable to the Loan Parties or the Lenders than the terms and conditions of the Indebtedness being modified, refinanced, refunded, renewed or extended; provided that a Responsible Officer shall deliver a certificate to the Administrative Agent at least five Business Days prior to the incurrence of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such Indebtedness or drafts of the documentation relating thereto, stating that the Borrower has determined in good faith that such terms and conditions satisfy the foregoing requirement and (v) such modification, refinancing, refunding, renewal or extension is incurred by the Person who is the obligor of the Indebtedness being modified, refinanced, refunded, renewed or extended.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by any Loan Party or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

“Pledged Debt” has the meaning specified in the Security Agreement.

“Pledged Equity” has the meaning specified in the Security Agreement.

“Post-Acquisition Period” means, with respect to any Permitted Acquisition or any acquisition consummated prior to the Original Closing Date, the period beginning on the date such Permitted Acquisition or such other acquisition consummated prior to the Original Closing Date is consummated and ending on the last day of the fourth full consecutive fiscal quarter immediately following the date on which such Permitted Acquisition or such other acquisition consummated prior to the Original Closing Date is consummated.

“Pro Forma Adjustment” means, for any Test Period that includes all or any part of a fiscal quarter included in any Post-Acquisition Period, with respect to the Acquired EBITDA of the applicable Acquired Entity or Business or the Consolidated EBITDA of the Borrower, the pro forma increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the case may be, projected by the Borrower in good faith to be achievable in the Post-Acquisition Period as a result of (a) actions taken during such Post-Acquisition Period for the purposes of realizing reasonably identifiable and factually supportable cost savings net of (b) any additional costs incurred during such Post-Acquisition Period, in each case in connection with the combination of the operations of such Acquired Entity or Business with the operations of the Borrower and the Restricted Subsidiaries; provided that it may be assumed, for purposes of projecting such pro forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, that such cost savings (including any actually realized cost savings) permitted by this sentence will be realizable during the entirety of such Test Period, or such additional costs, as applicable, will be incurred during the entirety of such Test Period; provided further that any such pro forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall be without duplication for cost savings or additional costs already included in such Acquired EBITDA or such Consolidated EBITDA, as the case may be, for such Test Period.

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“Pro Forma Basis,” “Pro Forma Compliance” and “Pro Forma Effect” mean, with respect to compliance with any test or covenant hereunder, that (A) to the extent applicable, the Pro Forma Adjustment shall have been made (such Pro Forma Adjustment as specified in a certificate executed by a Responsible Officer and delivered to the Administrative Agent for distribution to the Lenders) and (B) all Specified Transactions and the following transactions in connection therewith shall be deemed to have occurred as of the first day of the applicable period of measurement in such test or covenant: (a) income statement items (whether positive or negative) attributable to the property or Person subject to such Specified Transaction, (i) in the case of a Disposition of all or substantially all Equity Interests in or assets of any Subsidiary of the Borrower or any division, business unit, line of business or facility used for operations of the Borrower or any of its Subsidiaries, shall be excluded, and (ii) in the case of a Permitted Acquisition or Investment described in the definition of “Specified Transaction,” shall be included, (b) any retirement of Indebtedness, and (c) any Indebtedness incurred or assumed by the Borrower or any of the Restricted Subsidiaries in connection therewith and if such Indebtedness has a floating or formula rate, shall have an implied rate of interest for the applicable period for purposes of this definition determined by utilizing the rate which is or would be in effect with respect to such Indebtedness as at the relevant date of determination; provided that, without limiting the application of the Pro Forma Adjustment pursuant to (A) above, the foregoing pro forma adjustments may be applied to any such test or covenant solely to the extent that such adjustments are consistent with the definition of Consolidated EBITDA and give effect to events (including operating expense reductions) that are (i)(x) directly attributable to such transaction, (y) expected to have a continuing impact on the Borrower and the Restricted Subsidiaries and (z) factually supportable or (ii) otherwise consistent with the definition of Pro Forma Adjustment.

“Pro Rata Share” means, with respect to each Lender at any time a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Commitments of such Lender under the applicable Facility or Facilities at such time and the denominator of which is the amount of the Aggregate Commitments under the applicable Facility or Facilities at such time; provided that if such Commitments have been terminated, then the Pro Rata Share of each Lender shall be determined based on the Pro Rata Share of such Lender immediately prior to such termination and after giving effect to any subsequent assignments made pursuant to the terms hereof.

“Projections” shall have the meaning set forth in Section 6.01(c).

“Projects” means construction, improvement or expansion of a substance abuse, addiction disease or behavioral disorder treatment facility that constitutes a facility substantially separate and distinct from any other facility of the Borrower and its Restricted Subsidiaries that exists at the Original Closing Date.

“Qualified Equity Interests” means any Equity Interests that are not Disqualified Equity Interests.

“Qualifying IPO” means the issuance by Holdings or any direct or indirect parent of Holdings of its common Equity Interests in an underwritten primary public offering (other than a public offering pursuant to a registration statement on Form S-8) pursuant to an effective registration statement filed with the SEC in accordance with the Securities Act (whether alone or in connection with a secondary public offering).

“Refinanced Term Loans” has the meaning specified in Section 10.01.

“Register” has the meaning specified in Section 10.07(d).

“Release” shall mean any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating in, into, onto or through the environment.

“Replacement Term Loans” has the meaning specified in Section 10.01.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA or the regulations issued thereunder, other than events for which the thirty (30) day notice period has been waived.

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“Request for Credit Extension” means (a) with respect to a Borrowing, conversion or continuation of Term Loans or Revolving Credit Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.

“Required Guarantors” means Holdings and each Restricted Subsidiary that is a Domestic Subsidiary and not an Excluded Subsidiary.

“Required Lenders” means, as of any date of determination, Lenders having more than 50% of the sum of the (a) Total Out-standings (with the aggregate amount of each Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Lender for purposes of this definition), (b) aggregate unused Term Commitments and (c) aggregate unused Revolving Credit Commitments, as such aggregate Term Commitments and aggregate Revolving Credit Commitments may be increased pursuant to Incremental Term Loans or Revolving Commitment Increases; provided that the unused Term Commitment and unused Revolving Credit Commitment of, and the portion of the Total Out standings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

“Responsible Officer” means the chief executive officer, president, vice president, chief financial officer, treasurer or assistant treasurer or other similar officer of a Loan Party and, as to any document delivered on the Original Closing Date or the Restatement Effective Date, any secretary or assistant secretary of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“Restatement Effective Date” means the date on which this Agreement becomes effective pursuant to Section 4.01B.

“Restatement Effective Date Audited Financial Statements” means (a) the audited consolidated balance sheets of the Borrower and its Subsidiaries as of each of December 31, 2005, 2004 and 2003, and the related audited consolidated statements of income, stockholders’ equity and cash flows for the Borrower and its Subsidiaries for the fiscal years ended December 31, 2005, 2004 and 2003, respectively; and (b) the audited consolidated balance sheets of Aspen and its Subsidiaries as of each of December 31, 2005, 2004, and 2003, and the related audited consolidated statements of income and cash flows for Aspen and its Subsidiaries for the fiscal years ended December 31, 2005, 2004, 2003, respectively.

“Restatement Effective Date Material Adverse Change” means any change, effect, event, occurrence, state of facts or development that (1) is materially adverse to the business, operations, assets, results of operations or financial condition of Aspen and its Subsidiaries taken as a whole or (2) prevents or materially impedes, interferes with, hinders or delays beyond December 15, 2006 the consummation by Aspen of the Aspen Acquisition or the other transactions contemplated by the Aspen Acquisition Agreement; provided, however, that none of the following shall be deemed, either alone or in combination, to constitute, and none of the following, with the exception of (a), shall be taken into account in determining whether there has been or will be, a Restatement Effective Date Material Adverse Change; (a) any failure by Aspen or its Subsidiaries to meet any internal or published projections, forecasts, or revenue or earnings predictions for any period ending on or after the date of the Aspen Acquisition Agreement; (b) any adverse change, effect, event, occurrence, state of facts or development to the extent attributable the announcement or pendency of the transactions contemplated by the Aspen Acquisition Agreement; (c) to the extent that they do not have a materially disproportionate effect on Aspen and its Subsidiaries taken as a whole, any adverse change, effect, event, occurrence, state of facts or development attributable to conditions affecting (i) the industry(ies) in which Aspen or its Subsidiaries operate, (ii) the U.S. securities or financial markets, (iii) the U.S. economy as a whole, or (iv) the economy of any foreign country as a whole; or (d) any adverse change, effect, event, occurrence, state of facts or development resulting from (i) the taking of any action required by the Aspen Acquisition Agreement, (ii) any change in accounting

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principles or any change in applicable laws, rules or regulations or the interpretation or enforcement thereof, (iii) something attributable to the acts or omissions of the Borrower, (iv) the acts or omissions of, or on behalf of, the Borrower or (v) to the extent that they do not have a materially disproportionate effect on Aspen and its Subsidiaries taken as a whole, acts of war, terrorism, or other conflict.

“Restatement Effective Date Pro Forma Balance Sheet” has the meaning specified in Section 5.05(a)(iii).

“Restatement Effective Date Pro Forma Financial Statements” has the meaning specified in Section 5.05(a)(iii).

“Restatement Effective Date Unaudited Financial Statements” has the meaning specified in Section 4.01B(d).

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interest of Holdings, the Borrower or any Restricted Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such Equity Interest, or on account of any return of capital to Holdings or the Borrower’s stockholders, partners or members (or the equivalent Persons thereof).

“Restricted Subsidiary” means any Subsidiary of the Borrower other than an Unrestricted Subsidiary.

“Revolving Commitment Increase” has the meaning specified in Section 2.14(a).

“Revolving Commitment Increase Lender” has the meaning specified in Section 2.14(a).

“Revolving Credit Borrowing” means a borrowing consisting of simultaneous Revolving Credit Loans of the same Type and, in the case of Eurocurrency Rate Loans, having the same Interest Period made by each of the Revolving Credit Lenders pursuant to Section 2.01(b).

“Revolving Credit Commitment” means, as to each Revolving Credit Lender, its obligation to (a) make Revolving Credit Loans to the Borrower pursuant to Section 2.01(b), (b) purchase participations in L/C Obligations in respect of Letters of Credit and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth, and opposite such Lender’s name on Schedule 2.01 under the caption “Revolving Credit Commitment” or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. The aggregate Revolving Credit Commitments of all Revolving Credit Lenders shall be $100,000,000 on the Original Closing Date, as such amount may be adjusted from time to time in accordance with the terms of this Agreement.

“Revolving Credit Exposure” means, as to each Revolving Credit Lender, the sum of the outstanding principal amount of such Revolving Credit Lender’s Revolving Credit Loans and its Pro Rata Share of the L/C Obligations and the Swing Line Obligations at such time.

“Revolving Credit Facility” means, at any time, the aggregate amount of the Revolving Credit Lenders’ Revolving Credit Commitments at such time.

“Revolving Credit Lender” means, at any time, any Lender that has a Revolving Credit Commitment at such time.

“Revolving Credit Loan” has the meaning specified in Section 2.01(b).

“Revolving Credit Note” means a promissory note of the Borrower payable to any Revolving Credit Lender or its registered assigns, in substantially the form of Exhibit C-2, evidencing the aggregate Indebtedness

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of the Borrower to such Revolving Credit Lender resulting from the Revolving Credit Loans made by such Revolving Credit Lender.

“Rollover Amount” has the meaning specified in Section 7.16(b).

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.

“Same Day Funds” means immediately available funds.

“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

“Secured Hedge Agreement” means any Swap Contract permitted under Article 7 that is entered into by and between any Loan Party or any Restricted Subsidiary and any Hedge Bank.

“Secured Obligations” means (a) the Obligations, (b) the due and punctual payment and performance of all obligations of the Borrower and the other Loan Parties under each Secured Hedge Agreement entered into with any counterparty that is a Secured Party and (c) the due and punctual payment and performance of all obligations in respect of overdrafts and related liabilities owed to any Lender, any Affiliate of a Lender, the Administrative Agent or the Collateral Agent arising from treasury, depositary and cash management services or in connection with any automated clearinghouse transfer of funds.

“Secured Parties” means, collectively, the Administrative Agent, the Collateral Agent, the Lenders, the Hedge Banks, the holders of Cash Management Obligations, the Supplemental Administrative Agent and each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.01(c).

“Securities Act” means the Securities Act of 1933.

“Security Agreement” means, collectively, the Security Agreement executed by the Loan Parties, substantially in the form of Exhibit G, together with each security agreement supplement executed and delivered pursuant to Section 4.01B or Section 6.11.

“Security Agreement Supplement” has the meaning specified in the Security Agreement.

“Seller Notes” means, collectively, the following promissory notes issued or to be issued by certain Subsidiaries of Aspen: (1) up to $7.8 million aggregate principal amount outstanding of (a) Promissory Note, dated October 27, 2006, by Texas Excel Academy, Inc. issued in favor of Step-by-Step, Ltd., (b) Promissory Note, dated November 1, 2003, by Cedars Acquisition, LLC issued in favor of The Cedars Academy, Ltd., (c) Promissory Note (Earn-out), dated January 19, 2004, by Copper Canyon Academy, LLC (f/k/a AZ Acquisition, LLC) issued in favor of Prince Family, Inc. (f/k/a Copper Canyon Academy, Inc.), (d) Promissory Note, dated April 26, 2004, by Outback Therapeutic Expeditions, LLC issued in favor of Walkabout Treatment Program, LLC, (e) Promissory Note, dated July 1, 2004, by New Leaf Academy, Inc. issued in favor of Program Design Concepts, Inc., (f) Promissory Note by Texas Excel Academy, Inc. issued in favor of Step-by-Step, Ltd., (g) Promissory Note by Island View Residential Treatment Center, LLC and Oakley School, LLC, dated as of November 19, 2004, issued to the prior owners of such programs, (h) Promissory Note, dated as of December 1, 2005, by Wilderness Therapy Programs, Inc. issued to the prior owners of such program and (i) Promissory Note, dated September 6, 2006, by New Leaf Academy, Inc. issued in favor of Program Design Concepts, Inc., and (2) notes and earnout obligations representing up to $8.9 million of Indebtedness in respect of obligations under the Asset Purchase Agreement dated November 1, 2002 by and among AZ Acquisition, LLC, Copper Canyon Academy, Inc. and certain Shareholders party thereto.

“Senior Subordinated Notes” means $200,000,000 in aggregate principal amount of the Borrower’s 10.75% senior subordinated notes due 2016.

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“Senior Subordinated Notes Documentation” means the Senior Subordinated Notes, and all documents executed and delivered with respect to the Senior Subordinated Notes, including the Senior Subordinated Notes Indenture.

“Senior Subordinated Notes Indenture” means the Indenture for the Senior Subordinated Notes, dated as of February 6, 2006.

“Social Security Act” means the Social Security Act of 1965 as set forth in Title 42 of the United States Code, as amended, and any successor statute thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time.

“Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“SPC” has the meaning specified in Section 10.07(h).

“Specified Transaction” means, with respect to any period, any Investment, Disposition of all or substantially all of the Equity Interests in or assets of any Restricted Subsidiary of the Borrower or any division, business unit, line of business or facility used for the operations of Borrower or any of its Restricted Subsidiaries, incurrence or repayment of Indebtedness, Restricted Payment, designation of a Subsidiary as a Restricted Subsidiary or an Unrestricted Subsidiary, any asset classified as discontinued operations by the Borrower or any Restricted Subsidiary, Incremental Term Loan or Revolving Commitment Increase that by the terms of this Agreement requires “Pro Forma Compliance” with a test or covenant hereunder or requires such test or covenant to be calculated on a “Pro Forma Basis.”

“Sponsor” means Bain Capital Partners VIII, L.P. and its Affiliates.

“Sponsor Management Agreement” means the Management Agreement among CRCA Holdings, Inc., Holdings, CRCA Merger Corporation and Bain Capital Partners, LLC.

“Sponsor Termination Fees” means the one-time payment under the Sponsor Management Agreement of a termination fee to the Sponsor and its Affiliates in the event of either a Change of Control or the completion of a Qualifying IPO.

“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.

“Subsidiary Guarantor” means, collectively, the Subsidiaries of the Borrower that are Guarantors.

“Successor Company” has the meaning specified in Section 7.04(d).

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“Survey” shall mean a survey of any Mortgaged Property (and all improvements thereon) which is (a) prepared by a surveyor or engineer licensed to perform surveys in the state where such Mortgaged Property is located and sufficient for the Title Company to remove all standard survey exceptions from the title insurance policy (or commitment) relating to such Mortgaged Property and issue the endorsements of the type required by Sections 4.01A(j) and 6.13(b) or (b) otherwise reasonably acceptable to the Collateral Agent.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

“Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04.

“Swing Line Facility” means the revolving credit facility made available by the Swing Line Lender pursuant to Section 2.04.

“Swing Line Lender” means Citibank, in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.

“Swing Line Loan” has the meaning specified in Section 2.04(a).

“Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit B.

“Swing Line Obligations” means, as at any date of determination, the aggregate principal amount of all Swing Line Loans outstanding.

“Swing Line Sublimit” means an amount equal to the lesser of (a) $15,000,000 and (b) the aggregate amount of the Revolving Credit Commitments. The Swing Line Sublimit is part of, and not in addition to, the Revolving Credit Commitments.

“Syndication Agent” means JPMorgan Chase Bank, N.A., as Syndication Agent under this Agreement.

“Taxes” has the meaning specified in Section 3.01(a).

“Term Commitment” means any Original Term Commitment and any New Term Commitment.

“Term Lender” means, at any time, any Lender that has a Term Commitment or a Term Loan at such time.

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“Term Loan” means any Original Term Loan and any New Term Loan.

“Term Note” means a promissory note of the Borrower payable to any Term Lender or its registered assigns, in substantially the form of Exhibit C-1, evidencing the aggregate Indebtedness of the Borrower to such Term Lender resulting from the Term Loans made by such Term Lender.

“Test Period” means, for any determination under this Agreement, the four consecutive fiscal quarters of the Borrower then last ended.

“Threshold Amount” means $10,000,000.

“Total Assets” means, as at any date of determination, the aggregate stated balance sheet amount of all assets of the Borrower and the Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP.

“Total Leverage Ratio” means, with respect to any Test Period, the ratio of (a) Consolidated Total Debt as of the last day of such Test Period to (b) Consolidated EBITDA for such Test Period.

“Total Outstandings” means the aggregate Outstanding Amount of all Loans and all L/C Obligations.

“Transaction” means the Original Closing Date Transaction and the Aspen Transaction.

“Treatment Facilities” means, at any time, a collective reference to the facilities and real properties owned, leased, managed or operated by the Borrower or any Subsidiary.

“TRICARE” means the United States Department of Defense health care program for service families (including TRICARE Prime, TRICARE Extra and TRICARE Standard), and any successor or predecessor thereof.

“Type” means, with respect to a Loan, its character as a Base Rate Loan or a Eurocurrency Rate Loan.

“Unaudited Financial Statements” means the Original Closing Date Unaudited Financial Statements and the Restatement Effective Date Unaudited Financial Statements.

“Uniform Commercial Code” means the Uniform Commercial Code as the same may from time to time be in effect in the State of New York or the Uniform Commercial Code (or similar code or statute) of another jurisdiction, to the extent it may be required to apply to any item or items of Collateral.

“United States” and “U.S.” mean the United States of America.

“Unreimbursed Amount” has the meaning specified in Section 2.03(c)(i).

“Unrestricted Subsidiary” means (i) each Subsidiary of the Borrower listed on Schedule 1.01A and (ii) any Subsidiary of the Borrower designated by the board of directors of Holdings as an Unrestricted Subsidiary pursuant to Section 6.15 subsequent to the date hereof.

“U.S. Lender” has the meaning specified in Section 3.01(f).

“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will

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elapse between such date and the making of such payment; by (ii) the then outstanding principal amount of such Indebtedness.

“wholly owned” means, with respect to a Subsidiary of a Person, a Subsidiary of such Person all of the outstanding Equity Interests of which (other than (x) director’s qualifying shares and (y) shares issued to foreign nationals to the extent required by applicable Law) are owned by such Person and/or by one or more wholly owned Subsidiaries of such Person.

SECTION 1.02. Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b) (i) The words “herein,” “hereto,” “hereof” and “hereunder” and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof.

(ii) Article, Section, Exhibit and Schedule references are to the Loan Document in which such reference appears.

(ii) The term “including” is by way of example and not limitation.

(iii) The term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.

(c) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including.”

(d) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

SECTION 1.03. Accounting Terms.

(a) All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.

(b) Notwithstanding anything to the contrary herein, for purposes of determining compliance with any test or covenant contained in this Agreement with respect to any period during which any Specified Transaction (including, without limitation, the Aspen Acquisition) occurs, the Total Leverage Ratio and Interest Coverage Ratio shall be calculated with respect to such period and such Specified Transaction on a Pro Forma Basis; provided that the Pro Forma Adjustments may only be taken into account for purposes of the definition of “Permitted Acquisition” and determining compliance with Sections 7.02, 7.03, 7.04 and 7.11 and determining whether the condition in clause (ii) to the proviso of Section 2.14(a) has been satisfied.

SECTION 1.04. Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement (or required to be satisfied in order for a specific action to be permitted under this Agreement) shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

SECTION 1.05. References to Agreements, Laws, Etc. Unless otherwise expressly provided herein, (a) references to Organization Documents, agreements (including the Loan Documents) and other contractual

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instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are permitted by any Loan Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.

SECTION 1.06. Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

SECTION 1.07. Timing of Payment of Performance. When the payment of any obligation or the performance of any covenant, duty or obligation is stated to be due or performance required on a day which is not a Business Day, the date of such payment (other than as described in the definition of Interest Period) or performance shall extend to the immediately succeeding Business Day.

SECTION 1.08. Cumulative Growth Amount Transactions. If more than one action occurs on any given date the permissibility of the taking of which is determined hereunder by reference to the amount of the Cumulative Growth Amount immediately prior to the taking of such action, the permissibility of the taking of each such action shall be determined independently and in no event may any two or more such actions be treated as occurring simultaneously.

SECTION 1.09. Effect of This Agreement on the Original Credit Agreement and the Other Loan Documents. Upon satisfaction of the conditions precedent to the effectiveness of this Agreement set forth in Section 4.01B, this Agreement shall be binding on the Borrower, the Agents, the Lenders and the other parties hereto and the provisions of the Original Credit Agreement shall be replaced by the provisions of this Agreement; provided that (i) all Loans, Letters of Credit or other Credit Extensions outstanding under the Original Credit Agreement shall continue as Loans, Letters of Credit or other Credit Extensions, as applicable, under this Agreement (and, in the case of Eurocurrency Loans, with the same Interest Periods as were applicable to such Eurocurrency Loans immediately prior to the Restatement Effective Date), (ii) all amounts owing by the Borrower under the Original Credit Agreement to any Person in respect of accrued and unpaid interest and fees on the Loans, Commitments and Letters of Credit shall continue to be due and owing on such Loans, Commitments and Letters of Credit under this Agreement and (iii) any Person entitled to the benefits of Article III or Section 10.05 of the Original Credit Agreement shall continue to be entitled to the benefits of the corresponding provisions of this Agreement. Upon the effectiveness of this Agreement in accordance with Section 4.01B, each Loan Document that was in effect immediately prior to the Restatement Effective Date shall continue to be effective and, unless the context otherwise requires, any reference to the Original Credit Agreement contained therein shall be deemed to refer to this Agreement and any reference to the Term Loans shall be deemed to refer to the Original Term Loans and New Term Loans taken together.

ARTICLE II

THE COMMITMENTS AND CREDIT EXTENSIONS

SECTION 2.01. The Loans.

(a) The Term Borrowings. (i) Subject to the terms and conditions set forth in the Original Credit Agreement, each Original Term Lender severally agrees to make to the Borrower a single loan denominated in Dollars in an amount equal to such Original Term Lender’s Original Term Commitment on the Original Closing Date.

(ii) Subject to the terms and conditions set forth herein, each New Term Lender severally agrees to make to the Borrower a single loan denominated in Dollars in an amount equal to such New Term Lender’s New Term Commitment on the Restatement Effective Date.

(iii) Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed. Term Loans may be Base Rate Loans or Eurocurrency Rate Loans, as further provided herein.

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(b) The Revolving Credit Borrowings. Subject to the terms and conditions set forth herein (i) each Revolving Credit Lender severally agrees to make loans denominated in Dollars to the Borrower pursuant to Section 2.02 (each such loan, a “Revolving Credit Loan”) from time to time, on any Business Day until the Maturity Date, in an aggregate amount not to exceed at any time outstanding the amount of such Lender’s Revolving Credit Commitment; provided that after giving effect to any Revolving Credit Borrowing, (i) the aggregate Outstanding Amount of the Revolving Credit Loans of any Lender, plus such Lender’s Pro Rata Share of the Outstanding Amount of all L/C Obligations, plus such Lender’s Pro Rata Share of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Revolving Credit Commitment and (ii) the aggregate amount of Revolving Credit Loans made on the Original Closing Date shall not exceed $7,500,000. Within the limits of each Lender’s Revolving Credit Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01(b), prepay under Section 2.05, and reborrow under this Section 2.01(b). Revolving Credit Loans may be Base Rate Loans or Eurocurrency Rate Loans, as further provided herein.

SECTION 2.02. Borrowings, Conversions and Continuations of Loans.

(a) Irrevocable notice of the Borrowings to be made on the Original Closing Date, the Restatement Effective Date, each Revolving Credit Borrowing, each conversion of Term Loans or Revolving Credit Loans from one Type to the other, and each continuation of Eurocurrency Rate Loans shall be given by the Borrower to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 12:30 p.m. (New York, New York time) (i) three (3) Business Days prior to the requested date of any Borrowing or continuation of Eurocurrency Rate Loans or any conversion of Base Rate Loans to Eurocurrency Rate Loans, and (ii) one (1) Business Day before the requested date of any Borrowing of Base Rate Loans. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each Borrowing of, conversion to or continuation of Eurocurrency Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof. Except as provided in Sections 2.03(c) and 2.04(c), each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) the Class of Borrowing (it being understood that Original Term Loan Borrowings shall only be available on the Original Closing Date and New Terms Loans shall only be available on the Restatement Effective Date), a conversion of Term Loans or Revolving Credit Loans from one Type to the other, or a continuation of Eurocurrency Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed, converted or continued, (iv) the Type of Loans to be borrowed or to which existing Term Loans or Revolving Credit Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Loan in a Committed Loan Notice or fails to give a timely notice requesting a conversion or continuation, then the applicable Term Loans or Revolving Credit Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurocurrency Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurocurrency Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one (1) month.

(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Pro Rata Share of the applicable Class of Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans or continuation described in Section 2.02(a). In the case of each Borrowing, each Appropriate Lender shall make the amount of its Loan available to the Administrative Agent in Same Day Funds at the Administrative Agent’s Office not later than 1:00 p.m., on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, (i) if such Borrowing is the initial Credit

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Extension on the Original Closing Date, Section 4.01A or (ii) if such Borrowing is the Credit Extension of New Term Loans on the Restatement Effective Date, Section 4.01B), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of the Administrative Agent with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided that if, on the date the Committed Loan Notice with respect to any Revolving Credit Borrowing is given by the Borrower, there are Swing Line Loans or L/C Borrowings outstanding, then the proceeds of such Revolving Credit Borrowing shall be applied, first, to the payment in full of any such L/C Borrowings, second, to the payment in full of any such Swing Line Loans, and third, to the Borrower as provided above.

(c) Except as otherwise provided herein, a Eurocurrency Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurocurrency Rate Loan unless the Borrower pays the amount due, if any, under Section 3.05 in connection therewith. During the existence of an Event of Default, the Administrative Agent or the Required Lenders may require that no Loans may be converted to or continued as Eurocurrency Rate Loans.

(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurocurrency Rate Loans upon determination of such interest rate. The determination of the Eurocurrency Rate by the Administrative Agent shall be conclusive in the absence of manifest error. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in the Citibank prime rate used in determining the Base Rate promptly following the public announcement of such change.

(e) After giving effect to all Term Borrowings, all Revolving Credit Borrowings, all conversions of Term Loans or Revolving Credit Loans from one Type to the other, and all continuations of Term Loans or Revolving Credit Loans as the same Type, there shall not be more than twenty (20) Interest Periods in effect.

(f) The failure of any Lender to make the Loan to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Loan on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on the date of any Borrowing.

(g) New Term Loans borrowed on the Restatement Effective Date shall only initially be either (A) Base Rate Loans or (B) Eurocurrency Loans with an Interest Period or series of Interest Periods ending on the same day as the Interest Period with respect to the Original Term Loans.

SECTION 2.03. Letters of Credit.

(a) The Letter of Credit Commitment. (i) Subject to the terms and conditions set forth herein, (A) each L/C Issuer agrees, in reliance upon the agreements of the other Revolving Credit Lenders set forth in this Section 2.03, (1) from time to time on any Business Day during the period from the Original Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit denominated in Dollars for the account of the Borrower (provided that any Letter of Credit may be for the benefit of any Subsidiary of the Borrower) and to amend or renew Letters of Credit previously issued by it, in accordance with Section 2.03(b), and (2) to honor drafts under the Letters of Credit and (B) the Revolving Credit Lenders severally agree to participate in Letters of Credit issued pursuant to this Section 2.03; provided that no L/C Issuer shall be obligated to make any L/C Credit Extension with respect to any Letter of Credit, and no Lender shall be obligated to participate in any Letter of Credit if as of the date of such L/C Credit Extension, (x) the Revolving Credit Exposure of any Lender would exceed such Lender’s Revolving Credit Commitment or (y) the Outstanding Amount of the L/C Obligations would exceed the Letter of Credit Sublimit. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower’s ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing

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period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.

(ii) An L/C Issuer shall be under no obligation to issue any Letter of Credit if:

(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such L/C Issuer from issuing such Letter of Credit, or any Law applicable to such L/C Issuer or any directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such L/C Issuer shall prohibit, or direct that such L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such L/C Issuer is not otherwise compensated hereunder) not in effect on the Original Closing Date, or shall impose upon such L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Original Closing Date (for which such L/C Issuer is not otherwise compensated hereunder);

(B) subject to Section 2.03(b)(iii), the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance or last renewal, unless the Required Lenders have approved such expiry date;

(C) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Revolving Credit Lenders have approved such expiry date;

(D) the issuance of such Letter of Credit would violate any Laws binding upon such L/C Issuer; or

(E) such Letter of Credit is in an initial amount less than $100,000.

(iii) An L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) such L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Renewal Letters of Credit. (i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to an L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. Such Letter of Credit Application must be received by the relevant L/C Issuer and the Administrative Agent not later than 12:30 p.m. at least two (2) Business Days prior to the proposed issuance date or date of amendment, as the case may be; or, in each case, such later date and time as the relevant L/C Issuer may agree in a particular instance in its sole discretion. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail reasonably satisfactory to the relevant L/C Issuer: (a) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (b) the amount thereof; (c) the expiry date thereof; (d) the name and address of the beneficiary thereof; (e) the documents to be presented by such beneficiary in case of any drawing thereunder; (f) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (g) such other matters as the relevant L/C Issuer may reasonably request. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail reasonably satisfactory to the relevant L/C Issuer (1) the Letter of Credit to be amended; (2) the proposed date of amendment thereof (which shall be a Business Day); (3) the nature of the proposed amendment; and (4) such other matters as the relevant L/C Issuer may reasonably request.

(ii) Promptly after receipt of any Letter of Credit Application, the relevant L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, such L/C Issuer will provide the Administrative Agent with a copy thereof. Upon receipt by the relevant L/C Issuer of confirmation

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from the Administrative Agent that the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions hereof, such L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower or enter into the applicable amendment, as the case may be. Immediately upon the issuance of each Letter of Credit, each Revolving Credit Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the relevant L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Pro Rata Share times the amount of such Letter of Credit.

(iii) If the Borrower so requests in any applicable Letter of Credit Application, the relevant L/C Issuer shall agree to issue a Letter of Credit that has automatic renewal provisions (each, an “Auto-Renewal Letter of Credit”); provided that any such Auto-Renewal Letter of Credit must permit the relevant L/C Issuer to prevent any such renewal at least once in each twelve month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Nonrenewal Notice Date”) in each such twelve month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the relevant L/C Issuer, the Borrower shall not be required to make a specific request to the relevant L/C Issuer for any such renewal. Once an Auto-Renewal Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the relevant L/C Issuer to permit the renewal of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided that the relevant L/C Issuer shall not permit any such renewal if (A) the relevant L/C Issuer has determined that it would have no obligation at such time to issue such Letter of Credit in its renewed form under the terms hereof (by reason of the provisions of Section 2.03(a)(ii) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is five (5) Business Days before the Nonrenewal Notice Date from the Administrative Agent, any Revolving Credit Lender or the Borrower that one or more of the applicable conditions specified in Section 4.02 is not then satisfied.

(iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the relevant L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.

(c) Drawings and Reimbursements; Funding of Participations. (i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the relevant L/C Issuer shall notify promptly the Borrower and the Administrative Agent thereof. Not later than 11:00 a.m. on the Business Day immediately following any payment by an L/C Issuer under a Letter of Credit (each such date, an “Honor Date”), the Borrower shall reimburse such L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing. If the Borrower fails to so reimburse such L/C Issuer by such time, the Administrative Agent shall promptly notify each Appropriate Lender of the Honor Date, the amount of the unreimbursed drawing (the “Unreimbursed Amount”), and the amount of such Appropriate Lender’s Pro Rata Share thereof. In such event, the Borrower shall be deemed to have requested a Revolving Credit Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans but subject to the amount of the unutilized portion of the Revolving Credit Commitments of the Appropriate Lenders and the conditions set forth in Section 4.02 (other than the delivery of a Committed Loan Notice). Any notice given by an L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

(ii) Each Appropriate Lender (including any Lender acting as an L/C Issuer) shall upon any notice pursuant to Section 2.03(c)(i) make funds available to the Administrative Agent for the account of the relevant L/C Issuer, in Dollars, at the Administrative Agent’s Office for payments in an amount equal to its Pro Rata Share of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day

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specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii), each Appropriate Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the relevant L/C Issuer.

(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Revolving Credit Borrowing of Base Rate Loans because the conditions set forth in Section 4.02 cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the relevant L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Appropriate Lender’s payment to the Administrative Agent for the account of the relevant L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.03.

(iv) Until each Appropriate Lender funds its Revolving Credit Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the relevant L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Pro Rata Share of such amount shall be solely for the account of the relevant L/C Issuer.

(v) Each Revolving Credit Lender’s obligation to make Revolving Credit Loans or L/C Advances to reimburse an L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the relevant L/C Issuer, the Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided that each Revolving Credit Lender’s obligation to make Revolving Credit Loans pursuant to this Section 2.03(c) (but not L/C Advances to reimburse an L/C Issuer for amounts drawn under Letters of Credit) is subject to the conditions set forth in Section 4.02 (other than delivery by the Borrower of a Committed Loan Notice ). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrower to reimburse the relevant L/C Issuer for the amount of any payment made by such L/C Issuer under any Letter of Credit, together with interest as provided herein.

(vi) If any Revolving Credit Lender fails to make available to the Administrative Agent for the account of the relevant L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii), such L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to such L/C Issuer at a rate per annum equal to the applicable Overnight Rate from time to time in effect. A certificate of the relevant L/C Issuer submitted to any Revolving Credit Lender (through the Administrative Agent) with respect to any amounts owing under this Section 2.03(c)(vi) shall be conclusive absent manifest error.

(d) Repayment of Participations. (i) If, at any time after an L/C Issuer has made a payment under any Letter of Credit and has received from any Revolving Credit Lender such Lender’s L/C Advance in respect of such payment in accordance with Section 2.03(c), the Administrative Agent receives for the account of such L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Pro Rata Share thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s L/C Advance was outstanding) in the same funds as those received by the Administrative Agent.

(ii) If any payment received by the Administrative Agent for the account of an L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in

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Section 10.06 (including pursuant to any settlement entered into by such L/C Issuer in its discretion), each Appropriate Lender shall pay to the Administrative Agent for the account of such L/C Issuer its Pro Rata Share thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the applicable Overnight Rate from time to time in effect.

(e) Obligations Absolute. The obligation of the Borrower to reimburse the relevant L/C Issuer for each drawing under each Letter of Credit issued by it and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:

(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other agreement or instrument relating thereto;

(ii) the existence of any claim, counterclaim, setoff, defense or other right that any Loan Party may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the relevant L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;

(iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;

(iv) any payment by the relevant L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the relevant L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law;

(v) any exchange, release or nonperfection of any Collateral, or any release or amendment or waiver of or consent to departure from the Guaranty or any other guarantee, for all or any of the Obligations any Loan Party in respect of such Letter of Credit; or

(vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Loan Party;

provided that the foregoing shall not excuse any L/C Issuer from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are waived by the Borrower to the extent permitted by applicable Law) suffered by the Borrower that are caused by such L/C Issuer’s gross negligence or willful misconduct when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof.

(f) Role of L/C Issuers. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the relevant L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuers, any Agent-Related Person nor any of the respective correspondents, participants or assignees of any L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Letter of Credit Application. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit;

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provided that this assumption is not intended to, and shall not, preclude the Borrower’s pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuers, any Agent-Related Person, nor any of the respective correspondents, participants or assignees of any L/C Issuer, shall be liable or responsible for any of the matters described in clauses (i) through (vi) of Section 2.03(e); provided that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against an L/C Issuer, and such L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by such L/C Issuer’s willful misconduct or gross negligence or such L/C Issuer’s willful or grossly negligent failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, each L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and no L/C Issuer shall be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

(g) Cash Collateral. (i) If an L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing and the conditions set forth in Section 4.02 to a Revolving Credit Borrowing cannot then be met, (ii) if, as of the Letter of Credit Expiration Date, any Letter of Credit may for any reason remain outstanding and partially or wholly undrawn, (iii) if any Event of Default occurs and is continuing and the Administrative Agent or the Required Lenders, as applicable, require the Borrower to Cash Collateralize the L/C Obligations pursuant to Section 8.02(c) or (iv) an Event of Default set forth under Section 8.01(f) occurs and is continuing, then the Borrower shall Cash Collateralize the then Outstanding Amount of all L/C Obligations (in an amount equal to such Outstanding Amount determined as of the date of such L/C Borrowing or the Letter of Credit Expiration Date, as the case may be), and shall do so not later than 2:00 p.m., New York City time, on (x) in the case of the immediately preceding clauses (i) through (iii), (1) the Business Day that the Borrower receives notice thereof, if such notice is received on such day prior to 12:00 Noon, New York City time, or (2) if clause (1) above does not apply, the Business Day immediately following the day that the Borrower receives such notice and (y) in the case of the immediately preceding clause (iv), the Business Day on which an Event of Default set forth under Section 8.01(f) occurs or, if such day is not a Business Day, the Business Day immediately succeeding such day. For purposes hereof, “Cash Collateralize” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the relevant L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances (“Cash Collateral”) pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent and the relevant L/C Issuer (which documents are hereby consented to by the Lenders). Derivatives of such term have corresponding meanings. The Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuers and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in blocked accounts at Citibank and may be invested in readily available Cash Equivalents. If at any time the Administrative Agent determines that any funds held as Cash Collateral are subject to any right or claim of any Person other than the Administrative Agent (on behalf of the Secured Parties) or that the total amount of such funds is less than the aggregate Outstanding Amount of all L/C Obligations, the Borrower will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited and held in the deposit accounts at Citibank as aforesaid, an amount equal to the excess of (a) such aggregate Outstanding Amount over (b) the total amount of funds, if any, then held as Cash Collateral that the Administrative Agent reasonably determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit as Cash Collateral, such funds shall be applied, to the extent permitted under applicable Law, to reimburse the relevant L/C Issuer. To the extent the amount of any Cash Collateral exceeds the then Outstanding Amount of such L/C Obligations and so long as no Event of Default has occurred and is continuing, the excess shall be refunded to the Borrower.

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(h) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent for the account of each Revolving Credit Lender in accordance with its Pro Rata Share a Letter of Credit fee for each Letter of Credit issued pursuant to this Agreement equal to the Applicable Rate for Letter of Credit fees times the daily maximum amount then available to be drawn under such Letter of Credit. Such letter of credit fees shall be computed on a quarterly basis in arrears. Such letter of credit fees shall be due and payable in Dollars on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. If there is any change in the Applicable Rate during any quarter, the daily maximum amount of each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect.

(i) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuers. The Borrower shall pay directly to each L/C Issuer for its own account a fronting fee with respect to each Letter of Credit issued by it equal to 0.125% per annum of the daily maximum amount then available to be drawn under such Letter of Credit. Such fronting fees shall be computed on a quarterly basis in arrears. Such fronting fees shall be due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. In addition, the Borrower shall pay directly to each L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable within ten (10) Business Days of demand and are nonrefundable.

(j) Conflict with Letter of Credit Application. Notwithstanding anything else to the contrary in this Agreement, in the event of any conflict between the terms hereof and the terms of any Letter of Credit Application, the terms hereof shall control.

(k) Addition of an L/C Issuer. A Revolving Credit Lender may become an additional L/C Issuer hereunder pursuant to a written agreement among the Borrower, the Administrative Agent and such Revolving Credit Lender. The Administrative Agent shall notify the Revolving Credit Lenders of any such additional L/C Issuer.

SECTION 2.04. Swing Line Loans.

(a) The Swing Line. Subject to the terms and conditions set forth herein, the Swing Line Lender agrees to make loans (each such loan, a “Swing Line Loan”) to the Borrower from time to time on any Business Day (other than the Original Closing Date) until the Maturity Date in an aggregate amount not to exceed at any time outstanding the amount of the Swing Line Sublimit, notwithstanding the fact that such Swing Line Loans, when aggregated with the Pro Rata Share of the Outstanding Amount of Revolving Credit Loans and L/C Obligations of the Lender acting as Swing Line Lender, may exceed the amount of such Lender’s Revolving Credit Commitment; provided that, after giving effect to any Swing Line Loan, the aggregate Outstanding Amount of the Revolving Credit Loans of any Lender, plus such Lender’s Pro Rata Share of the Outstanding Amount of all L/C Obligations, plus such Lender’s Pro Rata Share of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Revolving Credit Commitment then in effect; provided further that the Borrower shall not use the proceeds of any Swing Line Loan to refinance any outstanding Swing Line Loan. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.04, prepay under Section 2.05, and reborrow under this Section 2.04. Each Swing Line Loan shall be a Base Rate Loan. Swing Line Loans shall only be denominated in Dollars. Immediately upon the making of a Swing Line Loan, each Revolving Credit Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a risk participation in such Swing Line Loan in an amount equal to the product of such Lender’s Pro Rata Share times the amount of such Swing Line Loan.

(b) Borrowing Procedures. Each Swing Line Borrowing shall be made upon the Borrower’s irrevocable notice to the Swing Line Lender and the Administrative Agent, which may be given by

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telephone. Each such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the requested borrowing date, and shall specify (i) the amount to be borrowed, which shall be a minimum of $100,000, and (ii) the requested borrowing date, which shall be a Business Day. Each such telephonic notice must be confirmed promptly by delivery to the Swing Line Lender and the Administrative Agent of a written Swing Line Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swing Line Loan Notice and, if not, the Swing Line Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof. Unless the Swing Line Lender has received notice (by telephone or in writing) from the Administrative Agent (including at the request of any Revolving Credit Lender) prior to 2:00 p.m. on the date of the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line Loan as a result of the limitations set forth in the proviso to the first sentence of Section 2.04(a), or (B) that one or more of the applicable conditions specified in Section 4.02 is not then satisfied, then, subject to the terms and conditions hereof, the Swing Line Lender will, not later than 3:00 p.m. on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the Borrower.

(c) Refinancing of Swing Line Loans. (i) The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of the Borrower (which hereby irrevocably authorizes the Swing Line Lender to so request on its behalf), that each Revolving Credit Lender make a Base Rate Loan in an amount equal to such Lender’s Pro Rata Share of the amount of Swing Line Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a Committed Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.02, without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the aggregate Revolving Credit Commitments and the conditions set forth in Section 4.02. The Swing Line Lender shall furnish the Borrower with a copy of the applicable Committed Loan Notice promptly after delivering such notice to the Administrative Agent. Each Revolving Credit Lender shall make an amount equal to its Pro Rata Share of the amount specified in such Committed Loan Notice available to the Administrative Agent in Same Day Funds for the account of the Swing Line Lender at the Administrative Agent’s Office not later than 1:00 p.m. on the day specified in such Committed Loan Notice, whereupon, subject to Section 2.04(c)(ii), each Revolving Credit Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the Swing Line Lender.

(ii) If for any reason any Swing Line Loan cannot be refinanced by such a Revolving Credit Borrowing in accordance with Section 2.04(c)(i), the request for Base Rate Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request by the Swing Line Lender that each of the Revolving Credit Lenders fund its risk participation in the relevant Swing Line Loan and each Revolving Credit Lender’s payment to the Administrative Agent for the account of the Swing Line Lender pursuant to Section 2.04(c)(i) shall be deemed payment in respect of such participation.

(iii) If any Revolving Credit Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(i), the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the applicable Overnight Rate from time to time in effect. A certificate of the Swing Line Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.

(iv) Each Revolving Credit Lender’s obligation to make Revolving Credit Loans or to purchase and fund risk participations in Swing Line Loans pursuant to this Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim,

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recoupment, defense or other right which such Lender may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided that each Revolving Credit Lender’s obligation to make Revolving Credit Loans pursuant to this Section 2.04(c) (but not to purchase and fund risk participations in Swing Line Loans) is subject to the conditions set forth in Section 4.02. No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrower to repay Swing Line Loans, together with interest as provided herein.

(d) Repayment of Participations. (i) At any time after any Revolving Credit Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, the Swing Line Lender will distribute to such Lender its Pro Rata Share of such payment (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s risk participation was funded) in the same funds as those received by the Swing Line Lender.

(ii) If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by the Swing Line Lender under any of the circumstances described in Section 10.06 (including pursuant to any settlement entered into by the Swing Line Lender in its discretion), each Revolving Credit Lender shall pay to the Swing Line Lender its Pro Rata Share thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the applicable Overnight Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender.

(e) Interest for Account of Swing Line Lender. The Swing Line Lender shall be responsible for invoicing the Borrower for interest on the Swing Line Loans. Until each Revolving Credit Lender funds its Base Rate Loan or risk participation pursuant to this Section 2.04 to refinance such Lender’s Pro Rata Share of any Swing Line Loan, interest in respect of such Pro Rata Share shall be solely for the account of the Swing Line Lender.

(f) Payments Directly to Swing Line Lender. The Borrower shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.

SECTION 2.05. Prepayments.

(a) Optional. (i) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Term Loans and Revolving Credit Loans in whole or in part without premium or penalty; provided that (1) such notice must be received by the Administrative Agent not later than 12:30 p.m. (New York, New York time) (A) three (3) Business Days prior to any date of prepayment of Eurocurrency Rate Loans and (B) on the date of prepayment of Base Rate Loans; (2) any prepayment of Eurocurrency Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof; and (3) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Class(es) and Type(s) of Loans to be prepaid. The Administrative Agent will promptly notify each Appropriate Lender of its receipt of each such notice, and of the amount of such Lender’s Pro Rata Share of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurocurrency Rate Loan shall be accompanied by all accrued interest thereon, together with any additional amounts required pursuant to Section 3.05. Each prepayment of the Loans pursuant to this Section 2.05(a) shall be paid to the Appropriate Lenders in accordance with their respective Pro Rata Shares.

(ii) The Borrower may, upon notice to the Swing Line Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swing Line Loans in whole or in part without premium or penalty; provided that (1) such notice must be received by the Swing Line Lender

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and the Administrative Agent not later than 1:00 p.m. on the date of the prepayment, and (2) any such prepayment shall be in a minimum principal amount of $100,000 or a whole multiple of $100,000 in excess thereof or, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.

(iii) Notwithstanding anything to the contrary contained in this Agreement, the Borrower may rescind any notice of prepayment under Section 2.05(a)(i) or 2.05(a)(ii) if such prepayment would have resulted from a refinancing in total of a Facility, which refinancing shall not be consummated or shall otherwise be delayed. Each prepayment of Term Loans pursuant to this Section 2.05(a) shall be applied as directed by the Borrower.

(b) Mandatory. (i) Within five (5) Business Days after financial statements have been delivered pursuant to Section 6.01(a) and the related Compliance Certificate has been delivered pursuant to Section 6.02(b) and no later than the 95th day after the end of a Fiscal year, the Borrower shall cause to be prepaid an aggregate amount of Term Loans in an amount equal to (A) 50% of Excess Cash Flow, if any, for the fiscal year covered by such financial statements (commencing with the fiscal year ended December 31, 2006) minus (B) the sum of (i) all voluntary prepayments of Term Loans during such fiscal year and (ii) all voluntary prepayments of Revolving Credit Loans during such fiscal year to the extent the Revolving Credit Commitments are permanently reduced by the amount of such payments, in the case of each of the immediately preceding clauses (i) and (ii), to the extent such prepayments are not funded with the proceeds of Indebtedness; provided that such percentage shall be reduced to 25% if the Total Leverage Ratio as of the last day of the fiscal year covered by such financial statements was less than or equal to 4.0:1 but greater than 3.0:1. No payment of any Loans shall be required under this Section 2.05(b)(i) if the Total Leverage Ratio as of the last day of the fiscal year covered by such financial statements was less than or equal to 3.00:1.

(ii) (A) If (x) Holdings, the Borrower or any Restricted Subsidiary Disposes of any property or assets (other than any Disposition of any property or assets permitted by Section 7.05 (a), (b), (c), (d) (to the extent constituting a Disposition by any Restricted Subsidiary to a Loan Party), (e), (g), (h) or (i)) or (y) any Casualty Event occurs, which in the aggregate results in the realization or receipt by Holdings, the Borrower or such Restricted Subsidiary of Net Cash Proceeds, the Borrower shall cause to be prepaid on or prior to the date which is ten (10) Business Days after the date of the realization or receipt of such Net Cash Proceeds an aggregate amount of Term Loans in an amount equal to 100% of all Net Cash Proceeds received; provided that no such prepayment shall be required pursuant to this Section 2.05(b)(ii)(A) with respect to such portion of such Net Cash Proceeds that the Borrower shall have, on or prior to such date, given written notice to the Administrative Agent of its intent to reinvest in accordance with Section 2.05(b)(ii)(B) (which notice may only be provided if no Event of Default has occurred and is then continuing);

(B) With respect to any Net Cash Proceeds realized or received with respect to any Disposition (other than any Disposition specifically excluded from the application of Section 2.05(b)(ii)(A)) or any Casualty Event, at the option of the Borrower, the Borrower may reinvest all or any portion of such Net Cash Proceeds in assets useful for its business within (x) fifteen (15) months following receipt of such Net Cash Proceeds or (y) if the Borrower enters into a legally binding commitment to reinvest such Net Cash Proceeds within fifteen (15) months following receipt thereof, within one hundred and eighty (180) days of the date of such legally binding commitment but in any event no earlier than the fifteenth month following receipt of such Net Cash Proceeds; provided that (i) so long as an Event of Default shall have occurred and be continuing, the Borrower (x) shall not be permitted to make any such reinvestments (other than pursuant to a legally binding commitment that the Borrower entered into at a time when no Event of Default is continuing) and (y) shall not be required to apply such Net Cash Proceeds which have been previously applied to prepay Revolving Credit Loans to the prepayment of Term Loans

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until such time as the relevant investment period has expired and no Event of Default is continuing and (ii) if any Net Cash Proceeds are no longer intended to be or cannot be so reinvested at any time after delivery of a notice of reinvestment election, an amount equal to any such Net Cash Proceeds shall be applied within five (5) Business Days after the Borrower reasonably determines that such Net Cash Proceeds are no longer intended to be or cannot be so reinvested to the prepayment of the Term Loans as set forth in this Section 2.05.

(iii) If Holdings, the Borrower or any Restricted Subsidiary incurs or issues any Indebtedness not expressly permitted to be incurred or issued pursuant to Section 7.03, the Borrower shall cause to be prepaid an aggregate amount of Term Loans in an amount equal to 100% of all Net Cash Proceeds received therefrom on or prior to the date which is five (5) Business Days after the receipt of such Net Cash Proceeds.

(iv) If for any reason the aggregate Revolving Credit Exposures at any time exceeds the aggregate Revolving Credit Commitments then in effect, the Borrower shall promptly prepay or cause to be promptly prepaid Revolving Credit Loans and Swing Line Loans and/or Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess; provided that the Borrower shall not be required to Cash Collateralize the L/C Obligations pursuant to this Section 2.05(b)(iv) unless after the prepayment in full of the Revolving Credit Loans and Swing Line Loans such aggregate Outstanding Amount exceeds the aggregate Revolving Credit Commitments then in effect.

(v) Each prepayment of Term Loans pursuant to this Section 2.05(b) shall be applied to the installments due thereof within the next 24 months in direct order of maturity to repayments thereof required pursuant to Section 2.07(a) and afterwards, pro rata to the remaining installments; and each such prepayment shall be paid to the Lenders in accordance with their respective Pro Rata Shares, subject to clause (vii) of this Section 2.05(b).

(vi) The Borrower shall notify the Administrative Agent in writing of any mandatory prepayment of Term Loans required to be made pursuant to clauses (i) through (iii) of this Section 2.05(b) at least three (3) Business Days prior to the date of such prepayment. Each such notice shall specify the date of such prepayment and provide a reasonably detailed calculation of the amount of such prepayment. The Administrative Agent will promptly notify each Appropriate Lender of the contents of the Borrower’s prepayment notice and of such Appropriate Lender’s Pro Rata Share of the prepayment.

(c) Funding Losses, Etc. All prepayments under this Section 2.05 shall be made together with, in the case of any such prepayment of a Eurocurrency Rate Loan on a date prior to the last day of an Interest Period therefor, any amounts owing in respect of such Eurocurrency Rate Loan pursuant to Section 3.05. Notwithstanding any of the other provisions of Section 2.05(b), so long as no Event of Default shall have occurred and be continuing, if any prepayment of Eurocurrency Rate Loans is required to be made under this Section 2.05(c), prior to the last day of the Interest Period therefor, the Borrower may, in its sole discretion, deposit the amount of any such prepayment otherwise required to be made thereunder into a Cash Collateral Account until the last day of such Interest Period, at which time the Administrative Agent shall be authorized (without any further action by or notice to or from the Borrower or any other Loan Party) to apply such amount to the prepayment of such Loans in accordance with this Section 2.05(c). Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent shall also be authorized (without any further action by or notice to or from the Borrower or any other Loan Party) to apply such amount to the prepayment of the outstanding Loans in accordance with this Section 2.05(c).

SECTION 2.06. Termination or Reduction of Commitments.

(a) Optional. The Borrower may, upon written notice to the Administrative Agent, terminate the unused Commitments of any Class, or from time to time permanently reduce the unused Commitments of any Class; provided that (i) any such notice shall be received by the Administrative Agent three (3) Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $1,000,000 or any whole multiple of $500,000 in excess thereof and (iii) if, after giving effect to

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any reduction of the Commitments, the Letter of Credit Sublimit or the Swing Line Sublimit exceeds the amount of the Revolving Credit Facility, such sublimit shall be automatically reduced by the amount of such excess. The amount of any such Commitment reduction shall not be applied to the Letter of Credit Sublimit or the Swing Line Sublimit unless otherwise specified by the Borrower. Notwithstanding the foregoing, the Borrower may rescind or postpone any notice of termination of the Commitments if such termination would have resulted from a refinancing in total of a Facility, which refinancing shall not be consummated or otherwise shall be delayed.

(b) Mandatory. The Term Commitment of each Term Lender shall be automatically and permanently reduced to $0 upon the making of such Term Lender’s Term Loans pursuant to Section 2.01(a).

(c) Application of Commitment Reductions; Payment of Fees. The Administrative Agent will promptly notify the Lenders of any termination or reduction of unused portions of the Letter of Credit Sublimit, or the Swing Line Sublimit or the unused Commitments of any Class under this Section 2.06. Upon any reduction of unused Commitments of any Class, the Commitment of each Lender of such Class shall be reduced by such Lender’s Pro Rata Share of the amount by which such Commitments are reduced (other than the termination of the Commitment of any Lender as provided in Section 3.07). All commitment fees accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination.

SECTION 2.07. Repayment of Loans.

(a) Term Loans. The Borrower shall repay to the Administrative Agent for the ratable account of the Term Lenders (i) on the last Business Day of each March, June, September and December, commencing on the last Business Day of December 2006, an aggregate amount equal to 0.25% of the aggregate amount of all Term Loans outstanding on the Restatement Effective Date (which payments shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.05) and (ii) on the Maturity Date for the Term Loans, the aggregate principal amount of all Term Loans outstanding on such date.

(b) Revolving Credit Loans. The Borrower shall repay to the Administrative Agent for the ratable account of the Appropriate Lenders on the Maturity Date for the Revolving Credit Facility the aggregate principal amount of all of its Revolving Credit Loans outstanding on such date.

(c) Swing Line Loans. The Borrower shall repay its Swing Line Loans on the earlier to occur of (i) the date five (5) Business Days after such Loan is made and (ii) the Maturity Date for the Revolving Credit Facility.

SECTION 2.08. Interest.

(a) Subject to the provisions of Section 2.08(b), (i) each Eurocurrency Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurocurrency Rate for such Interest Period plus the Applicable Rate; (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate and (iii) each Swing Line Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate for Revolving Credit Loans.

(b) The Borrower shall pay interest on past due amounts hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

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SECTION 2.09. Fees. In addition to certain fees described in Sections 2.03(h) and (i):

(a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of each Revolving Credit Lender in accordance with its Pro Rata Share, a commitment fee equal to the Applicable Rate with respect to commitment fees times the actual daily amount by which the aggregate Revolving Credit Commitment exceeds the sum of (A) Outstanding Amount of Revolving Credit Loans and (B) the Outstanding Amount of L/C Obligations; provided that any commitment fee accrued with respect to any of the Commitments of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender except to the extent that such commitment fee shall otherwise have been due and payable by the Borrower prior to such time; and provided further that no commitment fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. The commitment fee shall accrue at all times from the date hereof until the Maturity Date for the Revolving Credit Facility, including at any time during which one or more of the conditions in Article 4 is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Original Closing Date, and on the Maturity Date for the Revolving Credit Facility. The commitment fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect.

(b) Other Fees. The Borrower shall pay to the Agents such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever (except as expressly agreed between the Borrower and the applicable Agent).

SECTION 2.10. Computation of Interest and Fees. All computations of interest for Base Rate Loans when the Base Rate is determined by Citibank’s “prime rate” shall be made on the basis of a year of three hundred and sixty-five (365) days and actual days elapsed. All other computations of fees and interest shall be made on the basis of a three hundred and sixty (360) day year and actual days elapsed. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid; provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one (1) day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

SECTION 2.11. Evidence of Indebtedness.

(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and evidenced by one or more entries in the Register maintained by the Administrative Agent, acting solely for purposes of Treasury Regulation Section 5f.103-1(c), as agent for the Borrower, in each case in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be prima facie evidence absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note payable to such Lender, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.

(b) In addition to the accounts and records referred to in Section 2.11(a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records and, in the

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case of the Administrative Agent, entries in the Register, evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing Line Loans. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.

(c) Entries made in good faith by the Administrative Agent in the Register pursuant to Sections 2.11(a) and (b), and by each Lender in its account or accounts pursuant to Sections 2.11(a) and (b), shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Borrower to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement and the other Loan Documents, absent manifest error; provided that the failure of the Administrative Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement and the other Loan Documents.

SECTION 2.12. Payments Generally.

(a) All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the applicable Administrative Agent’s Office in Dollars and in Same Day Funds not later than 2:00 p.m. on the date specified herein and the Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.

(b) If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be; provided that, if such extension would cause payment of interest on or principal of Eurocurrency Rate Loans to be made in the next succeeding calendar month, such payment shall be made on the immediately preceding Business Day.

(c) Unless the Borrower or any Lender has notified the Administrative Agent, prior to the date any payment is required to be made by it to the Administrative Agent hereunder, that the Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Administrative Agent in Same Day Funds, then:

(i) if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender in Same Day Funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in Same Day Funds at the applicable Overnight Rate from time to time in effect; and

(ii) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in Same Day Funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent (the “Compensation Period”) at a rate per annum equal to the applicable Overnight Rate from time to time in effect. When such Lender makes payment to the Administrative Agent (together with all accrued interest thereon), then such payment amount (excluding the amount of any interest which may have accrued and been paid in

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respect of such late payment) shall constitute such Lender’s Loan included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent may make a demand therefor upon the Borrower, and the Borrower shall pay such amount to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to the applicable Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Administrative Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder.

A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this Section 2.12(c) shall be conclusive, absent manifest error.

(d) If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article 2, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article 4 are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

(e) The obligations of the Lenders hereunder to make Loans and to fund participations in Letters of Credit and Swing Line Loans are several and not joint. The failure of any Lender to make any Loan or to fund any such participation on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan or purchase its participation.

(f) Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

(g) Whenever any payment received by the Administrative Agent under this Agreement or any of the other Loan Documents is insufficient to pay in full all amounts due and payable to the Administrative Agent and the Lenders under or in respect of this Agreement and the other Loan Documents on any date, such payment shall be distributed by the Administrative Agent and applied by the Administrative Agent and the Lenders in the order of priority set forth in Section 8.04. If the Administrative Agent receives funds for application to the Obligations of the Loan Parties under or in respect of the Loan Documents under circumstances for which the Loan Documents do not specify the manner in which such funds are to be applied, the Administrative Agent may, but shall not be obligated to, elect to distribute such funds to each of the Lenders in accordance with such Lender’s Pro Rata Share of the sum of (a) the Outstanding Amount of all Loans outstanding at such time and (b) the Outstanding Amount of all L/C Obligations outstanding at such time, in repayment or prepayment of such of the outstanding Loans or other Obligations then owing to such Lender.

SECTION 2.13. Sharing of Payments. If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Loans made by it, or the participations in L/C Obligations and Swing Line Loans held by it, any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) in excess of its ratable share (or other share contemplated hereunder) thereof, such Lender shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Lenders such participations in the Loans made by them and/or such subparticipations in the participations in L/C Obligations or Swing Line Loans held by them, as the case may be, as shall be necessary to cause such purchasing Lender to share the excess payment in respect of such Loans or such participations, as the case may be, pro rata with each of them; provided that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender under any of the circumstances described in Section 10.06 (including pursuant to any settlement entered into by the purchasing Lender in its discretion), such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender’s ratable share (according to the proportion of (i) the amount of such paying Lender’s required

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repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered, without further interest thereon. The Borrower agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by applicable Law, exercise all its rights of payment (including the right of setoff, but subject to Section 10.09) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section 2.13 and will in each case notify the Lenders following any such purchases or repayments. Each Lender that purchases a participation pursuant to this Section 2.13 shall from and after such purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Obligations purchased.

SECTION 2.14. Incremental Credit Extensions.

(a) The Borrower may at any time or from time to time after the Original Closing Date, by notice to the Administrative Agent (whereupon the Administrative Agent shall promptly deliver a copy to each of the Lenders), request (a) one or more additional tranches of term loans (the “Incremental Term Loans”) or (b) one or more increases in the amount of the Revolving Credit Commitments (each such increase, a “Revolving Commitment Increase”), provided that (i) both at the time of any such request and upon the effectiveness of any Incremental Amendment referred to below, no Default or Event of Default shall exist and at the time that any such Incremental Term Loan is made (and after giving effect thereto) no Default or Event of Default shall exist and (ii) the Borrower shall be in compliance with each of the covenants set forth in Section 7.11 determined on a Pro Forma Basis as of the last day of the most recent Test Period, in each case, as if such Incremental Term Loans or Revolving Commitment Increases, as applicable, had been outstanding and fully borrowed on the last day of such fiscal quarter of the Borrower for testing compliance therewith. Each tranche of Incremental Term Loans and each Revolving Commitment Increase shall be in an aggregate principal amount that is not less than $10,000,000 (provided that such amount may be less than $10,000,000 if such amount represents all remaining availability under the limit set forth in the next sentence). Notwithstanding anything to the contrary herein, the aggregate amount of the Incremental Term Loans and the Revolving Commitment Increases shall not exceed the sum of $50,000,000. The Incremental Term Loans (a) shall rank pari passu in right of payment and of security with the Revolving Credit Loans and the Term Loans, (b) shall not mature earlier than the Maturity Date with respect to the Term Loans and shall have a weighted average life to maturity no shorter than the weighted average life to maturity of the Term Loans (except by virtue of amortization of or prepayment of the Term Loans prior to such date of determination) and (c) except as set forth above, shall be treated substantially the same as the Term Loans (in each case, including with respect to mandatory and voluntary prepayments), provided that the interest rates and amortization schedule (subject to clause (b) above) applicable to the Incremental Term Loans shall be determined by the Borrower and the lenders thereof; provided further that (i) if the Applicable Rate (which, for such purposes only, shall be deemed to include all upfront or similar fees or original issue discount that are paid to all Lenders (and not any one Lender) providing such Incremental Term Loans) relating to any Incremental Term Loans exceeds the Applicable Rate (which, for such purposes only, shall be deemed to include all upfront or similar fees or original issue discount payable to all Lenders providing the Term Loans) relating to the Term Loans immediately prior to the effectiveness of the applicable Incremental Amendment by more than 0.50%, the Applicable Rate relating to the Term Loans shall be adjusted to be equal to the Applicable Rate (which, for such purposes only, shall be deemed to include all upfront or similar fees or original issue discount that are paid to all Lenders (and not any one Lender) providing such Incremental Term Loans) relating to such Incremental Term Loans minus 0.50%. Each notice from the Borrower pursuant to this Section shall set forth the requested amount and proposed terms of the relevant Incremental Term Loans or Revolving Commitment Increases. Incremental Term Loans may be made, and Revolving Commitment Increases may be provided, by any existing Lender (and each existing Term Lender will have the right, but not an obligation, to make a portion of any Incremental Term Loan,

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and each existing Revolving Credit Lender will have the right, but not an obligation, to provide a portion of any Revolving Commitment Increase, in each case on terms permitted in this Section 2.14 and otherwise on terms reasonably acceptable to the Administrative Agent) or by any other bank or other financial institution (any such other bank or other financial institution being called an “Additional Lender”), provided that the Administrative Agent, L/C Issuer and Swing Line Lender shall have consented (not to be unreasonably withheld) to such Lender’s or Additional Lender’s making such Incremental Term Loans or providing such Revolving Commitment Increases if such consent would be required under Section 10.07(b) for an assignment of Loans or Revolving Credit Commitments, as applicable, to such Lender or Additional Lender. Commitments in respect of Incremental Term Loans and Revolving Commitment Increases shall become Commitments (or in the case of a Revolving Commitment Increase to be provided by an existing Revolving Credit Lender, an increase in such Lender’s applicable Revolving Credit Commitment) under this Agreement pursuant to an amendment (an “Incremental Amendment”) to this Agreement and, as appropriate, the other Loan Documents, executed by Holdings, the Borrower, each Lender agreeing to provide such Commitment, if any, each Additional Lender, if any, and the Administrative Agent. The Incremental Amendment may, without the consent of any other Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions of this Section. The effectiveness of any Incremental Amendment shall be subject to the satisfaction on the date thereof (each, an “Incremental Facility Closing Date”) of each of the conditions set forth in Section 4.02 (it being understood that all references to “the date of such Credit Extension” or similar language in such Section 4.02(b) and (unless waived by the Additional Lender) 4.02(a) shall be deemed to refer to the effective date of such Incremental Amendment) and such other conditions as the parties thereto shall agree. The Borrower will use the proceeds of the Incremental Term Loans and Revolving Commitment Increases for any purpose not prohibited by this Agreement. No Lender shall be obligated to provide any Incremental Term Loans or Revolving Commitment Increases, unless it so agrees. Upon each increase in the Revolving Credit Commitments pursuant to this Section, each Revolving Credit Lender immediately prior to such increase will automatically and without further act be deemed to have assigned to each Lender providing a portion of the Revolving Commitment Increase (each a “Revolving Commitment Increase Lender”) in respect of such increase, and each such Revolving Commitment Increase Lender will automatically and without further act be deemed to have assumed, a portion of such Revolving Credit Lender’s participations hereunder in outstanding Letters of Credit and Swing Line Loans such that, after giving effect to each such deemed assignment and assumption of participations, the percentage of the aggregate outstanding (i) participations hereunder in Letters of Credit and (ii) participations hereunder in Swing Line Loans held by each Revolving Credit Lender (including each such Revolving Commitment Increase Lender) will equal the percentage of the aggregate Revolving Credit Commitments of all Revolving Credit Lenders represented by such Revolving Credit Lender’s Revolving Credit Commitment and (b) if, on the date of such increase, there are any Revolving Credit Loans outstanding, such Revolving Credit Loans shall on or prior to the effectiveness of such Revolving Commitment Increase be prepaid from the proceeds of additional Revolving Credit Loans made hereunder (reflecting such increase in Revolving Credit Commitments), which prepayment shall be accompanied by accrued interest on the Revolving Credit Loans being prepaid and any costs incurred by any Lender in accordance with Section 3.05. The Administrative Agent and the Lenders hereby agree that the minimum borrowing, pro rata borrowing and pro rata payment requirements contained elsewhere in this Agreement shall not apply to the transactions effected pursuant to the immediately preceding sentence.

(b) This Section 2.14 shall supersede any provisions in Section 2.13 or 10.01 to the contrary.

(c) For the avoidance of doubt, the New Term Loans shall not be deemed to have been incurred pursuant to this Section 2.14 for any purpose under this Agreement

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ARTICLE III

TAXES, INCREASED COSTS PROTECTION AND ILLEGALITY

SECTION 3.01. Taxes.

(a) Except as provided in this Section 3.01, any and all payments by the Loan Parties to or for the account of any Agent or any Lender under any Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities (including additions to tax, penalties and interest) with respect thereto, excluding the following, (i) in the case of each Agent and each Lender, taxes imposed on or measured by its overall net income or overall gross income (including branch profits) and franchise (and similar) taxes imposed on it in lieu of net income taxes, by a jurisdiction (or any political subdivision thereof) as a result of such Agent or such Lender, as the case may be, being organized or having its principal office or applicable Lending Office in such jurisdiction or as a result of a present or former connection between such Agent or such Lender and the jurisdiction imposing such tax other than a connection arising as a result of any transaction contemplated under any Loan Document, and all liabilities (including additions to tax, penalties and interest) with respect thereto, (ii) in the case of any Foreign Lender (as defined below), any U.S. federal withholding tax that (A) is imposed on amounts payable to such Lender under a law that is in effect at the time such Lender becomes a party hereto (or designates a new lending office or changes its place of organization or principal office), except to the extent that such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or change in its place of organization or principal office or assignment), to receive additional amounts from the Loan Parties with respect to such withholding tax pursuant to this Section 3.01(a), or (B) is attributable to such Lender’s failure to comply with Section 3.01(d); provided that clause (ii)(A) shall not apply to any assignee or new lending office pursuant to Section 2.13 or pursuant to a request by the Borrower under Section 3.07 and (iii) in the case of any U.S. Lender (as defined below) any U.S. federal backup withholding tax resulting from such Lender failing to comply with Section 3.01(f) (all such non-excluded taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities being hereinafter referred to as “Taxes”). If the Loan Parties shall be required by any Laws to deduct any Taxes or Other Taxes from or in respect of any sum payable under any Loan Document to any Agent or any Lender, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.01), each of such Agent and such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) such Loan Party shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Laws, and (iv) within thirty (30) days after the date of such payment (or, if receipts or evidence are not available within thirty (30) days, as soon as possible thereafter), such Loan Party shall furnish to such Agent or Lender (as the case may be) the original or a certified copy of a receipt evidencing payment thereof to the extent such a receipt is issued therefor, or other written proof of payment thereof that is reasonably satisfactory to the Administrative Agent. If such Loan Party fails to pay any Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to any Agent or any Lender the required receipts or other required documentary evidence, such Loan Party shall indemnify such Agent and such Lender for any incremental taxes, interest or penalties that may become payable by such Agent or such Lender arising out of such failure.

(b) In addition, the Borrower agrees to pay any and all present or future stamp, court or documentary taxes and any other excise, property, intangible or mortgage recording taxes or charges or similar levies which arise from any payment made under any Loan Document or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, any Loan Document and all additions to tax, penalties and interest (hereinafter referred to as “Other Taxes”).

(c) The Borrower agrees to indemnify each Agent and each Lender for (i) the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 3.01) payable by such Agent and such Lender and (ii) any liability (including

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additions to tax, penalties, interest and reasonable expenses) arising therefrom or with respect thereto, in each case whether or not such Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority; provided such Agent or Lender, as the case may be, provides the Borrower with a written statement thereof setting forth in reasonable detail the basis and calculation of such amounts. Payment under this Section 3.01(c) shall be made within thirty (30) days after the date such Lender or such Agent makes a demand therefor.

(d) (i) To the extent it is legally entitled to do so, each Lender and Agent that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code (each, a “Foreign Lender”) shall deliver to the Borrower and the Administrative Agent, on or prior to the date which is ten (10) Business Days after the Original Closing Date (or upon accepting an assignment of an interest herein), two duly signed, properly completed copies of either IRS Form W-8BEN or any successor thereto (relating to such Foreign Lender and entitling it to an exemption from, or reduction of, United States withholding tax on payments to be made to such Foreign Lender by the Borrower or any other Loan Party pursuant to this Agreement or any other Loan Document) or IRS Form W-8ECI or any successor thereto (relating to all payments to be made to such Foreign Lender by the Borrower or any other Loan Party pursuant to this Agreement or any other Loan Document) or such other evidence reasonably satisfactory to the Borrower and the Administrative Agent that such Foreign Lender is entitled to an exemption from, or reduction of, United States withholding tax, including any exemption pursuant to Section 871(h) or 881(c) of the Code, and in the case of a Foreign Lender claiming such an exemption under Section 881(c) of the Code, a certificate that establishes in writing to the Borrower and the Administrative Agent that such Foreign Lender is not (i) a “bank” as defined in Section 881(c)(3)(A) of the Code, (ii) a 10-percent stockholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, or (iii) a controlled foreign corporation related to the Borrower within the meaning of Section 864(d) of the Code. Thereafter, to the extent it is legally entitled to do so, each such Foreign Lender shall (A) promptly submit to the Borrower and the Administrative Agent such additional duly completed and signed copies of one or more of such forms or certificates (or such successor forms or certificates as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States Laws and regulations to avoid, or such evidence as is reasonably satisfactory to the Borrower and the Administrative Agent of any available exemption from, or reduction of, United States withholding taxes in respect of payments to be made to such Foreign Lender by the Borrower or other Loan Party pursuant to this Agreement, or any other Loan Document, in each case, (1) upon the Borrower or Administrative Agent’s request, on or before the date that any such form, certificate or other evidence expires or becomes obsolete, (2) after the occurrence of any event involving such Lender that requires a change in the most recent form, certificate or evidence previously delivered by it to the Borrower and the Administrative Agent and (3) from time to time thereafter if reasonably requested by the Borrower or the Administrative Agent, and (B) promptly notify the Borrower and the Administrative Agent of any change in such Foreign Lender’s circumstances which would modify or render invalid any claimed exemption or reduction.

(ii) To the extent that it is legally entitled to do so, each Lender and Agent entitled to an exemption from or reduction of non-U.S. withholding tax under the law of a jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under the Loan Documents shall deliver to the Borrower (with a copy to the Agent), at the time or times prescribed by applicable law and reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding; provided that each Lender and the Agent shall not have to execute and deliver any such document if such execution and delivery would subject such Lender or Agent to any unreimbursed cost or would be otherwise disadvantageous to it.

(iii) Each Foreign Lender, to the extent it does not act or ceases to act for its own account with respect to any portion of any sums paid or payable to such Foreign Lender under any of the Loan Documents (for example, in the case of a typical participation by such Foreign Lender), shall deliver to the Borrower and the Administrative Agent on the date when such Foreign Lender ceases to act for its

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own account with respect to any portion of any such sums paid or payable, and at such other times as may be necessary in the determination of the Borrower or the Administrative Agent (in either case, in the reasonable exercise of its discretion), (A) two duly signed completed copies of the forms or statements required to be provided by such Foreign Lender as set forth above, to establish the portion of any such sums paid or payable with respect to which such Foreign Lender acts for its own account that is not subject to United States withholding tax, and (B) two duly signed completed copies of IRS Form W-8IMY (or any successor thereto), together with any information such Foreign Lender chooses to transmit with such form and any information required to be included with such form, and any other certificate or statement of exemption required under the Code, to establish that such Foreign Lender is not acting for its own account with respect to a portion of any such sums payable to such Foreign Lender.

(e) The Administrative Agent may deduct and withhold any taxes required by any laws to be deducted and withheld from any payment under any of the Loan Documents.

(f) Each Lender and Agent that is a “United States person” within the meaning of Section 7701(a)(30) of the Code (each, a “U.S. Lender”), other than a U.S. Lender that may be treated as an exempt recipient based on the indicators described in Treasury Regulation Section 1.6049-4(c)(1)(ii), shall deliver to the Administrative Agent and the Borrower two duly signed, properly completed copies of IRS Form W-9 on or prior to the Original Closing Date (or on or prior to the date it becomes a party to this Agreement) and subsequently as reasonably requested by the Borrower, certifying that such U.S. Lender is entitled to an exemption from United States backup withholding tax, or any successor form.

(g) If any Lender or Agent determines, in its sole discretion, that it has received a refund in respect of any Taxes or Other Taxes as to which indemnification or additional amounts have been paid to it by the Loan Parties pursuant to this Section 3.01, it shall promptly remit the portion of such refund to the Loan Parties that it determines in its sole discretion will leave it in no better or worse after-tax financial position (taking into account all out-of-pocket expenses of the Lender or Agent, as the case may be and without interest (other than any interest paid by the relevant taxing authority with respect to such refund)) than it would have been in if the Taxes or Other Taxes giving rise to such refund had never been imposed in the first instance; provided that the Loan Parties, upon the request of the Lender or Agent, as the case may be, agree promptly to return such refund to such party in the event such party is required to repay such refund to the relevant taxing authority (including any interest or penalties). Nothing herein contained shall interfere with the right of a Lender or Agent to arrange its tax affairs in whatever manner it thinks fit nor oblige any Lender or Agent to claim any tax refund or to make available its tax returns or other confidential information or disclose any information relating to its tax affairs or any computations in respect thereof or require any Lender or Agent to do anything that would prejudice its ability to benefit from any other refunds, credits, reliefs, remissions or repayments to which it may be entitled.

(h) Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 3.01(a) or (c) with respect to such Lender it will, if requested by the Borrower, use commercially reasonable efforts (subject to such Lender’s overall internal policies of general application and legal and regulatory restrictions) to designate another Lending Office for any Loan or Letter of Credit affected by such event; provided that such efforts are made on terms that, in the sole judgment of such Lender, cause such Lender and its Lending Office(s) to suffer no economic, legal or regulatory disadvantage, and provided further that nothing in this Section 3.01(h) shall affect or postpone any of the Obligations of the Borrower or the rights of such Lender pursuant to Section 3.01(a) or (c). The Borrower agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation. A certificate setting forth such costs and expenses in reasonable detail submitted by such Lender to the Administrative Agent shall be conclusive absent manifest error.

SECTION 3.02. Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurocurrency Rate Loans, or to determine or charge interest rates based upon the Eurocurrency

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Rate, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurocurrency Rate Loans or to convert Base Rate Loans to Eurocurrency Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurocurrency Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurocurrency Rate Loans to such day, or promptly, if such Lender may not lawfully continue to maintain such Eurocurrency Rate Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted and all amounts due, if any, in connection with such prepayment or conversion under Section 3.05. Each Lender agrees to designate a different Lending Office if such designation will avoid the need for such notice and will not, in the good faith judgment of such Lender, otherwise be materially disadvantageous to such Lender.

SECTION 3.03. Inability to Determine Rates. If the Required Lenders determine that for any reason adequate and reasonable means do not exist for determining the Eurocurrency Rate for any requested Interest Period with respect to a proposed Eurocurrency Rate Loan, or that the Eurocurrency Rate for any requested Interest Period with respect to a proposed Eurocurrency Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, or that Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and the Interest Period of such Eurocurrency Rate Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurocurrency Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurocurrency Rate Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans in the amount specified therein.

SECTION 3.04. Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurocurrency Rate Loans.

(a) If any Lender determines that as a result of the introduction of or any change in or in the interpretation of any Law, in each case after the date hereof, or such Lender’s compliance therewith, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Eurocurrency Rate Loans or (as the case may be) issuing or participating in Letters of Credit, or a reduction in the amount received or receivable by such Lender in connection with any of the foregoing (excluding for purposes of this Section 3.04(a) any such increased costs or reduction in amount resulting from (i) Taxes or Other Taxes (indemnifiable pursuant to Section 3.01) and (ii) changes in the basis of taxation of overall net income or overall gross income (including branch profits), and franchise (and similar) taxes imposed in lieu of net income taxes, by any jurisdiction or any political subdivision of either thereof under the Laws of which such Lender is organized or maintains a Lending Office, then from time to time within fifteen (15) days after demand by such Lender setting forth in reasonable detail such increased costs (with a copy of such demand to the Administrative Agent given in accordance with Section 3.06), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such increased cost or reduction.

(b) If any Lender determines that the introduction of any Law regarding capital adequacy or any change therein or in the interpretation thereof, in each case after the date hereof, or compliance by such Lender (or its Lending Office) therewith, has the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender’s obligations hereunder (taking into consideration its policies with respect to capital adequacy and such Lender’s desired return on capital), then from time to time upon demand of such Lender setting forth in reasonable detail the charge and the calculation of such reduced rate of return (with a copy of such demand to the Administrative Agent given in accordance with Section 3.06), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such reduction within fifteen (15) days after receipt of such demand.

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(c) The Borrower shall pay to each Lender, (i) as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits, additional interest on the unpaid principal amount of each Eurocurrency Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive in the absence of manifest error), and (ii) as long as such Lender shall be required to comply with any reserve ratio requirement or analogous requirement of any other central banking or financial regulatory authority imposed in respect of the maintenance of the Commitments or the funding of the Eurocurrency Rate Loans, such additional costs (expressed as a percentage per annum and rounded upwards, if necessary, to the nearest five decimal places) equal to the actual costs allocated to such Commitment or Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive absent manifest error) which in each case shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower shall have received at least fifteen (15) days’ prior notice (with a copy to the Administrative Agent) of such additional interest or cost from such Lender. If a Lender fails to give notice fifteen (15) days prior to the relevant Interest Payment Date, such additional interest or cost shall be due and payable fifteen (15) days from receipt of such notice.

(d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section 3.04 shall not constitute a waiver of such Lender’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender pursuant to Section 3.04(a), (b) or (c) for any such increased cost or reduction incurred more than one hundred and eighty (180) days prior to the date that such Lender demands, or notifies the Borrower of its intention to demand, compensation therefore; provided further that, if the circumstance giving rise to such increased cost or reduction is retroactive, then such 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

(e) If any Lender requests compensation under this Section 3.04, then such Lender will, if requested by the Borrower, use commercially reasonable efforts to designate another Lending Office for any Loan or Letter of Credit affected by such event; provided that such efforts are made on terms that, in the reasonable judgment of such Lender, cause such Lender and its Lending Office(s) to suffer no material economic, legal or regulatory disadvantage; and provided further that nothing in this Section 3.04(e) shall affect or postpone any of the Obligations of the Borrower or the rights of such Lender pursuant to Section 3.04(a), (b), (c) or (d).

SECTION 3.05. Funding Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan; or

(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower;

including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained.

For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurocurrency Rate Loan made by it at the Eurocurrency Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurocurrency Rate Loan was in fact so funded.

SECTION 3.06. Matters Applicable to All Requests for Compensation.

(a) Any Agent or any Lender claiming compensation under this Article 3 shall deliver a certificate to the Borrower setting forth the additional amount or amounts to be paid to it hereunder which shall be

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conclusive in the absence of manifest error. In determining such amount, such Agent or such Lender may use any reasonable averaging and attribution methods.

(b) With respect to any Lender’s claim for compensation under Section 3.01, 3.02, 3.03 or 3.04, the Borrower shall not be required to compensate such Lender for any amount incurred more than one hundred and eighty (180) days prior to the date that such Lender notifies the Borrower of the event that gives rise to such claim; provided that, if the circumstance giving rise to such claim is retroactive, then such 180-day period referred to above shall be extended to include the period of retroactive effect thereof. If any Lender requests compensation by the Borrower under Section 3.04, the Borrower may, by notice to such Lender (with a copy to the Administrative Agent), suspend the obligation of such Lender to make or continue from one Interest Period to another Eurocurrency Rate Loans, or to convert Base Rate Loans into Eurocurrency Rate Loans, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 3.06(c) shall be applicable); provided that such suspension shall not affect the right of such Lender to receive the compensation so requested.

(c) If the obligation of any Lender to make or continue from one Interest Period to another any Eurocurrency Rate Loan, or to convert Base Rate Loans into Eurocurrency Rate Loans shall be suspended pursuant to Section 3.06(b) hereof, such Lender’s Eurocurrency Rate Loans shall be automatically converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for such Eurocurrency Rate Loans (or, in the case of an immediate conversion required by Section 3.02, on such earlier date as required by Law) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 3.01, 3.02, 3.03 or 3.04 hereof that gave rise to such conversion no longer exist:

(i) to the extent that such Lender’s Eurocurrency Rate Loans have been so converted, all payments and prepayments of principal that would otherwise be applied to such Lender’s Eurocurrency Rate Loans shall be applied instead to its Base Rate Loans; and

(ii) all Loans that would otherwise be made or continued from one Interest Period to another by such Lender as Eurocurrency Rate Loans shall be made or continued instead as Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be converted into Eurocurrency Rate Loans shall remain as Base Rate Loans.

(d) If any Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 3.01, 3.02, 3.03 or 3.04 hereof that gave rise to the conversion of such Lender’s Eurocurrency Rate Loans pursuant to this Section 3.06 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurocurrency Rate Loans made by other Lenders are outstanding, such Lender’s Base Rate Loans shall be automatically converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurocurrency Rate Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Eurocurrency Rate Loans and by such Lender are held pro rata (as to principal amounts, interest rate basis, and Interest Periods) in accordance with their respective Commitments.

SECTION 3.07. Replacement of Lenders Under Certain Circumstances.

(a) If at any time (i) the Borrower becomes obligated to pay additional amounts or indemnity payments described in Section 3.01 or 3.04 as a result of any condition described in such Sections or any Lender ceases to make Eurocurrency Rate Loans as a result of any condition described in Section 3.02 or Section 3.04, (ii) any Lender becomes a Defaulting Lender or (iii) any Lender becomes a Non-Consenting Lender, then the Borrower may, on ten (10) Business Days’ prior written notice to the Administrative Agent and such Lender, replace such Lender by causing such Lender to (and such Lender shall be obligated to) assign pursuant to Section 10.07(b) (with the assignment fee to be paid by the Borrower in such instance) all of its rights and obligations under this Agreement to one or more Eligible Assignees; provided that neither the Administrative Agent nor any Lender shall have any obligation to the Borrower to find a replacement Lender or other such Person; and provided further that (A) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01,

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such assignment will result in a reduction in such compensation or payments and (B) in the case of any such assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable Eligible Assignees shall have agreed to the applicable departure, waiver or amendment of the Loan Documents.

(b) Any Lender being replaced pursuant to Section 3.07(a) above shall (i) execute and deliver an Assignment and Assumption with respect to such Lender’s Commitment and outstanding Loans and participations in L/C Obligations and Swing Line Loans, and (ii) deliver any Notes evidencing such Loans to the Borrower or Administrative Agent. Pursuant to such Assignment and Assumption, (A) the assignee Lender shall acquire all or a portion, as the case may be, of the assigning Lender’s Commitment and outstanding Loans and participations in L/C Obligations and Swing Line Loans, (B) all obligations of the Borrower owing to the assigning Lender relating to the Loans and participations so assigned shall be paid in full by the assignee Lender to such assigning Lender concurrently with such assignment and assumption and (C) upon such payment and, if so requested by the assignee Lender, delivery to the assignee Lender of the appropriate Note or Notes executed by the Borrower, the assignee Lender shall become a Lender hereunder and the assigning Lender shall cease to constitute a Lender hereunder with respect to such assigned Loans, Commitments and participations, except with respect to indemnification provisions under this Agreement, which shall survive as to such assigning Lender. Each Lender hereby grants to the Administrative Agent an irrevocable power of attorney (which power is coupled with an interest) to execute and deliver, on behalf of such Lender as assignor, any Assignment and Assumption necessary to effectuate any assignment of such Lender’s interests hereunder in the circumstances contemplated by this paragraph.

(c) Notwithstanding anything to the contrary contained above, any Lender that acts as an L/C Issuer may not be replaced hereunder at any time that it has any Letter of Credit outstanding hereunder unless arrangements reasonably satisfactory to such L/C Issuer (including the furnishing of a back-up standby letter of credit in form and substance, and issued by an issuer reasonably satisfactory to such L/C Issuer or the depositing of cash collateral into a cash collateral account in amounts and pursuant to arrangements reasonably satisfactory to such L/C Issuer) have been made with respect to each such outstanding Letter of Credit and the Lender that acts as the Administrative Agent may not be replaced hereunder except in accordance with the terms of Section 9.09.

(d) In the event that (i) the Borrower or the Administrative Agent has requested that the Lenders consent to a departure or waiver of any provisions of the Loan Documents or agree to any amendment thereto, (ii) the consent, waiver or amendment in question requires the agreement of all affected Lenders in accordance with the terms of Section 10.01 or all the Lenders with respect to a certain Class of the Loans and (iii) the Required Lenders have agreed to such consent, waiver or amendment, then any Lender who does not agree to such consent, waiver or amendment shall be deemed a “Non-Consenting Lender.”

SECTION 3.08. Survival. All of the Borrower’s obligations under this Article 3 shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder.

ARTICLE IV

CONDITIONS PRECEDENT TO EFFECTIVENESS OF ORIGINAL CREDIT

AGREEMENT AND TO AMENDMENT AND RESTATEMENT

SECTION 4.01A. Conditions of Initial Credit Extension on the Original Closing Date. The obligation of each Lender to make its initial Credit Extension on the Original Closing Date was subject to satisfaction of the following conditions precedent:

(a) The Administrative Agent’s receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each in form and substance reasonably satisfactory to the Administrative Agent and its legal counsel:

(i) executed counterparts of this Agreement and the Guaranty;

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(ii) a Note executed by the Borrower in favor of each Lender that has requested a Note at least two Business Days in advance of the Original Closing Date;

(iii) the Security Agreement and the Perfection Certificate, duly executed by each Loan Party thereto, together with:

(A) certificates, if any, representing the Pledged Equity referred to therein accompanied by undated stock powers executed in blank and instruments evidencing the Pledged Debt indorsed in blank,

(B) opinions from each jurisdiction of incorporation and opinions of local counsel for the Loan Parties in states in which the Mortgaged Properties are located with respect to the enforceability and perfection of the Mortgages and any related fixture filings in form and substance reasonably satisfactory to the Administrative Agent;

(C) evidence that the Intercompany Note executed by and among Holdings and each of its Subsidiaries, accompanied by instruments of transfer undated and endorsed in blank have been delivered to the Collateral Agent; and

(D) evidence that all other actions, recordings and filings that the Administrative Agent may deem reasonably necessary to satisfy the Collateral and Guarantee Requirement shall have been taken, completed or otherwise provided for in a manner reasonably satisfactory to the Administrative Agent;

(iv) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may reasonably require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party on the Original Closing Date;

(v) opinion from Ropes and Gray LLP, New York counsel to the Loan Parties substantially in the form of Exhibit I, and local counsel opinions in the jurisdictions set forth on Schedule 4.01A(a)(v) to the Original Credit Agreement in form and substance reasonably satisfactory to the Administrative Agent;

(vi) there has been no change, effect, event or occurrence since December 31, 2004, that has had or could reasonably be expected to result in an Original Closing Date Material Adverse Change and certified to that effect;

(vii) a certificate attesting to the Solvency of the Loan Parties (taken as a whole) after giving effect to the Original Closing Date Transaction, from the Chief Financial Officer of the Borrower;

(viii) a certified copy of the Sponsor Management Agreement, including a certification by a Responsible Officer of the Borrower that such agreement is in full force and effect as of the Original Closing Date;

(ix) evidence that all insurance (including title insurance in form and substance reasonably acceptable to the Administrative Agent) required to be maintained pursuant to the Loan Documents has been obtained and is in effect and that the Administrative Agent has been named as loss payee and additional insured under each insurance policy with respect to such insurance as to which the Administrative Agent shall have requested to be so named;

(x) a completed Federal Emergency Management Agency Standard Flood Hazard Determination with respect to the Mortgaged Properties;

(xi) certified copies of the Original Closing Date Merger Agreement, duly executed by the parties thereto, together with all material agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall reasonably request, each including certification

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by a Responsible Officer of the Borrower that such documents are in full force and effect as of the Original Closing Date; and

(xii) a Committed Loan Notice or Letter of Credit Application, as applicable, relating to the initial Credit Extension on the Original Closing Date.

(b) All fees and expenses required to be paid hereunder and invoiced before the Original Closing Date shall have been paid in full in cash.

(c) Prior to or simultaneously with the initial Credit Extension on the Original Closing Date, (i) the Original Closing Date Equity Contributions shall have been funded in full in cash; (ii) CRCA Merger Corporation shall have received (whether directly as a result of the Original Closing Date Equity Contribution or as a result of an equity contribution by Holdings) cash proceeds from the Original Closing Date Equity Contributions in an aggregate amount equal to at least $294.7 million; and (iii) the Original Closing Date Merger shall be consummated in accordance with the terms of the Original Closing Date Merger Agreement (without waiver, amendment, supplement or other modification that is material and adverse to the Lenders) and in compliance with applicable material Laws and regulatory approvals.

(d) Prior to or simultaneously with the initial Credit Extensions on the Original Closing Date, the Borrower shall have received at least $200,000,000 in gross cash proceeds from the issuance of the Senior Subordinated Notes.

(e) Prior to or simultaneously with the initial Credit Extensions on the Original Closing Date, the Borrower shall have terminated the Original Closing Date Existing Credit Agreement and taken all other necessary actions such that, after giving effect to the Original Closing Date Transaction, (i) Holdings and its Subsidiaries shall have outstanding no Indebtedness or preferred Equity Interests other than (A) the Loans and L/C Obligations, (B) the Senior Subordinated Notes and (C) Indebtedness listed on Schedule 7.03(b) of the Original Credit Agreement and (ii) the Borrower shall have outstanding no Equity Interests (or securities convertible into or exchangeable for Equity Interests or rights or options to acquire Equity Interests) other than common stock owned by Holdings and preferred stock owned by Holdings, with terms and conditions reasonably acceptable to the Arrangers to the extent material to the interests of the Lenders.

(f) The Arrangers and the Lenders shall have received (i) the Original Closing Date Audited Financial Statements and the audit report for such financial statements (which shall not be subject to any qualification) and (ii) unaudited consolidated balance sheets and related statements of income, stockholders’ equity and cash flows of the Borrower and its Subsidiaries for (A) each subsequent fiscal quarter ended at least forty-five (45) days before the Original Closing Date (and comparable periods for the prior fiscal year) and (B) to the extent reasonably available and, in any event, excluding footnotes, each fiscal month after the most recent fiscal period for which financial statements were received by the Arrangers and the Lenders as described above (collectively, the “Original Closing Date Unaudited Financial Statements”), which financial statements described in clauses (i) and (ii)(A) shall be prepared in accordance with GAAP.

(g) The Arrangers and the Lenders shall have received the Original Closing Date Pro Forma Financial Statements.

(h) The Arrangers and the Lenders shall have received a certificate from a Responsible Officer in form and substance reasonably satisfactory to the Administrative Agent dated the Original Closing Date and signed by the chief financial officer of the Borrower.

(i) The Arrangers and the Lenders shall have received evidence that counterparts of the Mortgages have been duly executed, acknowledged and delivered and are in form suitable for filing or recording in all filing or recording offices that the Administrative Agent may deem reasonably necessary or desirable in order to create a valid and subsisting perfected Lien on the property and/or rights described therein in favor of the Administrative Agent or the Collateral Agent (as appropriate) for the benefit of the Secured Parties and that all filing and recording taxes and fees have been paid or otherwise provided for in a manner reasonably satisfactory to the Administrative Agent.

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(j) The Arrangers and the Lenders shall have received fully paid Chicago Title Insurance Corporation Lender’s Extended Coverage title insurance policies or the equivalent or other form available in each applicable jurisdiction (the “Mortgage Policies”) in form and substance, with endorsements and in amount, reasonably acceptable to the Administrative Agent (not to exceed the value of the real properties covered thereby), issued, coinsured and reinsured by title insurers reasonably acceptable to the Administrative Agent, insuring the Mortgages to be valid subsisting first priority Liens on the property described therein, free and clear of all defects and encumbrances, subject to Liens permitted by Section 7.01, and providing for such other affirmative insurance (including endorsements for future advances under the Loan Documents) and such coinsurance and direct access reinsurance as the Administrative Agent may reasonably request.

SECTION 4.01B. Conditions of Credit Extension of New Term Loans on the Restatement Effective Date. The effectiveness of this Agreement and the obligation of each New Term Lender to make its Credit Extension of the Term Loans hereunder is subject to satisfaction of the following conditions precedent:

(a) The Administrative Agent’s receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each in form and substance reasonably satisfactory to the Administrative Agent and its legal counsel:

(i) executed counterparts of this Agreement and the Amendment Agreement, executed by Holdings and the Borrower and the Original Subsidiary Guarantors, and supplements to the Guaranty, executed by the Aspen Loan Parties;

(ii) a Term Note executed by the Borrower in favor of each New Term Lender that has requested a Term Note at least two Business Days in advance of the Restatement Effective Date;

(iii) the Security Agreement Supplement, duly executed by each Aspen Loan Party, and the Perfection Certificate Supplement, duly executed by each Loan Party, together with:

(A) certificates, if any, representing the Pledged Equity referred to therein and not previously pledged accompanied by undated stock powers executed in blank and instruments evidencing the Pledged Debt not previously pledged indorsed in blank,

(B) evidence that each of the Aspen Loan Parties has become party to the Intercompany Note, and that such Intercompany Note accompanied by instruments of transfer undated and endorsed in blank have been delivered to the Collateral Agent; and

(C) evidence that all other actions, recordings and filings that the Administrative Agent may deem reasonably necessary to satisfy the Collateral and Guarantee Requirement (other than items required by clause (g) thereof, which shall be delivered in accordance with the provisions of Section 6.11, except the threshold amounts in clauses (a)(i)(A), (a)(i)(B), (a)(iii) and (b) thereof for purposes of this condition shall be $750,000, not $1,100,000) shall have been taken, completed or otherwise provided for in a manner reasonably satisfactory to the Administrative Agent, including performance of lien searches reasonably satisfactory to the Administrative Agent and release of all Liens other than Liens permitted hereunder;

(iv) with respect to each Mortgaged Property, the following:

(A) with respect to each Mortgage encumbering Mortgaged Property, an amendment (each a “Mortgage Amendment”) duly executed and acknowledged by the applicable Loan Party, and in form for recording in the recording office where each such Mortgage was recorded, together with such certificates, affidavits, questionnaires or returns as shall be required in connection with the recording or filing thereof under applicable law, in each case in form and substance reasonably satisfactory to the Administrative Agent or Collateral Agent;

(B) with respect to each Mortgage Amendment, a copy of the existing Mortgage Policy assuring the Administrative Agent or Collateral Agent that the Mortgage, as amended by the

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Mortgage Amendment, is a valid and enforceable first priority lien on such Mortgaged Property in favor of the Administrative Agent or Collateral Agent (as appropriate) for the benefit of the Secured Parties free and clear of all Liens except those Liens created or permitted by this Agreement and the Collateral Documents or by the Administrative Agent or Collateral Agent, and such Mortgage Policy shall otherwise be in form and substance reasonably satisfactory to the Administrative Agent or Collateral Agent;

(C) to the extent reasonably requested by the Administrative Agent or Collateral Agent, with respect to each Mortgage Amendment, opinions of local counsel to the Loan Parties, which opinions (x) shall be addressed to each Agent and each of the Lenders, (y) shall cover the enforceability of the respective Mortgage as amended by the Mortgage Amendment, and (z) shall be in form and substance reasonably satisfactory to the Agents.

(v) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may reasonably require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party on the Restatement Effective Date;

(vi) opinion from Ropes and Gray LLP, New York counsel to the Loan Parties and local counsel opinions in the jurisdictions set forth on Schedule 4.01B(a)(vi) in form and substance reasonably satisfactory to the Administrative Agent;

(vii) there has been no change, effect, event or occurrence since December 31, 2005, that has had or could reasonably be expected to result in a Restatement Effective Date Material Adverse Change and certified to that effect;

(viii) evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect and that the Administrative Agent has been named as loss payee and additional insured under each insurance policy with respect to such insurance as to which the Administrative Agent shall have requested to be so named;

(ix) certified copies of the Aspen Acquisition Agreement, duly executed by the parties thereto, together with all material agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall reasonably request, each including certification by a Responsible Officer of the Borrower that such documents are in full force and effect as of the Restatement Effective Date;

(x) a Committed Loan Notice relating to the Credit Extension of the New Term Loans; and

(xi) certified copies of the Aspen Merger Agreement and all amendments and waivers, duly executed by the parties thereto, together with all material agreements, instruments and other documents delivered in connection therewith (including the certificate required by Section 8.2(a) of the Aspen Merger Agreement) as the Administrative Agent shall reasonably request, each including certfication by a Responsible Officer of the Borrower that such documents are in full force and effect as of the Restatement Effective Date.

(b) All fees and expenses required to be paid hereunder and invoiced before the Restatement Effective Date shall have been paid in full in cash.

(c) Prior to or simultaneously with the Credit Extension of New Term Loans, (i) the Aspen Equity Contributions shall have been funded in full in cash; (ii) the Holdings Loans shall have been funded in full for gross cash proceeds of at least $103.95 million; (iii) Borrower shall have received (whether directly as a result of the Aspen Equity Contribution or as a result of an equity contribution by Holdings) cash proceeds from the Aspen Equity Contributions and the Holdings Loans in an aggregate amount equal to at least $136.95 million; and (iv) the Aspen Acquisition shall be consummated in accordance with the terms of the Aspen Acquisition Agreement (without waiver, amendment, supplement or other modification that is

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material and adverse to the Lenders unless consented to by the Arrangers) and in compliance with applicable material Laws and regulatory approvals.

(d) The Arrangers and the Lenders shall have received unaudited consolidated balance sheets and related statements of income and cash flows of (x) the Borrower and its Subsidiaries for each subsequent fiscal quarter ended at least forty-five (45) days before the Restatement Effective Date (and comparable periods for the prior fiscal year) and (y) Aspen and its Subsidiaries for the nine-month period ended September 30, 2006 (the “Restatement Effective Date Unaudited Financial Statements”), which financial statements described shall be prepared in accordance with GAAP except as disclosed on Schedule 5.05(a).

(e) The Arrangers and the Lenders shall have received the Restatement Effective Date Pro Forma Financial Statements.

(f) The Arrangers and the Lenders shall have received the Restatement Effective Date Audited Financial Statements.

SECTION 4.02. Conditions to All Credit Extensions. The obligation of each Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans to the other Type, or a continuation of Eurocurrency Rate Loans) is subject to the following conditions precedent:

(a) The representations and warranties of the Borrower and each other Loan Party contained in Article 5 or any other Loan Document (except, in the case of the initial Credit Extensions on the Original Closing Date only and the Credit Extension on the Restatement Effect Date only, the representations contained in Sections 5.03, 5.05, 5.06, 5.07, 5.08, 5.09, 5.10, 5.11, 5.12, 5.14, 5.15, 5.16, 5.17, 5.19, 5.20, 5.21 and 5.22) shall be true and correct in all material respects on, or as of, the date of such Credit Extension; provided that, to the extent that such representations and warranties specifically refer to an earlier date, they shall be true and correct in all material respects as of such earlier date; provided further that any representation and warranty that is qualified as to “materiality,” “Material Adverse Effect” or similar language shall be true and correct in all respects on such respective dates (except, on the Original Closing Date, any such representation and warranty that is modified by the term “Material Adverse Effect” shall be deemed to be modified by the term “Original Closing Date Material Adverse Change” and, on the Restatement Effective Date, any such representation and warranty that is modified by the term “Material Adverse Effect” shall be deemed to be modified by the term “Restatement Effective Date Material Adverse Change”).

(b) No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds therefrom.

(c) The Administrative Agent and, if applicable, the relevant L/C Issuer or the Swing Line Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.

Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans to the other Type or a continuation of Eurocurrency Rate Loans) submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Agents and the Lenders that:

SECTION 5.01. Existence, Qualification and Power; Compliance with Laws.

(a) Each Loan Party and each of its Subsidiaries is a Person duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization,

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(b) Each Loan Party and each of its Subsidiaries has all requisite power and authority to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party,

(c) Each Loan Party and each of its Subsidiaries is duly qualified and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect,

(d) To its Knowledge, each Loan Party and each of its Subsidiaries is in substantial compliance with the requirements of all Laws (including Medicare Regulations, Medicaid Regulations, HIPAA, 42 U.S.C. Section 1320a-7b and 42 U.S.C. Section 1395nn) and all orders, writs, injunctions, decrees, licenses and permits applicable to it, its properties or any Treatment Facilities, personal properties and real properties owned, leased, managed or operated by the Borrower or any Subsidiary, except in such instances in which (i) compliance with such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate actions diligently conducted or (ii) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

(e) Without limiting the generality of the foregoing clause (d):

(i) except as would not reasonably be expected to have a Material Adverse Effect, (A) to the Knowledge of the Borrower and the Subsidiaries, there is not pending or threatened any proceeding (not to include any cost report audit or contract audit or reopening) or investigation under any Medical Reimbursement Program involving the Borrower, any of the Subsidiaries or any Treatment Facility and (B) none of Holdings, the Borrower or any of the Subsidiaries nor any of their respective shareholders, directors, officers nor any of their employees are excluded from participation in the Medical Reimbursement Program and, to the Knowledge of the Borrower and the Subsidiaries, no such exclusion is pending or threatened;

(ii) except as would not reasonably be expected to have a Material Adverse Effect, to the Knowledge of the Borrower and the Subsidiaries, there is not pending or threatened any proceeding or investigation by the OIG or other Governmental Authority involving the acts or omissions within the scope of employment of any currently employed officer or other member of management of the Borrower, any of the Subsidiaries or of any Treatment Facility, unless such officer or other member of management has been, within a reasonable period of time after discovery of such actual or potential culpability, either suspended or removed from positions of responsibility related to those activities under challenge by the OIG or other Governmental Authority;

(iii) current billing policies, arrangements, protocols and instructions of the Borrower and its Subsidiaries comply in all respects with requirements of Medical Reimbursement Programs, except where any such failure to comply would not reasonably be expected to result in an Exclusion Event or a Material Adverse Effect; and

(iv) current medical director compensation arrangements of the Borrower and its Subsidiaries comply with state and federal anti-kickback, fraud and abuse, and self-referral laws, including without limitation 42 U.S.C. Section 1320a-7b and 42 U.S.C. Section 1395nn, and all regulations promulgated under such laws, except where any such failure to comply would not reasonably be expected to result in an Exclusion Event or a Material Adverse Effect.

(f) [Reserved].

(g) Set forth on Schedule 5.01(g) is a true, correct and complete list of all Treatment Facilities owned or leased and operated by the Borrower or Subsidiaries and a list of all material licenses and permits owned or held by Borrower or Subsidiaries relating to each Treatment Facility set forth thereon as of the Restatement Effective Date. Except to the extent that it would not reasonably be expected to have a Material Adverse Effect, each of the Borrower and its Subsidiaries has, to the extent applicable: (i) obtained (or been

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duly assigned) all required certificates of need or determinations of need as required by the relevant state Governmental Authority for the acquisition, construction, investment in or operation of its businesses and Treatment Facilities as currently operated; (ii) obtained and maintains in good standing all required licenses, permits, authorizations and approvals of each Governmental Authority necessary to the conduct of its Treatment Facilities as currently conducted; (iii) to the extent prudent and customary in the industry in which it is engaged, applied for or obtained and maintains accreditation from all generally recognized accrediting agencies; (iv) entered into and maintains in good standing its Medicare Provider Agreements and Medicaid Provider Agreements; and (v) ensured that all such required licenses are in full force and effect on the date hereof and have not been revoked or suspended or otherwise limited.

(h) To the Knowledge of the Loan Parties, with respect to subcontractors, to the extent not beyond the control of the Loan Parties or as would not reasonably be expected to have a Material Adverse Effect, each Contract Provider is duly licensed by each state, state agency, commission or other Governmental Authority having jurisdiction over the provision of such services by such Person in the locations where the Borrower and its Subsidiaries conduct business, to the extent such licensing is required to enable such Person to provide the professional services provided by such Person and otherwise as is necessary to enable the Borrower and its Subsidiaries to operate as currently operated and as contemplated to be operated.

SECTION 5.02. Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is a party, and the consummation of the Transaction, are within such Loan Party’s corporate or other powers, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents, (b) conflict with or result in any breach or contravention of, or the creation of any Lien under (other than as permitted by Section 7.01), or require any payment to be made under (i) any other Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any material order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law in any material respect; except with respect to any conflict, breach or contravention or payment (but not creation of Liens) referred to in clause (b)(i), to the extent that such conflict, breach, contravention or payment could not reasonably be expected to have a Material Adverse Effect.

SECTION 5.03. Governmental Authorization; Other Consents. Except as set forth on Schedule 5.03, no approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with (a) the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document, or for the consummation of the Transaction, (b) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (c) the perfection or maintenance of the Liens created under the Collateral Documents (including the priority thereof) or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for (i) filings necessary to perfect the Liens on the Collateral granted by the Loan Parties in favor of the Secured Parties, (ii) the approvals, consents, exemptions, authorizations, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect and (iii) those approvals, consents, exemptions, authorizations or other actions, notices or filings, the failure of which to obtain or make could not reasonably be expected to have a Material Adverse Effect.

SECTION 5.04. Binding Effect. This Agreement and each other Loan Document has been duly executed and delivered by each Loan Party that is party thereto. This Agreement and each other Loan Document constitutes, a legal, valid and binding obligation of each Loan Party party thereto, enforceable against each Loan Party that is party thereto in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and by general principles of equity.

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SECTION 5.05. Financial Statements; No Material Adverse Effect.

(a)(i) Except as specifically disclosed in Schedule 5.05(a), the Audited Financial Statements and the Unaudited Financial Statements fairly present in all material respects the financial condition of the Borrower and its Subsidiaries or Aspen and its Subsidiaries, as the case may be, as of the dates thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the periods covered thereby, except as otherwise expressly noted therein. During the period from December 31, 2005 to and including the Restatement Effective Date, there has been (i) no sale, transfer or other disposition by Borrower or any of its Subsidiaries or Aspen or any of its Subsidiaries of any material part of the business or property of Borrower or any of its Subsidiaries, taken as a whole, or Aspen or any of its Subsidiaries taken as a whole, as the case may be, and (ii) no purchase or other acquisition by Borrower or any of its Subsidiaries or Aspen or any of its Subsidiaries of any business or property (including any Equity Interests of any other Person) material in relation to the consolidated financial condition of Borrower and its Subsidiaries or Aspen and its Subsidiaries, as the case may be, in each case, which is not reflected in the foregoing financial statements or in the notes thereto or has not otherwise been disclosed in writing to the Lenders prior to the Restatement Effective Date.

(ii) The unaudited pro forma consolidated balance sheet of the Borrower and its Subsidiaries as at September 30, 2005 (including the notes thereto) (the “Original Closing Date Pro Forma Balance Sheet”) and the unaudited pro forma consolidated statement of operations of the Borrower and its Subsidiaries for the most recent fiscal year, the nine months ended September 30, 2005 and the 12-month period ending on September 30, 2005 (together with the Original Closing Date Pro Forma Balance Sheet, the “Original Closing Date Pro Forma Financial Statements”), copies of which have heretofore been furnished to each Lender, have been prepared giving effect (as if such events had occurred on such date or at the beginning of such periods, as the case may be) to the Original Closing Date Transaction, each material acquisition by the Borrower or any of its Subsidiaries consummated after September 30, 2005 andprior to the Original Closing Date and all other transactions that would be required to be given pro forma effect by Regulation S-X promulgated under the Exchange Act (including other adjustments consistent with the definition of Pro Forma Adjustment or as otherwise agreed between the Borrower and the Arrangers). The Original Closing Date Pro Forma Financial Statements have been prepared in good faith, based on assumptions believed by the Borrower to be reasonable as of the date of delivery thereof, and present fairly in all material respects on a pro forma basis and in accordance with GAAP the estimated financial position of the Borrower and its Subsidiaries as at September 30, 2005 and their estimated results of operations for the periods covered thereby, assuming that the events specified in the preceding sentence had actually occurred at such date or at the beginning of the periods covered thereby.

(iii) The unaudited pro forma consolidated balance sheet of Borrower and its Subsidiaries as at September 30, 2006 (including the notes thereto) (the “Restatement Effective Date Pro Forma Balance Sheet”) and the unaudited pro forma consolidated statement of operations of Borrower and its Subsidiaries for the most recent fiscal year, the nine months ended September 30, 2006 and the 12-month period ending on September 30, 2006 (together with the Restatement Effective Date Pro Forma Balance Sheet, the “Restatement Effective Date Pro Forma Financial Statements”), copies of which have heretofore been furnished to each Lender, have been prepared giving effect (as if such events had occurred on such date or at the beginning of such periods, as the case may be) to the Aspen Transaction, each material acquisition by Borrower or any of its Subsidiaries consummated after September 30, 2006 and prior to the Restatement Effective Date (which adjustments shall be consistent with the definition of Pro Forma Adjustment or as otherwise agreed between Borrower and the Arrangers). The Restatement Effective Date Pro Forma Financial Statements have been prepared in good faith, based on assumptions believed by the Borrower to be reasonable as of the date of delivery thereof, and present fairly in all material respects on a pro forma basis and in accordance with GAAP the estimated financial position of the Borrower and its Subsidiaries as at September 30, 2006 and their estimated results of operations for the periods covered thereby, assuming that the events specified in

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the preceding sentence had actually occurred at such date or at the beginning of the periods covered thereby.

(b) Since December 31, 2005, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

(c) The forecasts of consolidated balance sheets, income statements and cash flow statements of the Borrower and its Subsidiaries for each fiscal year ending after the Restatement Effective Date until the seventh anniversary of the Restatement Effective Date, copies of which have been furnished to the Administrative Agent prior to the Restatement Effective Date in a form reasonably satisfactory to it, have been prepared in good faith on the basis of the assumptions stated therein, which assumptions were believed to be reasonable at the time of preparation of such forecasts, it being understood that actual results may vary from such forecasts and that such variations may be material.

(d) As of the Restatement Effective Date, neither the Borrower nor any Subsidiary has any Indebtedness or other obligations or liabilities, direct or contingent (other than (i) the liabilities reflected on Schedule 5.05(d), (ii) obligations arising under this Agreement, (iii) liabilities incurred in the ordinary course of business and (iv) liabilities reflected on the balance sheet as of December 30, 2005) that, either individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect.

SECTION 5.06. Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower, threatened in writing or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against the Borrower or any of its Subsidiaries or against any of their properties or revenues that either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

SECTION 5.07. No Default. Neither the Borrower nor any Subsidiary is in default under or with respect to, or a party to, any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

SECTION 5.08. Ownership of Property; Liens. Each Loan Party and each of its Subsidiaries has good record and marketable title to all property purported to be owned by it, free and clear of all Liens except for minor defects in title that do not materially interfere with its ability to conduct its business or to utilize such assets for their intended purposes and Liens permitted by Section 7.01 and except where the failure to have such title could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

SECTION 5.09. Environmental Matters.

(a) There are no claims, actions, suits, notices of violation, demand letters or proceedings alleging potential liability under or for violation of, or otherwise relating to, any Environmental Law that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(b) Except as specifically disclosed in Schedule 5.09(b) or except as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (i) none of the properties currently or formerly owned, leased or operated by any Loan Party or any of its Subsidiaries is listed or proposed for listing on the NPL or on the CERCLIS or any analogous list; (ii) there are no and never have been any underground or aboveground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed on any property currently owned, leased or operated by any Loan Party or any of its Subsidiaries or, to its knowledge, on any property formerly owned or operated by any Loan Party or any of its Subsidiaries; (iii) there is no asbestos or asbestos-containing material on or at any property currently owned or operated by any Loan Party or any of its Subsidiaries; and (iv) there has been no Release of Hazardous Materials by any Person on any property currently or, to the knowledge of any Loan Party formerly, owned, leased or operated by any Loan

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Party or any of its Subsidiaries, and there has been no Release of Hazardous Materials by any of the Loan Parties and their Subsidiaries at any other location.

(c) The properties owned, leased or operated by the Borrower and the Subsidiaries do not contain any Hazardous Materials in amounts or concentrations which (i) constitute, or constituted a violation of, (ii) require remedial action under, or (iii) could reasonably be expected to give rise to liability under, Environmental Laws, which violations, remedial actions and liabilities, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.

(d) Except as specifically disclosed in Schedule 5.09(d), neither the Borrower nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened Release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the requirements of any Environmental Law except for such investigation or assessment or remedial or response action that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

(e) All Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries have been disposed of in a manner which could not reasonably expected to result, individually or in the aggregate, in a Material Adverse Effect.

(f) Except as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect, none of the Loan Parties and their Subsidiaries has contractually assumed any liability or obligation under or relating to any Environmental Law.

SECTION 5.10. Taxes. Except as could not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, the Borrower and its Subsidiaries have filed all Federal and state and other tax returns and reports required to be filed, and have paid all Federal and state and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those (a) which are not overdue by more than thirty (30) days or (b) which are being contested in good faith by appropriate actions diligently conducted and for which adequate reserves have been provided in accordance with GAAP. None of the Loan Parties or their Subsidiaries has ever been a party to any understanding or arrangement constituting a “tax shelter” within the meaning of Section 6662(d)(2)(C)(iii) of the Code or within the meaning of Section 6111(c) or Section 6111(d) of the Code as in effect immediately prior to the enactment of the American Jobs Creation of 2004, or has ever “participated” in a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4, except for tax shelters or reportable transactions that could not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.

SECTION 5.11. ERISA Compliance.

(a) Except as could not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, each Plan is in compliance in with the applicable provisions of ERISA, the Code and other Federal or state Laws.

(b)(i) No ERISA Event has occurred during the five year period prior to the date on which this representation is made or deemed made with respect to any Pension Plan; (ii) no Pension Plan has an “accumulated funding deficiency” (as defined in Section 412 of the Code), whether or not waived; (iii) neither any Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither any Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither any Loan Party nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA, except, with respect to each of

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the foregoing clauses of this Section 5.11(b), as could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.

SECTION 5.12. Subsidiaries; Equity Interests. As of the Restatement Effective Date, neither Holdings nor any Loan Party has any Subsidiaries other than those specifically disclosed in Schedule 5.12, and all of the outstanding Equity Interests in Subsidiaries have been validly issued, are fully paid and nonassessable and all Equity Interests owned by Holdings or a Loan Party are owned free and clear of all Liens except (i) those created under the Collateral Documents and (ii) any nonconsensual Lien that is permitted under Section 7.01. As of the Restatement Effective Date, Schedule 5.12 (a) sets forth the name and jurisdiction of each Subsidiary, (b) sets forth the ownership interest of Holdings, the Borrower and any other Subsidiary in each Subsidiary, including the percentage of such ownership and (c) identifies each Subsidiary that is a Subsidiary the Equity Interests of which are required to be pledged on the Restatement Effective Date pursuant to the Collateral and Guarantee Requirement.

SECTION 5.13. Margin Regulations; Investment Company Act; Public Utility Holding Company Act.

(a) The Borrower is not engaged in nor will it engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Borrowings or drawings under any Letter of Credit will be used for any purpose that violates Regulation U.

(b) None of the Borrower, any Person Controlling the Borrower, or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

SECTION 5.14. Disclosure. No report, financial statement, certificate or other written information furnished by or on behalf of any Loan Party to any Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or any other Loan Document (as modified or supplemented by other information so furnished) when taken as a whole contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading; provided that, with respect to projected financial information and pro forma financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time of preparation; it being understood that such projections may vary from actual results and that such variances may be material.

SECTION 5.15. Intellectual Property; Licenses, Etc. Each of the Loan Parties and their Subsidiaries own, license or possess the right to use, all of the material trademarks, service marks, trade names, domain names, copyrights, patents, patent rights, licenses, technology, software, know-how database rights, design rights and other intellectual property rights (collectively, “IP Rights”) that are reasonably necessary for the operation of their respective businesses as currently conducted, and, without conflict with the rights of any Person, except to the extent such conflicts, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. No IP Rights, advertising, product, process, method, substance, part or other material used by any Loan Party or any Subsidiary in the operation of their respective businesses as currently conducted infringes upon any rights held by any Person except for such infringements, individually or in the aggregate, which could not reasonably be expected to have a Material Adverse Effect. No claim or litigation regarding any of the IP Rights, is pending or, to the knowledge of the Borrower, threatened against any Loan Party or Subsidiary, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

SECTION 5.16. Solvency. On the Restatement Effective Date after giving effect to the Aspen Transaction, the Loan Parties, on a consolidated basis, are Solvent.

SECTION 5.17. Insurance. The Borrower and its Subsidiaries, maintain insurance in accordance with Section 6.07.

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SECTION 5.18. Subordination of Junior Financing. The Obligations are “Senior Debt,” “Senior Indebtedness,” “Guarantor Senior Debt” or “Senior Secured Financing” (or any comparable term) under, and as defined in, any Junior Financing Documentation.

SECTION 5.19. Perfection, Etc. All filings and other actions necessary or desirable to perfect and protect the Lien in the Collateral created under the Collateral Documents (except for such actions that the Security Agreement specifically excepts Borrower from performing or such actions to be completed post-closing pursuant to Section 6.16) have been or will, within the required time periods under the Collateral Documents, be duly made or taken or otherwise provided for and are (or so will be) in full force and effect, and the Collateral Documents create in favor of the Administrative Agent for the benefit of the Secured Parties a valid and, together with such filings and other actions, perfected first priority Lien in the Collateral to the extent required by the Collateral Documents, securing the payment of the Secured Obligations, subject only to Liens permitted by Section 7.01.

SECTION 5.20. Labor Matters. Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes against any of Holdings, the Borrower or its Subsidiaries pending or, to the knowledge of Holdings or the Borrower, threatened; (b) hours worked by and payment made to employees of each of Holdings, the Borrower or its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Laws dealing with such matters; and (c) all payments due from any of Holdings, the Borrower or its Subsidiaries on account of employee health and welfare insurance have been paid or accrued as a liability on the books of the relevant party.

SECTION 5.21. Fraud and Abuse. Except as would not reasonably be expected to have a Material Adverse Effect, to the Knowledge of the Loan Parties, there is not pending or threatened any proceeding or investigation under any applicable provision of the Social Security Act and the regulations promulgated thereunder, including HIPAA, the Medicare Regulations or the Medicaid Regulations, involving the Borrower, any of the Subsidiaries or any Treatment Facility.

SECTION 5.22. Medicare and Medicaid Notices and Filings Related to Health Care Business. To the extent applicable and except to the extent as would not be reasonably be expected to have a Material Adverse Effect: (i) each of the Borrower and each of its Subsidiaries has timely filed all reports required to be filed in connection with Medicare and applicable Medicaid programs and due on or before the date hereof, and all required reports and administrative forms and filings are true and complete in all material respects; (ii) to the Knowledge of the Borrower or any Subsidiary, there are no claims, actions, proceedings or appeals pending (and neither Borrower nor any of its Subsidiaries has filed anything that would result in any claims, actions or appeals) before any Governmental Authority with respect to any Medicare or Medicaid cost reports or claims filed by the Borrower or any of its Subsidiaries on or before the date hereof, or with respect to any adjustments, denials, recoupments or disallowances by any intermediary, carrier, other insurer, commission, board or agency in connection with any cost reports or claims; (iii) to the Knowledge of the Borrower or any Subsidiary, no validation review, survey, inspection, audit, investigation or program integrity review related to the Borrower or any Subsidiary has been conducted by any Governmental Authority or government contractor in connection with the Medicare or Medicaid programs, and no such reviews are scheduled, pending or, threatened against or affecting the Borrower or any Subsidiary; and (iv) each of the Borrower and its Subsidiaries has timely filed all material reports, data and other information required by any other Governmental Authority with authority to regulate the Borrower or any such Subsidiary or its business in any manner.

ARTICLE VI

AFFIRMATIVE COVENANTS

So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder which is accrued and payable shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding,

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each of Holdings and the Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02 and 6.03) cause each Restricted Subsidiary to:

SECTION 6.01. Financial Statements. Deliver to the Administrative Agent for prompt further distribution to each Lender:

(a) as soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Borrower beginning with the 2005 fiscal year, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income or operations, stockholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, audited and accompanied by a report and opinion of Deloitte & Touche LLP or any other independent registered public accounting firm of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit;

(b) as soon as available, but in any event within forty-five (45) days (in the case of the fiscal quarter in which the Original Closing Date occurs, sixty (60) days following the end of such fiscal quarter) after the end of each of the first three (3) fiscal quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related (i) consolidated statements of income or operations for such fiscal quarter and for the portion of the fiscal year then ended and (ii) consolidated statements of cash flows for the portion of the fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and certified by a Responsible Officer of the Borrower as fairly presenting in all material respects the financial condition, results of operations, stockholders’ equity and cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; and

(c) as soon as available, and in any event no later than one hundred five (105) days after the end of each fiscal year of the Borrower, a detailed consolidated budget for the following fiscal year (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year, the related consolidated statements of projected cash flow and projected income and a summary of the material underlying assumptions applicable thereto), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the “Projections”); and

(d) simultaneously with the delivery of each set of consolidated financial statements referred to in Sections 6.01(a) and 6.01(b) above, the related consolidating financial statements reflecting the adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such consolidated financial statements.

Notwithstanding the foregoing, the obligations in paragraphs (a) and (b) of this Section 6.01 may be satisfied with respect to financial information of the Borrower and the Restricted Subsidiaries by furnishing (A) the applicable financial statements of Holdings (or any direct or indirect parent of Holdings) or (B) the Borrower’s or Holdings’ (or any direct or indirect parent thereof), as applicable, Form 10-K or 10-Q, as applicable, filed with the SEC; provided that, with respect to each of clauses (A) and (B), (i) to the extent such information relates to Holdings (or a parent thereof), such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to Holdings (or such parent), on the one hand, and the information relating to the Borrower and the Restricted Subsidiaries on a standalone basis, on the other hand and (ii) to the extent such information is in lieu of information required to be provided under Section 6.01(a), such materials are accompanied by a report and opinion of Deloitte & Touche LLP or any other independent registered public accounting firm of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit.

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SECTION 6.02. Certificates; Other Information. Deliver to the Administrative Agent for prompt further distribution to each Lender:

(a) no later than five (5) days after the delivery of the financial statements referred to in Section 6.01(a), a certificate of its independent registered public accounting firm certifying such financial statements and stating that in making the examination necessary therefor no knowledge was obtained of any Event of Default under Section 7.11 or, if any such Event of Default shall exist, stating the nature and status of such event;

(b) no later than five (5) days after the delivery of the financial statements referred to in Sections 6.01(a) and (b), a duly completed Compliance Certificate signed by a Responsible Officer of the Borrower and, if such Compliance Certificate demonstrates an Event of Default of any covenant under Section 7.11, any of the Equity Investors may deliver, together with such Compliance Certificate, notice of their intent to cure (a “Notice of Intent to Cure”) such Event of Default pursuant to Section 8.05; provided that the delivery of a Notice of Intent to Cure shall in no way affect or alter the occurrence, existence or continuation of any such Event of Default or the rights, benefits, powers and remedies of the Administrative Agent and the Lenders under any Loan Document;

(c) promptly after the same are publicly available, copies of all annual, regular, periodic and special reports and registration statements which the Borrower files with the SEC or with any Governmental Authority that may be substituted therefor (other than amendments to any registration statement (to the extent such registration statement, in the form it became effective, is delivered), exhibits to any registration statement and, if applicable, any registration statement on Form S-8) and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto;

(d) promptly after the furnishing thereof, copies of any material requests or material notices received by any Loan Party (other than in the ordinary course of business) or material statements or material reports furnished to any holder of debt securities of any Loan Party or of any of its Subsidiaries pursuant to the terms of any Senior Subordinated Notes Documentation or Holdings Loan Documents in a principal amount greater than the Threshold Amount and not otherwise required to be furnished to the Lenders pursuant to any other clause of this Section 6.02;

(e) together with the delivery of each Compliance Certificate pursuant to Section 6.02(b), (i) a report setting forth the information required by Section 3.03(c) of the Security Agreement (or confirming that there has been no change in such information since the Original Closing Date or the date of the last such report), (ii) a description of each event, condition or circumstance during the last fiscal quarter covered by such Compliance Certificate requiring a mandatory prepayment under Section 2.05(b), (iii) a list of each Subsidiary that identifies each Subsidiary as a Restricted or an Unrestricted Subsidiary as of the date of delivery of such Compliance Certificate, and (iv) reasonably detailed calculations setting forth the available Cumulative Growth Amount;

(f) promptly, to the extent permitted by HIPAA or other privacy laws or regulations, such additional information regarding the business, legal, financial or corporate affairs of any Loan Party or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender through the Administrative Agent may from time to time reasonably request; and

(g) concurrently with any delivery of financial statements referred to in Section 6.01(a), a certificate of a Responsible Officer setting forth the information required pursuant to the Perfection Certificate Supplement or confirming that there has been no change in such information since the date of the Perfection Certificate or latest Perfection Certificate Supplement.

Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which such documents are sent via e-mail to the Administrative Agent at oploanswebadmin@citigroup.com and posted on the Borrower’s behalf on IntraLinks/?IntraAgency or another relevant website, if any, to which each Lender and the Administrative Agent have

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access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) upon written request by the Administrative Agent, the Borrower shall deliver paper copies of such documents to the Administrative Agent for further distribution to each Lender until a written request to cease delivering paper copies is given by the Administrative Agent and (ii) the Borrower shall notify (which may be by facsimile or electronic mail) the Administrative Agent of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(b) to the Administrative Agent. Each Lender shall be solely responsible for timely accessing posted documents or requesting delivery of paper copies of such documents from the Administrative Agent and maintaining its copies of such documents.

SECTION 6.03. Notices. Promptly after obtaining knowledge thereof, notify the Administrative Agent:

(a) of the occurrence of any Default; and

(b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including arising out of or resulting from (i) breach or non-performance of, or any default or event of default under, a Contractual Obligation of any Loan Party or any Subsidiary, (ii) any dispute, litigation, investigation or proceeding between any Loan Party or any Subsidiary and any Governmental Authority, (iii) the commencement of, or any material development in, any litigation or proceeding affecting any Loan Party or any Subsidiary, including pursuant to any applicable Environmental Laws or in respect of IP Rights or the assertion or occurrence of any noncompliance by any Loan Party or as any of its Subsidiaries with, or liability under, any Environmental Law or Environmental Permit, or (iv) the occurrence of any ERISA Event.

Each notice pursuant to this Section shall be accompanied by a written statement of a Responsible Officer of the Borrower (x) that such notice is being delivered pursuant to Section 6.03(a) or (b) (as applicable) and (y) setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto.

SECTION 6.04. Payment of Obligations. Pay, discharge or otherwise satisfy as the same shall become due and payable, all its obligations and liabilities in respect of taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, except, in each case, to the extent the failure to pay or discharge the same could not reasonably be expected to have a Material Adverse Effect.

SECTION 6.05. Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its legal existence under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 7.04 or 7.05 and (b) take all reasonable action to maintain all rights, privileges (including its good standing), permits, licenses and franchises necessary or desirable in the normal conduct of its business, except (i) to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect or (ii) pursuant to a transaction permitted by Section 7.04 or 7.05.

SECTION 6.06. Maintenance of Properties. Except if the failure to do so could not reasonably be expected to have a Material Adverse Effect, (a) maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order, repair and condition, ordinary wear and tear excepted and casualty or condemnation excepted, and (b) make all necessary renewals, replacements, modifications, improvements, upgrades, extensions and additions thereof or thereto in accordance with prudent industry practice.

SECTION 6.07. Maintenance of Insurance. Maintain with financially sound and reputable insurance companies, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts (after giving effect to any self-insurance reasonable and customary for similarly situated Persons engaged in the same

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or similar businesses as the Borrower and the Restricted Subsidiaries) as are customarily carried under similar circumstances by such other Persons. The Borrower will furnish to the Lenders, upon the reasonable request of the Administrative Agent, information in reasonable detail as to the insurance so maintained.

(a) Requirements of Insurance. All such insurance shall (i) provide that the insurer affording coverage will endeavor to mail 30 days written notice of cancellation of such insurance coverage to the Collateral Agent (in the case of property and liability insurance), (ii) name the Administrative Agent as mortgagee (in the case of property insurance) or additional insured on behalf of the Secured Parties (in the case of liability insurance) or loss payee (in the case or property insurance), as applicable, (iii) if reasonably requested by the Administrative Agent, include a breach of warranty clause and (iv) be reasonably satisfactory in all other respects to the Administrative Agent.

(b) Flood Insurance. With respect to each Mortgaged Property, obtain flood insurance in such total amount as the Administrative Agent or the Required Lenders may from time to time reasonably require, if at any time the area in which any improvements located on any Mortgaged Property is designated a “flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency), and otherwise comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as amended from time to time.

SECTION 6.08. Compliance with Laws. Except the extent the failure to do so would not reasonably be expected to result in a Material Adverse Effect:

(a) Comply with the requirements of all Laws (including without limitation Titles XVIII and XIX of the Social Security Act, HIPAA, Medicare Regulations, Medicaid Regulations) and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate actions diligently conducted;

(b) Ensure that billing policies, arrangements, protocols and instructions will comply in all material respects with reimbursement requirements under Medicare, Medicaid and other Medical Reimbursement Programs;

(c) Make commercially reasonable efforts to implement policies that are consistent with HIPAA on or before the date that any provision of HIPAA becomes applicable to the Borrower and its Subsidiaries to the extent such date arises after the Original Closing Date; and

(d) Have in place and maintain a compliance program for its Subsidiaries that the Borrower believes is reasonably designed to provide effective internal controls that promote adherence to, prevent and detect material violations of, any Medicaid Regulations, Medicare Regulations, and state and federal self referral and anti-kickback laws, including without limitation 42 U.S.C. Section 1320a-7b(b)(1)—(b)(2) and 42 U.S.C. Section 1395nn, applicable to its Subsidiaries, which compliance program includes the implementation of monitoring compliance therewith and with such regulations on a periodic basis.

SECTION 6.09. Books and Records. Maintain proper books of record and account, in which entries that are full, true and correct in all material respects and are in conformity with GAAP consistently applied shall be made of all material financial transactions and matters involving the assets and business of the Borrower or such Subsidiary, as the case may be.

SECTION 6.10. Inspection Rights. To the extent permitted by law, permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, subject to such independent public accountants’ customary policies and procedures, all at the reasonable expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower. To the extent disclosure described in the immediately preceding

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sentence is permitted and to the extent required by applicable Law, prior to receiving any information that contains patient information subject to (i) state privacy laws, (ii) the Drug Abuse Prevention, Treatment and Rehabilitation Act, 42 U.S.C. 290dd-2 et seq., (iii) the HIPAA, 42 U.S.C. 1320d et seq., or (iv) regulations promulgated pursuant to the foregoing statutes, the Administrative Agent and the Lenders agree to execute an agreement reasonably satisfactory to the Administrative Agent and the Lenders that complies with the requirements relating to “business associates” as set forth in 45 C.F.R. 164.502(e) and that also complies with any applicable state Laws; provided further that, excluding any such visits and inspections during the continuation of an Event of Default, only the Administrative Agent on behalf of the Lenders may exercise rights of the Administrative Agent and the Lenders under this Section 6.10 and the Administrative Agent shall not exercise such rights more often than two (2) times during any calendar year absent the existence of an Event of Default and only one (1) such time shall be at the Borrower’s expense; provided further that when an Event of Default exists, the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and upon reasonable advance notice. The Administrative Agent and the Lenders shall give the Borrower the opportunity to participate in any discussions with the Borrower’s independent public accountants.

SECTION 6.11. Covenant To Guarantee Obligations and Give Security. At the Borrower’s expense, take all action necessary or reasonably requested by the Administrative Agent to ensure that the Collateral and Guarantee Requirement continues to be satisfied, including:

(a) upon the formation or acquisition of any new direct or indirect wholly owned Domestic Subsidiary by any Loan Party:

(i) within thirty (30) days after such formation, acquisition or designation or such longer period as the Administrative Agent may agree in its discretion:

(A) cause each such Restricted Subsidiary that is required to become a Guarantor under the Collateral and Guarantee Requirement to furnish to the Administrative Agent a description of the real properties owned by such Restricted Subsidiary that have a book value in excess of $1,100,000;

(B) cause (x) each such Restricted Subsidiary that is required to become a Guarantor pursuant to the Collateral and Guarantee Requirement to comply with the Collateral and Guarantee Requirement, including to duly execute and deliver to the Administrative Agent or the Collateral Agent (as appropriate) Mortgages, with respect to any owned real property with a book value in excess of $1,100,000, Security Agreement Supplements and other security agreements and documents (including, with respect to Mortgages, the documents listed in Section 6.13(b)), as reasonably requested by and in form and substance reasonably satisfactory to the Administrative Agent (consistent with the Mortgages, Security Agreement and other security agreements in effect on the Original Closing Date), in each case granting Liens required by the Collateral and Guarantee Requirement and (y) each direct or indirect parent of each such Restricted Subsidiary that is required to be a Guarantor pursuant to the Collateral and Guarantee Requirement to duly execute and deliver to the Administrative Agent such Security Agreement Supplements and other security agreements as reasonably requested by and in form and substance reasonably satisfactory to the Administrative Agent (consistent with the Security Agreements in effect on the Original Closing Date), in each case granting Liens required by the Collateral and Guarantee Requirement;

(C)(x) cause each such Restricted Subsidiary that is required to become a Guarantor pursuant to the Collateral and Guarantee Requirement to deliver any and all certificates representing Equity Interests (to the extent certificated) that are required to be pledged pursuant to the Collateral and Guarantee Requirement, accompanied by undated stock powers or other appropriate instruments of transfer executed in blank and instruments evidencing the intercompany Indebtedness held by such Restricted Subsidiary and required to be pledged pursuant to the Collateral Documents, indorsed in blank to the Collateral Agent and (y) cause each direct or indirect parent of such

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Restricted Subsidiary that is required to be a Guarantor pursuant to the Collateral and Guarantee Requirement to deliver any and all certificates representing the outstanding Equity Interests (to the extent certificated) of such Restricted Subsidiary that are required to be pledged pursuant to the Collateral and Guarantee Requirement, accompanied by undated stock powers or other appropriate instruments of transfer executed in blank and instruments evidencing the intercompany Indebtedness issued by such Restricted Subsidiary and required to be pledged in accordance with the Collateral Documents, indorsed in blank to the Collateral Agent;

(D) take and cause such Restricted Subsidiary and each direct or indirect parent of such Restricted Subsidiary to take whatever action (including the recording of Mortgages, the filing of Uniform Commercial Code financing statements and delivery of stock and membership interest certificates) may be necessary in the reasonable opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid Liens required by the Collateral and Guarantee Requirement, enforceable against all third parties in accordance with their terms, except as such enforceability may be limited by Debtor Relief Laws and by general principles of equity,

(ii) within thirty (30) days after the request therefor by the Administrative Agent, deliver to the Administrative Agent a signed copy of an opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties reasonably acceptable to the Administrative Agent as to such matters set forth in this Section 6.11(a) as the Administrative Agent may reasonably request, and

(iii) as promptly as practicable after the request therefor by the Administrative Agent, deliver to the Administrative Agent with respect to each parcel of real property that is owned by such Restricted Subsidiary and has a book value in excess of $1,100,000 any existing title reports, surveys or environmental assessment reports.

(b) after the Original Closing Date, concurrently with (x) the acquisition of any material personal property by any Loan Party or (y) the acquisition of any owned real property by any Loan Party with a book value in excess of $1,100,000 and such personal property or owned real property shall not already be subject to a perfected Lien pursuant to the Collateral and Guarantee Requirement, the Borrower shall give notice thereof to the Administrative Agent and promptly thereafter shall cause such assets to be subjected to a Lien to the extent required by the Collateral and Guarantee Requirement and will take, or cause the relevant Loan Party to take, such actions as shall be necessary or reasonably requested by the Administrative Agent to grant and perfect or record such Lien, including, as applicable, the actions referred to in Section 6.13(b) with respect to real property.

SECTION 6.12. Compliance with Environmental Laws. Except, in each case, to the extent that the failure to do so could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, comply, and cause all lessees and other Persons operating or occupying its properties to comply with all applicable Environmental Laws and Environmental Permits; obtain and renew all Environmental Permits necessary for its operations and properties; and, in each case to the extent required by Environmental Laws, conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to address Hazardous Materials at any location.

SECTION 6.13. Further Assurances.

(a) Promptly upon reasonable request by the Administrative Agent (i) correct any material defect or error that may be discovered in the execution, acknowledgement, filing or recordation of any Collateral Document or other document or instrument relating to any Collateral, and (ii) do, execute, acknowledge, deliver, record, re-record, file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Administrative Agent may reasonably request from time to time in order to carry out more effectively the purposes of the Collateral Documents.

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(b) In the case of any real property referred to in Section 6.11(b), provide the Administrative Agent with Mortgages with respect to such owned real property within thirty (30) days of the acquisition of such real property, together with:

(i) evidence that counterparts of the Mortgages have been duly executed, acknowledged and delivered and are in form suitable for filing or recording in all filing or recording offices that the Administrative Agent may deem reasonably necessary or desirable in order to create a valid and subsisting perfected Lien on the property and/or rights described therein in favor of the Administrative Agent or the Collateral Agent (as appropriate) for the benefit of the Secured Parties and that all filing and recording taxes and fees have been paid or otherwise provided for in a manner reasonably satisfactory to the Administrative Agent;

(ii) fully paid Mortgage Policies in form and substance, with endorsements and in amount, reasonably acceptable to the Administrative Agent (not to exceed the value of the real properties covered thereby), issued, coinsured and reinsured by title insurers reasonably acceptable to the Administrative Agent, insuring the Mortgages to be valid subsisting Liens on the property described therein, free and clear of all defects and encumbrances, subject to Liens permitted by Section 7.01, and providing for such other affirmative insurance (including endorsements for future advances under the Loan Documents) and such coinsurance and direct access reinsurance as the Administrative Agent may reasonably request;

(iii) opinions of local counsel for the Loan Parties in states in which the Mortgaged Properties with a book value in excess of $1,100,000 are located, with respect to the enforceability and perfection of the Mortgages and any related fixture filings in form and substance reasonably satisfactory to the Administrative Agent; and

(iv) such other evidence that all other actions that the Administrative Agent may reasonably deem necessary or desirable in order to create valid and subsisting Liens on the property described in the Mortgages has been taken.

SECTION 6.14. Interest Rate Hedging. Enter into prior to ninety (90) days following the Original Closing Date (or sixty (60) days following the Restatement Effective Date with respect to New Term Loans), and maintain at all times thereafter until the date that is eighteen months after the Original Closing Date, protection against fluctuations in interest rates pursuant to, as of such time, one or more interest rate Swap Contracts with Persons reasonably acceptable to the Administrative Agent the effect of which shall be to fix or limit the interest cost of the Borrower with respect to at least equal to 50% of funded Indebtedness (excluding Indebtedness in respect of the Revolving Credit Facility) consisting of obligations for borrowed money; provided that for so long as the Senior Subordinated Notes are outstanding, this requirement shall be deemed satisfied if the Borrower shall fail at any time to reach the required level of interest rate protection provided for herein and the aggregate amount of Indebtedness falling short of such required level is not greater than $5,000,000.

SECTION 6.15. Designation of Subsidiaries. The board of directors of Holdings may at any time designate any Restricted Subsidiary as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a Restricted Subsidiary; provided that (i) immediately before and after such designation, no Default shall have occurred and be continuing, (ii) immediately after giving effect to such designation, the Borrower and the Restricted Subsidiaries shall be in compliance, on a Pro Forma Basis, with the covenants set forth in Sections 7.02 and 7.11 (and, as a condition precedent to the effectiveness of any such designation, the Borrower shall deliver to the Administrative Agent a certificate setting forth in reasonable detail the calculations demonstrating such compliance), (iii) no Subsidiary may be designated as an Unrestricted Subsidiary if it is a “Restricted Subsidiary” for the purpose of the Senior Subordinated Notes, and (iv) no Restricted Subsidiary may be designated as an Unrestricted Subsidiary if it was previously designated an Unrestricted Subsidiary. The designation of any Subsidiary as an Unrestricted Subsidiary shall constitute an Investment by the Borrower therein at the date of designation in an amount equal to the net book value of the Borrower’s (as applicable) investment therein (and such designation shall only be permitted to the extent such Investment is permitted under Section 7.02). The

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designation of any Unrestricted Subsidiary as a Restricted Subsidiary shall constitute the incurrence at the time of designation of any Indebtedness or Liens of such Subsidiary existing at such time.

SECTION 6.16. Post-Closing Covenant. The Borrower shall take all such actions to deliver and/or execute the certificates or documents set forth on Schedule 6.16.

SECTION 6.17. Dormant Subsidiaries. The Borrower shall ensure that Southwest Illinois Treatment Center, Inc. and Stonehedge Convalescent Center, Limited Partnership shall remain dormant companies and shall remain dormant until such time as they are dissolved in accordance with the Laws under which they are organized.

ARTICLE VII

NEGATIVE COVENANTS

So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder which is accrued and payable shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, Holdings and the Borrower shall not, nor shall they permit any of their Restricted Subsidiaries to, directly or indirectly, since the Original Closing Date:

SECTION 7.01. Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following:

(a) Liens pursuant to any Loan Document securing the Secured Obligations;

(b) Liens existing on the Original Closing Date and listed on Schedule 7.01(b) and any modifications, replacements, renewals or extensions thereof; provided that (i) the Lien does not extend to any additional property other than (A) after-acquired property that is affixed or incorporated into the property covered by such Lien or financed by Indebtedness permitted under Section 7.03, and (B) proceeds and products thereof, and (ii) the renewal, extension or refinancing of the obligations secured or benefited by such Liens is permitted by Section 7.03;

(c) Liens for taxes, assessments or governmental charges which are not overdue for a period of more than thirty (30) days or which are being contested in good faith and by appropriate actions diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

(d) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen, repairmen, construction contractors or other like Liens arising in the ordinary course of business which secure amounts not overdue for a period of more than thirty (30) days, or if more than thirty (30) days overdue, are unfiled and no other action has been taken to enforce such Lien or which are being contested in good faith and by appropriate actions diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

(e)(i) pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation and (ii) pledges and deposits in the ordinary course of business securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to Holdings, the Borrower or any Restricted Subsidiary;

(f) deposits to secure the performance of bids, trade contracts, governmental contracts and leases (other than Indebtedness for borrowed money), statutory obligations, surety, stay, customs and appeal bonds, performance bonds and other obligations of a like nature (including those to secure health, safety and environmental obligations) incurred in the ordinary course of business;

(g) easements, rights-of-way, restrictions, encroachments, protrusions and other similar encumbrances and minor title defects affecting real property which, in the aggregate, do not materially interfere with the ordinary conduct of the business of the Borrower or any material Restricted Subsidiary;

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(h) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(h);

(i) Liens securing Indebtedness permitted under Section 7.03(e); provided that (i) such Liens attach concurrently with or within two hundred and seventy (270) days after the acquisition, repair, replacement, construction or improvement (as applicable) of the property subject to such Liens and (ii) such Liens do not at any time encumber any property except for accessions to such property other than the property financed by such Indebtedness and the proceeds and the products thereof; provided that individual financings of equipment provided by one lender may be cross collateralized to other financings of equipment provided by such lender; and Liens securing any Permitted Refinancing of Indebtedness under Section 7.03(e) that do not extend to any property that was not subject to the Lien securing the Indebtedness being refinanced.

(j) leases, licenses, subleases or sublicenses in each case, granted to others in the ordinary course of business which do not interfere in any material respect with the business of the Borrower or any material Subsidiary or secure any Indebtedness;

(k) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;

(l) Liens (i) of a collection bank arising under Section 4-210 of the Uniform Commercial Code on items in the course of collection; and (ii) in favor of a banking institution arising as a matter of law encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry;

(m) Liens (i) on cash advances in favor of the seller of any property to be acquired in an Investment permitted pursuant to Sections 7.02(i), (n) or (o) to be applied against the purchase price for such Investment, and (ii) consisting of an agreement to Dispose of any property in a Disposition permitted under Section 7.05, in each case, solely to the extent such Investment or Disposition, as the case may be, would have been permitted on the date of the creation of such Lien;

(n) Liens on property (i) of any Foreign Subsidiary that is not a Loan Party and (ii) that does not constitute Collateral, which Liens secure Indebtedness of the applicable Foreign Subsidiary permitted under Section 7.03;

(o) Liens in favor of the Borrower or a Restricted Subsidiary securing Indebtedness permitted under Section 7.03(d);

(p) Liens existing on property at the time of its acquisition or existing on the property of any Person at the time such Person becomes a Restricted Subsidiary (other than by designation as a Restricted Subsidiary pursuant to Section 6.15), in each case after the date hereof (other than Liens on the Equity Interests of any Person that becomes a Restricted Subsidiary); provided that (i) such Lien was not created in contemplation of such acquisition or such Person becoming a Restricted Subsidiary, (ii) such Lien does not extend to or cover any other assets or property (other than the proceeds or products thereof and other than after-acquired property subjected to a Lien securing Indebtedness and other obligations incurred prior to such time and which Indebtedness and other obligations are permitted hereunder that require, pursuant to their terms at such time, a pledge of after-acquired property, it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition), and (iii) the Indebtedness secured thereby is permitted under Section 7.03(g);

(q) any interest or title of a lessor under leases entered into by the Borrower or any of the Restricted Subsidiaries, as tenant, in the ordinary course of business;

(r) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale of goods entered into by the Borrower or any of the Restricted Subsidiaries in the ordinary course of business permitted by this Agreement;

(s) [Reserved];

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(t) Liens encumbering reasonable and customary initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;

(u) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of Holdings, the Borrower or any Restricted Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of Holdings, the Borrower and the Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of Holdings, the Borrower or any Restricted Subsidiary in the ordinary course of business;

(v) Liens solely on any cash earnest money deposits made by Holdings, the Borrower or any of the Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder;

(w) other Liens securing Indebtedness outstanding in an aggregate principal amount not to exceed $15,000,000; and

(x) Liens existing on the title insurance policies relating to each Mortgaged Property;

provided, however, that no Liens shall be permitted to exist directly or indirectly on any Mortgaged Property other than pursuant to clauses (a), (c), (d), (g), (h), (j), (q) and (x) (to the extent, with reference to clause (j) of this Section 7.01, that such Liens are subordinate in all respects to the Liens granted and evidenced by the Security Documents) and (x) of this Section 7.01; provided further, however, upon the delivery of each additional Mortgage under Sections 6.11 and 6.13 that no Liens, except those set forth in this Section 7.01 shall be permitted to exist directly or indirectly on such additional Mortgage.

SECTION 7.02. Investments. Make or hold any Investments, except:

(a) Investments by the Borrower or a Restricted Subsidiary in assets that were Cash Equivalents when such Investment was made;

(b) loans or advances to officers, directors, employees and consultants of Holdings, the Borrower and the Restricted Subsidiaries (i) for reasonable and customary business-related travel, entertainment, relocation and analogous ordinary business purposes, (ii) in connection with such Person’s purchase of Equity Interests of Holdings (or any direct or indirect parent thereof) (provided that the amount of such loans and advances shall be contributed to the Borrower in cash as common equity) and (iii) for purposes not described in the foregoing clauses (i) and (ii), in an aggregate principal amount outstanding not to exceed $3,000,000;

(c) Investments (i) in any Loan Party, (ii) by any Restricted Subsidiary that is not a Loan Party in any other Restricted Subsidiary that is also not a Loan Party; (iii) by the Borrower or any Restricted Subsidiary in any Foreign Subsidiary; provided that (x) any Investment in the form of a loan or advance shall be evidenced by the Intercompany Note and, in the case of a loan or advance by a Loan Party, pledged by such Loan Party as Collateral pursuant to the Collateral Documents and (y) the aggregate amount of such Investments in Foreign Subsidiaries (together with, but without duplication, the aggregate consideration paid in respect of Permitted Acquisitions of Persons that do not become Loan Parties pursuant to Section 7.02(i)(B)) shall not exceed $25,000,000 (net of any return representing a return of capital in respect of any such Investment);

(d) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors and other credits to suppliers in the ordinary course of business;

(e) Investments consisting of Liens, Indebtedness, fundamental changes, Dispositions and Restricted Payments permitted under Sections 7.01, 7.03, 7.04, 7.05 and 7.06, respectively;

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(f) Investments (i) existing or contemplated on the Original Closing Date and set forth on Schedule 7.02(f) and any modification, replacement, renewal, reinvestment or extension thereof and (ii) existing on the Original Closing Date by the Borrower or any Restricted Subsidiary in the Borrower or any other Restricted Subsidiary and any modification, exchange in kind, renewal or extension thereof; provided that the amount of the original Investment is not increased except by the terms of such Investment or as otherwise permitted by this Section 7.02;

(g) Investments in Swap Contracts permitted under Section 7.03;

(h) promissory notes and other noncash consideration received in connection with Dispositions permitted by Section 7.05;

(i) the purchase or other acquisition of property and assets or businesses of any Person or of assets constituting a business unit, a line of business or division of such Person, or Equity Interests in a Person that, upon the consummation thereof, will be a wholly owned Subsidiary of the Borrower (including as a result of a merger or consolidation); provided that, with respect to each purchase or other acquisition made pursuant to this Section 7.02(i) (each, a “Permitted Acquisition”) which for the avoidance of doubt includes the Aspen Transaction:

(A) subject to clause (B) below, any such newly created or acquired Subsidiary (and, to the extent required under the Collateral and Guarantee Requirement, the Domestic Subsidiaries of such created or acquired Subsidiary) shall be a Guarantor and shall have complied with the requirements of Section 6.11, within the times specified therein;

(B) the aggregate amount of consideration paid in respect of acquisitions of Persons that do not become Loan Parties (together with the aggregate amount of all Investments in Foreign Subsidiaries pursuant to Section 7.02(c)(iii)) and Subsidiaries that do not become Guarantors shall not exceed $25,000,000 (net of any return representing a return of capital in respect of any such Investment);

(C) (1) immediately before and immediately after giving Pro Forma Effect to any such purchase or other acquisition, no Default shall have occurred and be continuing and (2) immediately after giving effect to such purchase or other acquisition, the Borrower and the Restricted Subsidiaries shall be in Pro Forma Compliance with all of the covenants set forth in Section 7.11, such compliance to be determined on the basis of the financial information most recently delivered to the Administrative Agent and the Lenders pursuant to Section 6.01(a) or (b) as though such purchase or other acquisition had been consummated as of the first day of the fiscal period covered thereby and evidenced by a certificate from the Chief Financial Officer of the Borrower demonstrating such compliance calculation in reasonable detail; and

(D) the Borrower shall have delivered to the Administrative Agent, on behalf of the Lenders, no later than five (5) Business Days after the date on which any such purchase or other acquisition is consummated, a certificate of a Responsible Officer, in form and substance reasonably satisfactory to the Administrative Agent, certifying that all of the requirements set forth in this clause (i) have been satisfied or will be satisfied on or prior to the consummation of such purchase or other acquisition;

(j) the Original Closing Date Transaction;

(k) Investments in the ordinary course of business consisting of Article 3 endorsements for collection or deposit and Article 4 customary trade arrangements with customers consistent with past practices;

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

(m) loans and advances to Holdings (or any direct or indirect parent thereof) in lieu of, and not in excess of the amount of (after giving effect to any other loans, advances or Restricted Payments in respect

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thereof) Restricted Payments to the extent permitted to be made to Holdings (or such parent) in accordance with Sections 7.06(g), (h) or (i);

(n) so long as immediately after giving effect to any such Investment, no Default has occurred and is continuing, other Investments in an aggregate amount that does not exceed the sum of (i) $22,500,000 and (ii) an amount equal to any repayments, interest, returns, profits, distributions, income and similar amounts actually theretofore received in cash in respect of any such Investment;

(o) so long as immediately after giving effect to any such Investment, no Default has occurred and is continuing, and the Borrower and the Restricted Subsidiaries will be in Pro Forma Compliance with the covenants set forth in Section 7.11, other Investments in an amount not to exceed the Cumulative Growth Amount immediately prior to the time of the making of any Investment;

(p) advances of payroll payments to employees in the ordinary course of business;

(q) Investments to the extent that payment for such Investments is made solely with capital stock of Holdings;

(r) Investments of a Restricted Subsidiary acquired after the Original Closing Date or of a corporation merged into the Borrower or merged or consolidated with a Restricted Subsidiary in accordance with Section 7.04 after the Original Closing Date to the extent that such Investments were not made in contemplation of or in connection with such acquisition, merger or consolidation (including in connection with the Aspen Transaction) and were in existence on the date of such acquisition, merger or consolidation;

(s) Guarantees by Holdings, the Borrower or any Restricted Subsidiary of leases (other than Capitalized Leases) or of other obligations that do not constitute Indebtedness, in each case entered into in the ordinary course of business; and

(t) the Aspen Transaction;

provided that no Investment in an Unrestricted Subsidiary that would otherwise be permitted under this Section 7.02 shall be permitted hereunder to the extent that any portion of such Investment is used to make any prepayments, redemptions, purchases, defeasances and other payments in respect of Junior Financings.

SECTION 7.03. Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except:

(a) Indebtedness of Holdings, the Borrower and any of its Subsidiaries under the Loan Documents;

(b) Indebtedness (i) outstanding on the Original Closing Date and listed on Schedule 7.03(b) and any Permitted Refinancing thereof and (ii) intercompany Indebtedness outstanding on the Original Closing Date;

(c) Guarantees in respect of Indebtedness of the Borrower or any Restricted Subsidiary otherwise permitted hereunder and to the extent permitted as an Investment under Section 7.02 (other than Section 7.02(e)); provided that (A) no Guarantee by any Restricted Subsidiary of any Junior Financing shall be permitted unless such Restricted Subsidiary shall have also provided a Guarantee of the Obligations substantially on the terms set forth in the Guaranty and (B) if the Indebtedness being Guaranteed is subordinated to the Obligations, such Guarantee shall be subordinated to the Guarantee of the Obligations on terms at least as favorable to the Lenders as those contained in the subordination of such Indebtedness;

(d) Indebtedness of the Borrower or any Restricted Subsidiary owing to the Borrower or any other Restricted Subsidiary to the extent constituting an Investment permitted by Section 7.02 (other than Section 7.02(e)); provided that, all such Indebtedness of any Loan Party owed to any Person that is not a Loan Party shall be subject to the subordination terms set forth in Section 5.03 of the Security Agreement;

(e)(i) Attributable Indebtedness and other Indebtedness (including Capitalized Leases) financing the acquisition, construction, repair, replacement or improvement of fixed or capital assets; provided that such Indebtedness is incurred concurrently with or within two hundred and seventy (270) days after the applicable acquisition, construction, repair, replacement or improvement, (ii) Attributable Indebtedness

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arising out of sale-leaseback transactions permitted by Section 7.05(f) and (iii) any Permitted Refinancing of any Indebtedness set forth in the immediately preceding clauses (i) and (ii);

(f) Indebtedness in respect of Swap Contracts designed to hedge against interest rates, foreign exchange rates or commodities pricing risks incurred in the ordinary course of business and not for speculative purposes;

(g) Indebtedness assumed in connection with any Permitted Acquisition; provided that such Indebtedness is not incurred in contemplation of such Permitted Acquisition and so long as both immediately prior and after giving effect thereto, (A) no Default shall exist or result therefrom and (B) the Borrower and the Restricted Subsidiaries will be in Pro Forma Compliance with the covenants set forth in Section 7.11;

(h)(i) Indebtedness incurred to finance a Permitted Acquisition and (ii) any Permitted Refinancing of the foregoing; provided, in the case of clauses (i) and (ii) above, such Indebtedness and all Indebtedness resulting from any Permitted Refinancing thereof (v) is unsecured and is subordinated to the Obligations on terms no less favorable to the Lenders than the subordination terms set forth in the Senior Subordinated Notes Indenture as of the Original Closing Date, (w) both immediately prior and after giving effect thereto, (1) no Default shall exist or result therefrom and (2) the Borrower and the Restricted Subsidiaries will be in Pro Forma Compliance with the covenants set forth in Section 7.11, (x) matures after, and does not require any scheduled amortization or other scheduled payments of principal prior to, the Maturity Date of the Term Loans (it being understood that such Indebtedness may have mandatory repurchase provisions satisfying the requirement of clause (y) hereof), (y) has terms and conditions (other than interest rate, redemption premiums and subordination terms), taken as a whole, that are not materially less favorable to the Borrower as the terms and conditions of the Senior Subordinated Notes as of the Original Closing Date and (z) is incurred by the Borrower or a Guarantor.

(i) Indebtedness representing deferred compensation to employees of the Borrower and the Restricted Subsidiaries incurred in the ordinary course of business;

(j) Indebtedness consisting of promissory notes issued by Holdings or the Borrower to current or former officers, directors, employees and consultants, their respective estates, heirs, permitted transferees, spouses or former spouses to finance the purchase or redemption of Equity Interests of Holdings or any direct or indirect parent thereof permitted by Section 7.06(f);

(k) Indebtedness incurred by Holdings, the Borrower or the Restricted Subsidiaries in a Permitted Acquisition, any other Investment expressly permitted hereunder or any Disposition, in each case, solely to the extent constituting indemnification obligations or obligations in respect of purchase price or other similar adjustments;

(l) Indebtedness consisting of obligations of Holdings, the Borrower or the Restricted Subsidiaries under deferred employee compensation or other similar arrangements incurred by such Person in connection with the Original Closing Date Transaction and Permitted Acquisitions or any other Investment expressly permitted hereunder;

(m) Cash Management Obligations and other Indebtedness in respect of netting services, overdraft protections and similar arrangements in each case in connection with deposit accounts;

(n) Indebtedness in an aggregate principal amount not to exceed $45,000,000 at any time outstanding; provided that a maximum of $20,000,000 of aggregate principal amount of such Indebtedness may be incurred by Foreign Subsidiaries that are not Guarantors;

(o) Indebtedness consisting of (a) the financing of insurance premiums or (b) take-or-pay obligations contained in supply arrangements, in each case, in the ordinary course of business;

(p) Indebtedness incurred by the Borrower or any of the Restricted Subsidiaries in respect of letters of credit, bank guarantees, bankers’ acceptances or similar instruments issued or created in the ordinary course

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of business, including in respect of workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement-type obligations regarding workers compensation claims; provided that any reimbursement obligations in respect thereof are reimbursed within 30 days following the incurrence thereof;

(q) obligations in respect of performance, bid, stay, custom, appeal and surety bonds and other obligations of a like nature and performance and completion guarantees and similar obligations provided by the Borrower or any of the Restricted Subsidiaries or obligations in respect of letters of credit, bank guarantees or similar instruments related thereto, in each case in the ordinary course of business or consistent with past practice;

(r) Permitted Holdco Debt;

(s) Indebtedness supported by a Letter of Credit, in a principal amount not to exceed the face amount of such Letter of Credit;

(t) Indebtedness in respect of the Senior Subordinated Notes and any Permitted Refinancing thereof;

(u) all premiums (if any), interest (including post-petition interest), fees, expenses, charges and additional or contingent interest on obligations described in clauses (a) through (t) above; and

(v) the Seller Notes.

SECTION 7.04. Fundamental Changes. Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that:

(a) any Restricted Subsidiary may merge with (i) the Borrower (including a merger, the purpose of which is to reorganize the Borrower into a new jurisdiction); provided that the Borrower shall be the continuing or surviving Person and (y) such merger does not result in the Borrower ceasing to be incorporated under the Laws of the United States, any state thereof or the District of Columbia, or (ii) any one or more other Restricted Subsidiaries; provided that when any Restricted Subsidiary that is a Loan Party is merging with another Restricted Subsidiary, a Loan Party shall be the continuing or surviving Person;

(b)(i) any Subsidiary that is not a Loan Party may merge or consolidate with or into any other Subsidiary that is not a Loan Party and (ii) any Subsidiary (other than the Borrower) may liquidate or dissolve or change its legal form (subject, in the case of any change of legal form, to any such Subsidiary that is a Guarantor remaining a Guarantor) if Holdings determines in good faith that such action is in the best interests of Holdings and its Subsidiaries and if not materially disadvantageous to the Lenders;

(c) any Restricted Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another Restricted Subsidiary; provided that if the transferor in such a transaction is a Guarantor or the Borrower, then (i) the transferee must either be the Borrower or a Guarantor or (ii) to the extent constituting an Investment, such Investment must be a permitted Investment in or Indebtedness of a Restricted Subsidiary which is not a Loan Party in accordance with Sections 7.02 (other than Section 7.02(e)) and 7.03, respectively;

(d) so long as no Default exists or would result therefrom, the Borrower may merge with any other Person; provided that (i) the Borrower shall be the continuing or surviving corporation or (ii) if the Person formed by or surviving any such merger or consolidation is not the Borrower (any such Person, the “Successor Company”), (A) the Successor Company shall be an entity organized or existing under the laws of the United States, any state thereof or the District of Columbia, (B) the Successor Company shall expressly assume all the obligations of the Borrower under this Agreement and the other Loan Documents to which the Borrower is a party pursuant to a supplement hereto or thereto in form reasonably satisfactory to the Administrative Agent, (C) each Guarantor, unless it is the other party to such merger or consolidation, shall have by a supplement to the Guaranty in form and substance reasonably satisfactory to the Administrative Agent confirmed that its Guarantee shall apply to the Successor Company’s obligations

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under this Agreement, (D) each Guarantor, unless it is the other party to such merger or consolidation, shall have by a supplement to the Security Agreement in form and substance reasonably satisfactory to the Administrative Agent confirmed that its obligations thereunder shall apply to the Successor Company’s obligations under this Agreement, (E) each mortgagor of a Mortgaged Property, unless it is the other party to such merger or consolidation, shall have by an amendment to or restatement of the applicable Mortgage in form and substance reasonably satisfactory to the Administrative Agent confirmed that its obligations thereunder shall apply to the Successor Company’s obligations under this Agreement, (F) immediately after giving effect to such merger or consolidation, the Successor Company and the Restricted Subsidiaries shall be in Pro Forma Compliance with all of the covenants set forth in Section 7.11, such compliance to be determined on the basis of the financial information most recently delivered to the Administrative Agent and the Lenders pursuant to Section 6.01(a) or (b) as though such merger or consolidation had been consummated as of the first day of the fiscal period covered thereby and evidenced by a certificate from the Chief Financial Officer of the Successor Company demonstrating such compliance calculation in reasonable detail, and (G) the Borrower shall have delivered to the Administrative Agent a certificate of a Responsible Officer and an opinion of counsel, each stating that such merger or consolidation and such supplement to this Agreement or any Collateral Document comply with this Agreement; provided further that if the foregoing are satisfied, the Successor Company will succeed to, and be substituted for, the Borrower under this Agreement;

(e) so long as no Default exists or would result therefrom, any Restricted Subsidiary may merge with any other Person in order to effect an Investment permitted pursuant to Section 7.02; provided that (i) if such Restricted Subsidiary is a Loan Party, a Loan Party shall be the continuing or surviving Person, and (ii) the continuing or surviving Person shall be a Restricted Subsidiary, which together with each of its Restricted Subsidiaries, shall have complied with the requirements of Section 6.11;

(f) the Borrower and the Restricted Subsidiaries may consummate the Original Closing Date Merger;

(g) so long as no Default exists or would result therefrom, a merger, dissolution, liquidation, consolidation or Disposition, the purpose of which is to effect a Disposition permitted pursuant to Section 7.05;

(h) so long as no Default exists or would result therefrom, Holdings may create a new intermediate holding company (“New Intermediate Holdings”) and transfer the stock of the Borrower to it; provided that (i) New Intermediate Holdings shall expressly assume all the obligations of Holdings under this Agreement, the Security Agreement, the Guaranty and the other Loan Documents to which Holdings is a party (the “Assumed Documents”) by executing and delivering a Joinder Agreement and taking all actions to continue perfection in the security interest in the assets of Holdings, and (ii) the Borrower shall have delivered to the Administrative Agent a certificate of a Responsible Officer and an opinion of counsel, each stating that (A) the Secured Parties continue to have a perfected security interest in all of the Collateral, including the stock of the Borrower, (B) each of the Assumed Documents is a legal, valid and binding obligation of New Intermediate Holdings, enforceable against New Intermediate Holdings in accordance with its terms (subject to customary assumptions and qualifications) and (C) solely with respect to the certificate of a Responsible Officer, Holdings, the Borrower and the other Loan Parties taken as a whole are Solvent and no Default under any of the Loan Documents has occurred and is continuing; provided further, that if the foregoing are satisfied, New Intermediate Holdings will succeed to, and be substituted for, Holdings under the Assumed Documents and Holdings shall be automatically and unconditionally released from its obligations under the Assumed Documents; and

(i) the Aspen Acquisition may be consummated.

SECTION 7.05. Dispositions. Make any Disposition, except:

(a) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business and Dispositions of property (other than Mortgaged Properties) no longer used or useful in the conduct of the business of the Borrower and the Restricted Subsidiaries;

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(b) Dispositions of inventory and immaterial assets in the ordinary course of business;

(c) Dispositions of property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are promptly applied to the purchase price of such replacement property; provided that to the extent that the property being disposed constituted Collateral, the property being replaced therefor shall be made subject to the Lien of the appropriate Loan Documents in accordance with the provisions hereof;

(d) Dispositions of property to the Borrower or to a Restricted Subsidiary; provided that if the transferor of such property is a Guarantor or the Borrower (i) the transferee thereof must either be the Borrower or a Guarantor or (ii) assuming such transaction constitutes an Investment, such transaction is permitted under Section 7.02 (other than Section 7.02(e));

(e) Dispositions permitted by Sections 7.04 and 7.06 and Liens permitted by Section 7.01;

(f) Dispositions of property pursuant to sale-leaseback transactions; provided that (i) with respect to such property owned by the Borrower and its Restricted Subsidiaries on the Original Closing Date, the fair market value of all property so Disposed of after the Original Closing Date (taken together with the aggregate book value of all property Disposed of pursuant to Section 7.05(j)) shall not exceed $75,000,000 and (ii) with respect to such property acquired by the Borrower or any Restricted Subsidiary after the Original Closing Date, the applicable sale-leaseback transaction occurs within two hundred and seventy (270) days after the acquisition or construction (as applicable) of such property;

(g) Dispositions of Cash Equivalents;

(h) leases, subleases, licenses or sublicenses, in each case in the ordinary course of business which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any material Subsidiary, provided that Holdings and the Borrower shall not, nor shall they permit any of their Restricted Subsidiaries to, directly or directly, enter into any ground leases relating to any Mortgaged Property;

(i) transfers of property subject to Casualty Events upon receipt of the Net Cash Proceeds of such Casualty Event;

(j) Dispositions of property not otherwise permitted under this Section 7.05; provided that (i) at the time of such Disposition (other than any such Disposition made pursuant to a legally binding commitment entered into at a time when no Default exists), no Default shall exist or would result from such Disposition, (ii) the aggregate book value of all property Disposed of in reliance on this clause (j) (taken together with the aggregate fair market value of all property Disposed of pursuant to Section 7.05(f)) shall not exceed $75,000,000 and (iii) with respect to any Disposition pursuant to this clause (j) for a purchase price in excess of $500,000, the Borrower or a Restricted Subsidiary shall receive not less than 75% of such consideration in the form of cash or Cash Equivalents (in each case, free and clear of all Liens at the time received, other than nonconsensual Liens permitted by Section 7.01 and Liens permitted by Section 7.01(a), (l) and (o) and clauses (i) and (ii) of Section 7.01(u) and 7.01(w) (to the extent such Indebtedness is secured by cash collateral)); provided, however, that for the purposes of this clause (iii), (A) any liabilities (as shown on the Borrower’s or such Restricted Subsidiary’s most recent balance sheet provided hereunder or in the footnotes thereto) of the Borrower or such Restricted Subsidiary, other than liabilities that are by their terms subordinated to the payment in cash of the Obligations, that are assumed by the transferee with respect to the applicable Disposition and for which the Borrower and all of the Restricted Subsidiaries shall have been validly released by all applicable creditors in writing, (B) any securities received by the Borrower or such Restricted Subsidiary from such transferee that are converted by the Borrower or such Restricted Subsidiary into cash (to the extent of the cash received) within 180 days following the closing of the applicable Disposition and (C) any Designated Non-Cash Consideration received by the Borrower or such Restricted Subsidiary in respect of such Disposition having an aggregate fair market value, taken together with all other Designated Non-Cash Consideration received pursuant to this clause (C) that is at that time outstanding, not in excess of 1.5% of Total Assets at the time of the receipt of such Designated Non-cash

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Consideration, with the fair market value of each item of Designated Non-Cash Consideration being measured at the time received and without giving effect to subsequent changes in value, shall be deemed to be cash;

(k) Dispositions of Investments in joint ventures to the extent required by, or made pursuant to customary buy/sell arrangements between, the joint venture parties set forth in joint venture arrangements and similar binding arrangements; and

(l) Dispositions of Equity Interests of the Crowell Subsidiaries to Sue Crowell pursuant to the Crowell Equity Documents, as in effect on the date hereof;

provided that any Disposition of any property pursuant to this Section 7.05 (except pursuant to Section 7.05(e) and except for Dispositions from a Loan Party to another Loan Party), shall be for no less than the fair market value of such property at the time of such Disposition. To the extent any Collateral is Disposed of as expressly permitted by this Section 7.05 to any Person other than Holdings, the Borrower or any Restricted Subsidiary, such Collateral shall be sold free and clear of the Liens created by the Loan Documents, and the Administrative Agent or the Collateral Agent, as applicable, shall be authorized to take any actions deemed appropriate in order to effect the foregoing.

SECTION 7.06. Restricted Payments. Declare or make, directly or indirectly, any Restricted Payment, except:

(a) each Restricted Subsidiary may make Restricted Payments to the Borrower and to other Restricted Subsidiaries (and, in the case of a Restricted Payment by a non-wholly owned Restricted Subsidiary, to the Borrower and any other Restricted Subsidiary and to each other owner of Equity Interests of such Restricted Subsidiary based on their relative ownership interests of the relevant class of Equity Interests);

(b) Holdings and the Borrower may declare and make dividend payments or other distributions payable solely in the Equity Interests of Holdings (other than Disqualified Equity Interests not otherwise permitted by Section 7.03) or Borrower (if paid to Holdings);

(c) Restricted Payments made on the Original Closing Date to consummate the Original Closing Date Transaction;

(d) to the extent constituting Restricted Payments, Holdings, the Borrower and the Restricted Subsidiaries may enter into and consummate transactions expressly permitted by any provision of Section 7.04 or 7.08 other than Section 7.08(f);

(e) repurchases of Equity Interests in Holdings, the Borrower or any Restricted Subsidiary deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants;

(f) Holdings may pay (or make Restricted Payments to allow any direct or indirect parent thereof to pay) for the repurchase, retirement or other acquisition or retirement for value of Equity Interests of Holdings (or of any such parent of Holdings) by any future, present or former employee, officer, director or consultant of Holdings (or any direct or indirect parent of Holdings) or any of its Subsidiaries pursuant to any employee or director equity plan, employee, officer or director stock option plan or any other employee or director benefit plan or any agreement (including any stock subscription or shareholder agreement) with any employee, director or consultant of Holdings (or any direct or indirect parent of Holdings) or any of its Subsidiaries, in an amount under this clause (f) not to exceed $7,500,000 in any calendar year (with unused amounts in any calendar year being carried over to the two (2) immediately succeeding calendar years); provided that such amount in any calendar year may be increased by an amount not to exceed (1) the amount of Net Cash Proceeds of Permitted Equity Issuances (other than Permitted Equity Issuances made pursuant to Section 8.05) after the Original Closing Date to the extent that such Net Cash Proceeds shall have been actually received by the Borrower (including through capital contribution of such Net Cash Proceeds by Holdings to the Borrower) (and to the extent not used to reduce Capital Expenditures pursuant

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to clause (ix) of the definition thereof or used to make an Investment pursuant to Section 7.02(o) or prepay Junior Financing pursuant to Section 7.13(v) or make Restricted Payments pursuant to Section 7.06(i)), in each case to employees, directors, officers, members of management or consultants of Holdings (or any direct or indirect parent of Holdings) or of its Subsidiaries that occurs after the Original Closing Date plus (2) the cash proceeds of key man life insurance policies received by Holdings (to the extent such proceeds are contributed to the Borrower) or any Borrower or any Restricted Subsidiary after the Original Closing Date (provided that the Borrower may elect to apply all or any portion of the aggregate increase contemplated by clauses (1) and (2) above in any calendar year) less (3) the amount of any Restricted Payments previously made pursuant to clauses (1) and (2) of this clause (f);

(g) the Borrower and its Restricted Subsidiaries may make Restricted Payments to Holdings:

(i) the proceeds of which will be used to pay (or to make Restricted Payments to allow any direct or indirect parent of Holdings to pay) federal, state and local income taxes to the extent such income taxes are attributable to the income of the Borrower and its Restricted Subsidiaries and, to the extent of the amount actually received from the Unrestricted Subsidiaries, in amounts required to pay such taxes to the extent attributable to the income of the Unrestricted Subsidiaries; provided, however, that in each case the amount of such payments in any fiscal year does not exceed the amount that the Borrower and its Restricted Subsidiaries would be required to pay in respect of federal, state and local taxes for such fiscal year were the Borrower and the Restricted Subsidiaries to pay such taxes as a stand-alone taxpayer;

(ii) the proceeds of which shall be used by Holdings to pay (or to make Restricted Payments to allow any direct or indirect parent of Holdings to pay) its operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including administrative, legal, accounting and similar expenses provided by third parties), which are reasonable and customary and incurred in the ordinary course of business, in an aggregate amount not to exceed $2,500,000 in any fiscal year plus any reasonable and customary indemnification claims made by directors or officers of Holdings (or any parent thereof) attributable to the ownership or operations of the Borrower and its Subsidiaries;

(iii) the proceeds of which shall be used by Holdings to pay franchise taxes and other fees, taxes and expenses required to maintain its (or any of its direct or indirect parents’) corporate existence;

(iv) the proceeds of which shall be used by Holdings to make Restricted Payments permitted by Section 7.06(f);

(v) to finance any Investment permitted to be made pursuant to Section 7.02 (other than Section 7.02(e)); provided that (A) such Restricted Payment shall be made substantially concurrently with the closing of such Investment and (B) Holdings shall, immediately following the closing thereof, cause (1) all property acquired (whether assets or Equity Interests) to be contributed to the Borrower or its Restricted Subsidiaries or (2) the merger (to the extent permitted in Section 7.04) of the Person formed or acquired into the Borrower or its Restricted Subsidiaries in order to consummate such Permitted Acquisition, in each case, in accordance with the requirements of Section 6.11; and

(vi) the proceeds of which shall be used by Holdings to pay (or to make Restricted Payments to allow any direct or indirect parent thereof to pay) fees and expenses (other than to Affiliates) related to any unsuccessful equity or debt offering permitted by this Agreement;

(h) so long as no Default shall have occurred and be continuing or would result therefrom, the Borrower may make additional Restricted Payments to Holdings the proceeds of which may be utilized by Holdings to make additional Restricted Payments, in an aggregate amount, together with the aggregate amount of (1) prepayments, redemptions, purchases, defeasances and other payments in respect of Junior Financings made pursuant to Section 7.13(a)(iv) and (2) loans and advances to Holdings made pursuant to Section 7.02(m) in lieu of Restricted Payments permitted by this clause (h), not to exceed $15,000,000;

(i) so long as no Default shall have occurred and be continuing or would result therefrom, the Borrower may make additional Restricted Payments to Holdings the proceeds of which may be utilized by Holdings to

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make additional Restricted Payments, in an amount not to exceed the Cumulative Growth Amount immediately prior to the making of such Restricted Payment;

(j) Holdings may make Restricted Payments with the net proceeds of Permitted Holdco Debt; and

(k) cash payments in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Equity Interests of the Borrower or any direct or indirect parent of the Borrower; provided, however, that any such cash payment shall not be for the purpose of evading the limitation of this covenant (as determined in good faith by the Board of Directors of the Borrower); and

(l) to the extent permitted by Section 7.02, Restricted Subsidiaries may make Restricted Payments to purchase or repurchase Equity Interests of any Restricted Subsidiary from third parties so long as, after giving effect to such purchase or repurchase, the Restricted Subsidiary whose Equity Interests have been purchased or repurchased becomes a wholly-owned Subsidiary and a Guarantor.

SECTION 7.07. Change in Nature of Business. Engage in any material line of business substantially different from those lines of business conducted by the Borrower and the Restricted Subsidiaries on the Original Closing Date or any business reasonably related or ancillary thereto.

SECTION 7.08. Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of the Borrower, whether or not in the ordinary course of business, other than (a) transactions among Loan Parties or any Restricted Subsidiary or any entity that becomes a Restricted Subsidiary as a result of such transaction, (b) on terms substantially as favorable to Holdings, the Borrower or such Restricted Subsidiary as would be obtainable by Holdings, the Borrower or such Restricted Subsidiary at the time in a comparable arm’s-length transaction with a Person other than an Affiliate, (c) the payment of fees and expenses and the making of any Restricted Payments related to or in connection with the Original Closing Date Transaction or the Aspen Transaction, (d) the issuance of Equity Interests to the management of the Borrower or any of its Subsidiaries in connection with the Original Closing Date Transaction, (e) the payment of management and monitoring fees to the Sponsor in an aggregate amount in any fiscal year not to exceed the amount permitted to be paid (including accrued amounts) pursuant to the Sponsor Management Agreement as in effect on the Original Closing Date and any Sponsor Termination Fees not to exceed the amount set forth in the Sponsor Management Agreement as in effect on the Original Closing Date and related indemnities and reasonable expenses, (f) equity issuances, repurchases, retirements, defeasance, cancellation, termination or other acquisitions or retirements of Equity Interests permitted under Section 7.06, (g) loans by Holdings, the Borrower and the Restricted Subsidiaries to Holdings, the Borrower or Restricted Subsidiaries or to officers, directors or employees to the extent permitted under this Article VII, (h) employment and severance arrangements between Holdings, the Borrower and the Restricted Subsidiaries and their respective officers and employees in the ordinary course of business, (i) payments by Holdings (and any direct or indirect parent thereof), the Borrower and the Restricted Subsidiaries pursuant to the tax sharing agreements among Holdings (and any such parent thereof), the Borrower and the Restricted Subsidiaries on customary terms to the extent attributable to the ownership or operation of the Borrower and the Restricted Subsidiaries and not in excess of the amount permitted by Section 7.06(g)(i), (j) the payment of customary fees and reasonable out of pocket costs and expenses to, and indemnities provided on behalf of, directors, officers and employees of Holdings, the Borrower and the Restricted Subsidiaries in the ordinary course of business to the extent attributable to the ownership or operation of Holdings, the Borrower and the Restricted Subsidiaries, (k) transactions pursuant to permitted agreements in existence on the Original Closing Date and set forth on Schedule 7.08 or any amendment thereto to the extent such an amendment, when taken as a whole, is not adverse to the Lenders in any material respect, (l) dividends, distributions, returns of capital, redemptions and repurchases permitted under Section 7.06, and (m) customary payments by Holdings, the Borrower and any Restricted Subsidiaries to the Sponsor made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities (including in connection with acquisitions or divestitures), which payments are approved by the majority of the members of the board of directors or a majority of the disinterested members of the board of directors of Holdings or the Borrower, in good faith.

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SECTION 7.09. Burdensome Agreements. Enter into or permit to exist any Contractual Obligation (other than this Agreement or any other Loan Document) that limits the ability of (a) any Restricted Subsidiary of the Borrower that is not a Guarantor to make Restricted Payments to the Borrower or any Guarantor or (b) the Borrower or any Loan Party to create, incur, assume or suffer to exist Liens on property of such Person for the benefit of the Lenders with respect to the Facilities and the Obligations or under the Loan Documents; provided that the foregoing clauses (a) and (b) shall not apply to Contractual Obligations which (i) (x) exist on Original Closing Date and (to the extent not otherwise permitted by this Section 7.09) are listed on Schedule 7.09 (including the Senior Subordinated Notes Documentation, the Holdings Loan Documents and any Permitted Refinancings thereof) and (y) to the extent Contractual Obligations permitted by clause (x) are set forth in an agreement evidencing Indebtedness, are set forth in any agreement evidencing any permitted renewal, extension or refinancing of such Indebtedness so long as such renewal, extension or refinancing does not expand the scope of such Contractual Obligation in any material respect, (ii) are binding on a Restricted Subsidiary at the time such Restricted Subsidiary first becomes a Restricted Subsidiary of the Borrower, so long as such Contractual Obligations were not entered into in contemplation of such Person becoming a Restricted Subsidiary of the Borrower; provided further that this clause (ii) shall not apply to Contractual Obligations that are binding on a Person that becomes a Restricted Subsidiary pursuant to Section 6.15, (iii) represent Indebtedness of a Foreign Subsidiary of the Borrower which is not a Loan Party which is permitted by Section 7.03(n), (iv) arise in connection with any Disposition permitted by Section 7.05, (v) are customary provisions in joint venture agreements and other similar agreements applicable to joint ventures permitted under Section 7.02 and applicable solely to such joint venture entered into in the ordinary course of business, (vi) are customary restrictions on leases, subleases, licenses or asset sale agreements otherwise permitted hereby so long as such restrictions relate to the assets subject thereto, (vii) comprise restrictions imposed by any agreement relating to secured Indebtedness permitted pursuant to Section 7.03(e), (g) or (n) to the extent that such restrictions apply only to the property or assets securing such Indebtedness, (viii) are customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or any Restricted Subsidiary, (ix) are customary provisions restricting assignment of any agreement entered into in the ordinary course of business, and (x) are restrictions on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business.

SECTION 7.10. Use of Proceeds. Use the proceeds of any Credit Extension, whether directly or indirectly, in a manner inconsistent with the uses set forth in the preliminary statements to this Agreement.

SECTION 7.11. Financial Covenants.

(a) Total Leverage Ratio. Permit the Total Leverage Ratio as of the last day of any Test Period (beginning with the Test Period ending on June 30, 2006) to be greater than the ratio set forth below opposite the last day of such Test Period:

Fiscal Year	March 31	June 30	September 30	December 31
2006	N/A	8.75:1	8.75:1	8.75:1
2007	8.25:1	8.25:1	8.25:1	8.25:1
2008	7.75:1	7.75:1	7.75:1	7.75:1
2009	7.25:1	7.25:1	7.25:1	7.25:1
2010	6.75:1	6.75:1	6.75:1	6.75:1
2011	6.25:1	6.25:1	6.25:1	6.25:1
2012	6.25:1	6.25:1	6.25:1	6.25:1
2013	6.25:1

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(b) Interest Coverage Ratio. Permit the Interest Coverage Ratio for any Test Period (beginning with the Test Period ending on June 30, 2006 to be less than the ratio set forth below opposite the last day of such Test Period:

Fiscal Year	March 31	June 30	September 30	December 31
2006	N/A	1.25:1	1.25:1	1.25:1
2007	1.25:1	1.35:1	1.35:1	1.35:1
2008	1.35:1	1.45:1	1.45:1	1.45:1
2009	1.75:1	1.75:1	1.75:1	1.75:1
2010	2.00:1	2.00:1	2.00:1	2.00:1
2011	2.25:1	2.25:1	2.25:1	2.25:1
2012	2.25:1	2.25:1	2.25:1	2.25:1
2013	2.25:1

SECTION 7.12. Accounting Changes. Make any change in fiscal year; provided, however, that the Borrower may, upon written notice to the Administrative Agent, change its fiscal year to any other fiscal year reasonably acceptable to the Administrative Agent, in which case, the Borrower and the Administrative Agent will, and are hereby authorized by the Lenders to, make any adjustments to this Agreement that are necessary to reflect such change in fiscal year.

SECTION 7.13. Prepayments, Etc. of Indebtedness.

(a) Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner (it being understood that (subject to applicable subordination terms) payments of regularly scheduled interest shall be permitted) the Senior Subordinated Notes or any subordinated Indebtedness incurred under Section 7.03(h) or any other Indebtedness that is required to be subordinated to the Obligations pursuant to the terms of the Loan Documents (collectively, “Junior Financing”), except (i) the refinancing thereof with the Net Cash Proceeds of Permitted Holdco Debt or any other Indebtedness (to the extent such Indebtedness constitutes a Permitted Refinancing and, if applicable, is permitted pursuant to Section 7.03(h)), to the extent not required to prepay any Loans or Facility pursuant to Section 2.05(b), (ii) the conversion of any Junior Financing to Equity Interests (other than Disqualified Equity Interests) of Holdings or any of its direct or indirect parents, (iii) the prepayment of Indebtedness of the Borrower or any Restricted Subsidiary to the Borrower or any Restricted Subsidiary to the extent permitted by the Collateral Documents, (iv) so long as no Default shall have occurred and be continuing or would result therefrom, prepayments, redemptions, purchases, defeasances and other payments in respect of Junior Financings prior to their scheduled maturity in an aggregate amount, together with the aggregate amount of (1) Restricted Payments made pursuant to Section 7.06(h) and (2) loans and advances to Holdings made pursuant to Section 7.02(m), not to exceed $10,000,000, and (v) so long as no Default shall have occurred and be continuing or would result therefrom, prepayments, redemptions, purchases, defeasances and other payments in respect of Junior Financings prior to their scheduled maturity in an aggregate amount not to exceed the Cumulative Growth Amount immediately prior to the making of such payment.

(b) Amend, modify or change in any manner materially adverse to the interests of the Lenders any term or condition of any Junior Financing Documentation without the consent of the Administrative Agent.

SECTION 7.14. Equity Interests of the Borrower and Restricted Subsidiaries. Permit any Domestic Subsidiary that is a Restricted Subsidiary to be a non-wholly owned Subsidiary, except (i) as a result of or in connection with a dissolution, liquidation, merger, consolidation or Disposition of a Restricted Subsidiary permitted by Section 7.04, 7.05 or an Investment in any Person permitted under Section 7.02 or (ii) so long as such Restricted Subsidiary continues to be a Guarantor; provided, however, a Crowell Subsidiary may cease to be a Guarantor once Equity Interests of such Crowell Subsidiary issue or vest pursuant to the terms of a Crowell Equity Document, as in effect on the date hereof; provided further, however, if such Crowell Subsidiary later becomes a wholly-owned Subsidiary, such Crowell Subsidiary shall once again become a Guarantor.

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SECTION 7.15. Holding Company. In the case of Holdings, conduct, transact or otherwise engage in any business or operations other than those incidental to (i) its ownership of the Equity Interests of the Borrower, (ii) the maintenance of its legal existence, (iii) the performance of the Loan Documents, the Holdings Loan Documents, the Aspen Acquisition Agreement, Original Closing Date Merger Agreement and the other agreements contemplated by the Aspen Acquisition Agreement or the Original Closing Date Merger Agreement, (iv) any public offering of its common stock or any other issuance of its Equity Interests not prohibited by this Article VII, and (v) any transaction that Holdings is permitted to enter into or consummate under this Article 7.

SECTION 7.16. Capital Expenditures.

(a) Make any Capital Expenditure except for Capital Expenditures not exceeding, in the aggregate for the Borrower and the Restricted Subsidiaries during each fiscal year set forth below, the amount set forth opposite such fiscal year:

Fiscal Year	Amount
2006	$27,500,000
2007	$22,500,000
2008	$17,500,000
2009	$18,500,000
2010	$18,500,000
2011	$19,000,000
2012	$19,500,000
2013	$20,000,000

provided that for each Permitted Acquisition consummated in any fiscal year, the maximum amounts set forth above for such fiscal year and for every fiscal year thereafter shall be increased by an amount equal to 3.0% of the total revenues of the Acquired Entity or Business for such Permitted Acquisition for the last four full fiscal quarters preceding the date of consummation of such Permitted Acquisition as determined in financial statements for the Acquired Entity or Business prepared in accordance with the standards set forth in Section 6.01; provided further that up to an additional $25,000,000 of Capital Expenditures in the aggregate after the Original Closing Date may be made to the extent in connection with Projects.

(b) Notwithstanding anything to the contrary contained in clause (a) above, (i) to the extent that the aggregate amount of Capital Expenditures made by the Borrower and the Restricted Subsidiaries in any fiscal year pursuant to Section 7.16(a) is less than the maximum amount of Capital Expenditures permitted by Section 7.16(a) with respect to such fiscal year (without giving effect to the second proviso to Section 7.16(a)) (the “Permitted Capital Expenditure Amount”), the amount of such difference (the “Rollover Amount”) may be carried forward and used to make Capital Expenditures in the following succeeding fiscal year (with the amount of Capital Expenditures made in such succeeding fiscal year being applied first to the Rollover Amount), (ii) if Capital Expenditures made by the Borrower and the Restricted Subsidiaries during any fiscal year exceed the sum of (x) the Permitted Capital Expenditure Amount for such fiscal year plus (y) the Rollover Amount available in such fiscal year, if any, an amount equal to 50% of the Permitted Capital Expenditure Amount for the next succeeding fiscal year (each such amount, a “carry-back amount”) may be carried back to the immediately prior fiscal year and utilized to make such Capital Expenditures in such prior fiscal year (it being understood and agreed that (a) no carry-back amount may be carried back beyond the fiscal year immediately prior to the fiscal year of such Permitted Capital Expenditure Amount and (b) the portion of the carry-back amount actually utilized in any fiscal year shall be deducted from the Permitted Capital Expenditure Amount in the fiscal year from which it was carried back).

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ARTICLE VIII

EVENTS OF DEFAULT AND REMEDIES

SECTION 8.01. Events of Default. Any of the following shall constitute an Event of Default:

(a) Non-Payment. The Borrower or any other Loan Party fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within five (5) Business Days after the same becomes due, any interest on any Loan or any other amount payable hereunder or with respect to any other Loan Document; or

(b) Specific Covenants. The Borrower fails to perform or observe any term, covenant or agreement contained in any of Sections 6.03(a) or 6.05(a) (solely with respect to Holdings and the Borrower) or Article VII; provided that any Event of Default under Section 7.11 is subject to cure as contemplated by Section 8.05; or

(c) Other Defaults. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in Section 8.01(a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for thirty (30) days after notice thereof by the Administrative Agent to the Borrower; or

(d) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party herein, in any other Loan Document, or in any document required to be delivered in connection herewith or therewith shall be incorrect or misleading in any material respect when made or deemed made; or

(e) Cross-Default. Any Loan Party or any Restricted Subsidiary (A) fails to make any payment beyond the applicable grace period with respect thereto, if any (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness (other than Indebtedness hereunder) having an aggregate principal amount of not less than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity; provided that this clause (e)(B) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness, if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness; or

(f) Insolvency Proceedings, Etc. Any Loan Party or any of the Restricted Subsidiaries institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator, administrator, administrative receiver or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator, administrator, administrative receiver or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for sixty (60) calendar days, or an order for relief is entered in any such proceeding continues undismissed or unstayed for fourteen (14) calendar days from the commencement; or

(g) Inability to Pay Debts; Attachment. (i) Any Loan Party or any Restricted Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts in excess of the Threshold Amount as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or

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levied against all or any material part of the property of the Loan Parties, taken as a whole, and is not released, vacated or fully bonded within sixty (60) days after its issue or levy; or

(h) Judgments. There is entered against any Loan Party or any Restricted Subsidiary a final judgment or order for the payment of money in an aggregate amount exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer has been notified of such judgment or order and has not denied coverage) and such judgment or order shall not have been satisfied, vacated, discharged or stayed or bonded pending an appeal for a period of sixty (60) consecutive days; or

(i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party under Title IV of ERISA in an aggregate amount which could reasonably be expected to result in a Material Adverse Effect, or (ii) any Loan Party or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount which could reasonably be expected to result in a Material Adverse Effect; or

(j) Invalidity of Loan Documents. Any material provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder (including as a result of a transaction permitted under Section 7.04 or 7.05) or as a result of acts or omissions by the Administrative Agent or any Lender or the satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party contests in writing the validity or enforceability of any provision of any Loan Document; or any Loan Party denies in writing that it has any or further liability or obligation under any Loan Document (other than as a result of repayment in full of the Obligations and termination of the Aggregate Commitments), or purports in writing to revoke or rescind any Loan Document; or

(k) Change of Control. There occurs any Change of Control; or

(l) Collateral Documents. (i) Any Collateral Document after delivery thereof pursuant to Section 4.01A or 4.01B or 6.11 or 6.13 shall for any reason (other than pursuant to the terms thereof including as a result of a transaction permitted under Section 7.04 or 7.05) cease to create a valid and perfected lien, with the priority required by the Collateral Documents, on and security interest in any material portion of the Collateral purported to be covered thereby, subject to Liens permitted under Section 7.01, except to the extent that any such loss of perfection or priority results from the failure of the Administrative Agent or the Collateral Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Collateral Documents or to file Uniform Commercial Code continuation statements, and except as to any immaterial portion of Collateral consisting of real property to the extent that such losses are covered by a lender’s title insurance policy and such insurer has not denied coverage, or (ii) any of the Equity Interests of the Borrower ceasing to be pledged pursuant to the Security Agreement free of Liens other than Liens created by the Security Agreement or any nonconsensual Liens arising solely by operation of Law; or

(m) Junior Financing Documentation. (i) Any of the Obligations of the Loan Parties under the Loan Documents for any reason shall cease to be “Senior Debt” (or any comparable term) or “Senior Secured Financing” (or any comparable term) under and as defined in any Junior Financing Documentation or (ii) the subordination provisions set forth in any Junior Financing Documentation shall, in whole or in part, cease to be effective or cease to be legally valid, binding and enforceable against the holders of any Junior Financing, if applicable.

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SECTION 8.02. Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent may and, at the request of the Required Lenders, shall take any or all of the following actions:

(a) declare the commitment of each Lender to make Loans and any obligation of the L/C Issuers to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated;

(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower;

(c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and

(d) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable Law;

provided that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of the L/C Issuers to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.

SECTION 8.03. Exclusion of Immaterial Subsidiaries. Solely for the purpose of determining whether a Default has occurred under clause (f) or (g) of Section 8.01, any reference in any such clause to any Restricted Subsidiary or Loan Party shall be deemed not to include any Restricted Subsidiary affected by any event or circumstances referred to in any such clause that did not, as of the last day of the most recent completed fiscal quarter of the Borrower, have assets with a value in excess of 5% of the consolidated total assets of the Borrower and the Restricted Subsidiaries and did not, as of the four quarter period ending on the last day of such fiscal quarter, have revenues exceeding 5% of the total revenues of the Borrower and the Restricted Subsidiaries (it being agreed that all Restricted Subsidiaries affected by any event or circumstance referred to in any such clause shall be considered together, as a single consolidated Restricted Subsidiary, for purposes of determining whether the condition specified above is satisfied).

SECTION 8.04. Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (other than principal and interest, but including Attorney Costs payable under Section 10.04 and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;

Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including Attorney Costs payable under Section 10.04 and amounts payable under Article III), ratably among them in proportion to the amounts described in this clause Second payable to them;

Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans and L/C Borrowings, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;

Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans and L/C Borrowings (including to Cash Collateralize that portion of L/C Obligations comprised of the aggregate

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undrawn amount of Letters of Credit), the termination value under Secured Hedge Agreements and the Cash Management Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them;

Fifth, to the payment of all other Obligations of the Loan Parties that are due and payable to the Administrative Agent and the other Secured Parties on such date, ratably based upon the respective aggregate amounts of all such Obligations owing to the Administrative Agent and the other Secured Parties on such date; and

Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.

Subject to Section 2.03(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above and, if no Obligations remain outstanding, to the Borrower.

SECTION 8.05. Borrower’s Right to Cure.

(a) Notwithstanding anything to the contrary contained in Section 8.01, in the event of any Event of Default under any covenant set forth in Section 7.11 and until the expiration of the tenth (10th) day after the date on which financial statements are required to be delivered with respect to the applicable fiscal quarter hereunder, Holdings or the Borrower may engage in a Permitted Equity Issuance to any of the Equity Investors (including through a contribution to the capital of Holdings or Borrower) and apply the amount of the Net Cash Proceeds thereof to increase Consolidated EBITDA with respect to such applicable quarter; provided that such Net Cash Proceeds (i) are actually received by the Borrower (including through capital contribution of such Net Cash Proceeds by Holdings to the Borrower) no later than ten (10) days after the date on which financial statements are required to be delivered with respect to such fiscal quarter hereunder and (ii) do not exceed the aggregate amount necessary to cure (by addition to Consolidated EBITDA) such Event of Default under Section 7.11 for such period. The parties hereby acknowledge that this Section 8.05(a) may not be relied on for purposes of calculating any financial ratios other than as applicable to Section 7.11 and shall not result in any adjustment to any amounts other than the amount of the Consolidated EBITDA referred to in the immediately preceding sentence.

(b) In each period of four fiscal quarters, there shall be at least two (2) fiscal quarters in which no cure set forth in Section 8.05(a) is made.

ARTICLE IX

ADMINISTRATIVE AGENT AND OTHER AGENTS

SECTION 9.01. Appointment and Authorization of Agents.

(a) Each Lender hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Loan Document, the Administrative Agent shall have no duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing

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sentence, the use of the term “agent” herein and in the other Loan Documents with reference to any Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

(b) Each L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and each such L/C Issuer shall have all of the benefits and immunities (i) provided to the Agents in this Article IX with respect to any acts taken or omissions suffered by such L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and the applications and agreements for letters of credit pertaining to such Letters of Credit as fully as if the term “Agent” as used in this Article 9 and in the definition of “Agent-Related Person” included such L/C Issuer with respect to such acts or omissions, and (ii) as additionally provided herein with respect to such L/C Issuer.

(c) The Administrative Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders (in its capacities as a Lender, Swing Line Lender (if applicable), L/C Issuer (if applicable) and a potential Hedge Bank) hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of (and to hold any security interest created by the Collateral Documents for and on behalf of or on trust for) such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Secured Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Administrative Agent, as “collateral agent” (and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.02 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent), shall be entitled to the benefits of all provisions of this Article IX (including, Section 9.07, as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents) as if set forth in full herein with respect thereto.

SECTION 9.02. Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document (including for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents or of exercising any rights and remedies thereunder) by or through agents, employees or attorneys-in-fact or such sub-agents as shall be deemed necessary by the Administrative Agent and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or sub-agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct (as determined in the final judgment of a court of competent jurisdiction).

SECTION 9.03. Liability of Agents. No Agent-Related Person shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct, as determined by the final judgment of a court of competent jurisdiction, in connection with its duties expressly set forth herein), or (b) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by any Loan Party or any officer thereof, contained herein or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or the perfection or priority of any Lien or security interest created or purported to be created under the Collateral Documents, or for any failure of any Loan Party or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender or participant to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party or any Affiliate thereof.

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SECTION 9.04. Reliance by Agents.

(a) Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, electronic mail message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to any Loan Party), independent accountants and other experts selected by such Agent. Each Agent shall be fully justified in failing or refusing to take any action under any Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders (or such greater number of Lenders as may be expressly required hereby in any instance) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.

(b) For purposes of determining compliance with the conditions specified in Section 4.01A and Section 4.01B, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Restatement Effective Date or Original Closing Date, as applicable, specifying its objection thereto.

SECTION 9.05. Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or the Borrower referring to this Agreement, describing such Default and stating that such notice is a “notice of default.” The Administrative Agent will notify the Lenders of its receipt of any such notice. The Administrative Agent shall take such action with respect to any Event of Default as may be directed by the Required Lenders in accordance with Article VIII; provided that unless and until the Administrative Agent has received any such direction, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as it shall deem advisable or in the best interest of the Lenders.

SECTION 9.06. Credit Decision; Disclosure of Information by Agents. Each Lender acknowledges that no Agent-Related Person has made any representation or warranty to it, and that no act by any Agent hereafter taken, including any consent to and acceptance of any assignment or review of the affairs of any Loan Party or any Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender as to any matter, including whether Agent-Related Persons have disclosed material information in their possession. Each Lender represents to each Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties and their respective Subsidiaries, and all applicable bank or other regulatory Laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrower and the other Loan Parties hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower and the other Loan Parties. Except for notices, reports and other documents expressly required to be furnished to the Lenders by any Agent herein, such Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the

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business, prospects, operations, property, financial and other condition or creditworthiness of any of the Loan Parties or any of their respective Affiliates which may come into the possession of any Agent-Related Person.

SECTION 9.07. Indemnification of Agents. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand each Agent-Related Person (to the extent not reimbursed by or on behalf of any Loan Party and without limiting the obligation of any Loan Party to do so), pro rata, and hold harmless each Agent-Related Person from and against any and all Indemnified Liabilities incurred by it; provided that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting from such Agent-Related Person’s own gross negligence or willful misconduct, as determined by the final judgment of a court of competent jurisdiction; provided that no action taken in accordance with the directions of the Required Lenders (or such other number or percentage of the Lenders as shall be required by the Loan Documents) shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section 9.07. In the case of any investigation, litigation or proceeding giving rise to any Indemnified Liabilities, this Section 9.07 applies whether any such investigation, litigation or proceeding is brought by any Lender or any other Person. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section 9.07 shall survive termination of the Aggregate Commitments, the payment of all other Obligations and the resignation of the Administrative Agent.

SECTION 9.08. Agents in Their Individual Capacities. Citibank and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire Equity Interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with each of the Loan Parties and their respective Affiliates as though Citibank were not the Administrative Agent hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, Citibank or its Affiliates may receive information regarding any Loan Party or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Loan Party or such Affiliate) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them. With respect to its Loans, Citibank shall have the same rights and powers under this Agreement as any other Lender and may exercise such rights and powers as though it were not the Administrative Agent, and the terms “Lender” and “Lenders” include Citibank in its individual capacity.

SECTION 9.09. Successor Agents. The Administrative Agent may resign as the Administrative Agent upon thirty (30) days’ notice to the Lenders and the Borrower. If the Administrative Agent resigns under this Agreement, the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be consented to by the Borrower at all times other than during the existence of an Event of Default under Section 8.01(f) or (g) (which consent of the Borrower shall not be unreasonably withheld or delayed). If no successor agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Borrower, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, the Person acting as such successor agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term “Administrative Agent,” shall mean such successor administrative agent and/or supplemental administrative agent, as the case may be, and the retiring Administrative Agent’s appointment, powers and duties as the Administrative Agent shall be terminated. After the retiring Administrative Agent’s resignation hereunder as the Administrative Agent, the provisions of this Article IX and Sections 10.04 and 10.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement. If no successor agent has accepted appointment as the Administrative Agent by the date which is thirty (30) days following the retiring Administrative Agent’s notice of resignation, the retiring Administrative

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Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor and upon the execution and filing or recording of such financing statements, or amendments thereto, and such amendments or supplements to the Mortgages, and such other instruments or notices, as may be necessary or desirable, or as the Required Lenders may request, in order to (a) continue the perfection of the Liens granted or purported to be granted by the Collateral Documents or (b) otherwise ensure that the Collateral and Guarantee Requirement is satisfied, the Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. After the retiring Administrative Agent’s resignation hereunder as the Administrative Agent, the provisions of this Article IX shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent.

SECTION 9.10. Administrative Agent May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.03(h) and (i), 2.09 and 10.04) allowed in such judicial proceeding; and

(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Agents and their respective agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

SECTION 9.11. Collateral and Guaranty Matters. The Lenders irrevocably agree:

(a) that any Lien on any property granted to or held by the Administrative Agent or the Collateral Agent under any Loan Document shall be automatically released (i) upon termination of the Aggregate Commitments and payment in full of all Obligations (other than (x) obligations under Secured Hedge Agreements not yet due and payable, (y) Cash Management Obligations not yet due and payable and (z) contingent indemnification obligations not yet accrued and payable) and the expiration or termination of all Letters of Credit (or upon cash collateralization of all Letters of Credit or receipt of backstop letters of credit reasonably satisfactory to the Administrative Agent and the L/C Issuer), (ii) at the time the property

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subject to such Lien is transferred or to be transferred as part of or in connection with any transfer permitted hereunder or under any other Loan Document to any Person other than a Loan Party, (iii) subject to Section 10.01, if the release of such Lien is approved, authorized or ratified in writing by the Required Lenders, or (iv) if the property subject to such Lien is owned by a Guarantor, upon release of such Guarantor from its obligations under its Guaranty pursuant to clause (c) below;

(b) to release or subordinate any Lien on any property granted to or held by the Administrative Agent or the Collateral Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 7.01(i); and

(c) that any Guarantor shall be automatically released from its obligations under the Guaranty if such Person (i) ceases to be a Restricted Subsidiary as a result of a transaction or designation permitted hereunder or (ii) is a Crowell Subsidiary released from being a Guarantor pursuant to the first proviso of Section 7.14; provided that no such release shall occur if such Guarantor continues to be a guarantor in respect of the Senior Subordinated Notes.

Upon request by the Administrative Agent at any time, the Required Lenders (subject to Section 10.01) will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.11. In each case as specified in this Section 9.11, the Administrative Agent will (and each Lender irrevocably authorizes the Administrative Agent to), at the Borrower’s expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release or subordination of such item of Collateral from the assignment and security interest granted under the Collateral Documents, or to evidence the release of such Guarantor from its obligations under the Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.11.

SECTION 9.12. Other Agents; Arrangers and Managers. None of the Lenders or other Persons identified on the facing page or signature pages of this Agreement as a “syndication agent,” “documentation agent,” “joint bookrunner” or “arranger” shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.

ARTICLE X

MISCELLANEOUS

SECTION 10.01. Amendments, Etc. Except as otherwise set forth in this Agreement, no amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that, no such amendment, waiver or consent shall:

(a) extend or increase the Commitment of any Lender without the written consent of such Lender (it being understood that a waiver of any condition precedent set forth in Section 4.02 or the waiver of any Default, mandatory prepayment or mandatory reduction of the Commitments shall not constitute an extension or increase of any Commitment of any Lender);

(b) postpone any date scheduled for, or reduce the amount of, any payment of principal or interest under Section 2.07 or 2.08 without the written consent of each Lender directly affected thereby, it being

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understood that the waiver of (or amendment to the terms of) any mandatory prepayment of the Term Loans shall not constitute a postponement of any date scheduled for the payment of principal or interest and that any change to the definition of Total Leverage Ratio or the component definitions thereof shall not constitute a reduction in the amount of interest;

(c) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (iii) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby, it being understood that any change to the definition of Total Leverage Ratio or in the component definitions thereof shall not constitute a reduction in the rate; provided that, only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate;

(d) change any provision of this Section 10.01, the definition of “Required Lenders” or “Pro Rata Share” or Section 2.06(c), 8.04 or 2.13 without the written consent of each Lender;

(e) release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender;

(f) release all or substantially all of the aggregate value of the Guarantees, without the written consent of each Lender; or

(g) amend the definition of “Interest Period” to allow intervals in excess of 6 months without regard to availability to all Lenders without the written consent of each Lender affected thereby;

and provided, further, that (i) no amendment, waiver or consent shall, unless in writing and signed by each L/C Issuer in addition to the Lenders required above, affect the rights or duties of an L/C Issuer under this Agreement or any Letter of Credit Application relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of, or any fees or other amounts payable to, the Administrative Agent under this Agreement or any other Loan Document; (iv) Section 10.07(h) may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, waiver or other modification; and (v) the consent of Lenders holding more than 50% of any Class of Commitments shall be required with respect to any amendment that by its terms adversely affects the rights of such Class in respect of payments hereunder or Collateral in a manner different than such amendment affects other Classes. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender (it being understood that any Commitments or Loans held or deemed held by any Defaulting Lender shall be excluded for a vote of the Lenders hereunder requiring any consent of the Lenders).

Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and the Borrower (a) to add one or more additional credit facilities to this Agreement and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Term Loans and the Revolving Credit Loans and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders.

In addition, notwithstanding the foregoing, this Agreement may be amended with the written consent of the Administrative Agent, the Borrower and the Lenders providing the relevant Replacement Term Loans (as defined below) to permit the refinancing of all outstanding Term Loans (“Refinanced Term Loans”), with a

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replacement term loan tranche denominated in Dollars (“Replacement Term Loans”); provided that (a) the aggregate principal amount of such Replacement Term Loans, shall not exceed the aggregate principal amount of such Refinanced Term Loans, (b) the Applicable Rate for such Replacement Term Loans, shall not be higher than the Applicable Rate for such Refinanced Term Loans, (c) the Weighted Average Life to Maturity of such Replacement Term Loans, shall not be shorter than the Weighted Average Life to Maturity of such Refinanced Term Loans, at the time of such refinancing (except to the extent of nominal amortization for periods where amortization has been eliminated as a result of prepayment of the applicable Term Loans) and (d) all other terms applicable to such Replacement Term Loans, shall be substantially identical to, or less favorable to the Lenders providing such Replacement Term Loans, than, those applicable to such Refinanced Term Loans, except to the extent necessary to provide for covenants and other terms applicable to any period after the latest final maturity of the Term Loans in effect immediately prior to such refinancing.

Notwithstanding anything to the contrary contained in Section 10.01, guarantees, collateral security documents and related documents executed by Foreign Subsidiaries in connection with this Agreement may be in a form reasonably determined by the Administrative Agent and may be, together with this Agreement, amended and waived with the consent of the Administrative Agent at the request of the Borrower without the need to obtain the consent of any other Lender if such amendment or waiver is delivered in order (i) to comply with local Law or advice of local counsel, (ii) to cure ambiguities or defects or (iii) to cause such guarantee, collateral security document or other document to be consistent with this Agreement and the other Loan Documents.

SECTION 10.02. Notices and Other Communications; Facsimile Copies.

(a) General. Unless otherwise expressly provided herein, all notices and other communications provided for hereunder or under any other Loan Document shall be in writing (including by facsimile transmission). All such written notices shall be mailed, faxed or delivered to the applicable address, facsimile number or electronic mail address, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:

(i) if to the Borrower, the Administrative Agent, an L/C Issuer or the Swing Line Lender, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 10.02 of the Original Credit Agreement or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the other parties; and

(ii) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the Borrower, the Administrative Agent, the L/C Issuers and the Swing Line Lender.

All such notices and other communications shall be deemed to be given or made upon the earlier to occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail, four (4) Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail (which form of delivery is subject to the provisions of Section 10.02(c)), when delivered; provided that notices and other communications to the Administrative Agent, the L/C Issuers and the Swing Line Lender pursuant to Article II shall not be effective until actually received by such Person. In no event shall a voice mail message be effective as a notice, communication or confirmation hereunder.

(b) Effectiveness of Facsimile Documents and Signatures. Loan Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Law, have the same force and effect as manually signed originals and shall be binding on all Loan Parties, the Agents and the Lenders.

(c) Reliance by Agents and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices and Swing Line Loan Notices) purportedly

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given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify each Agent-Related Person and each Lender from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower in the absence of gross negligence or willful misconduct. All telephonic notices to the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.

SECTION 10.03. No Waiver; Cumulative Remedies. No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by Law.

SECTION 10.04. Attorney Costs, Expenses and Taxes. The Borrower agrees (a) if the Restatement Effective Date occurs, to pay or reimburse the Administrative Agent, the Syndication Agent, the Documentation Agent and the Arrangers for all reasonable out-of-pocket costs and expenses incurred in connection with the preparation, negotiation, syndication and execution of this Agreement and the other Loan Documents, and any amendment, waiver, consent or other modification of the provisions hereof and thereof (whether or not the transactions contemplated thereby are consummated), and the consummation and administration of the transactions contemplated hereby and thereby, including all Attorney Costs of Cahill Gordon & Reindel llp, and (b) to pay or reimburse the Administrative Agent, the Syndication Agent, the Documentation Agent, the Arrangers and each Lender for all out-of-pocket costs and expenses incurred in connection with the enforcement of any rights or remedies under this Agreement or the other Loan Documents (including all such costs and expenses incurred during any legal proceeding, including any proceeding under any Debtor Relief Law, and including all Attorney Costs of counsel to the Administrative Agent). The foregoing costs and expenses shall include all reasonable search, filing, recording and title insurance charges and fees and taxes related thereto, and other (reasonable, in the case of Section 10.04(a)) out-of-pocket expenses incurred by any Agent. The agreements in this Section 10.04 shall survive the termination of the Aggregate Commitments and repayment of all other Obligations. All amounts due under this Section 10.04 shall be paid within ten (10) Business Days of receipt by the Borrower of an invoice relating thereto setting forth such expenses in reasonable detail. If any Loan Party fails to pay when due any costs, expenses or other amounts payable by it hereunder or under any Loan Document, such amount may be paid on behalf of such Loan Party by the Administrative Agent in its sole discretion.

SECTION 10.05. Indemnification by the Borrower. Whether or not the transactions contemplated hereby are consummated, the Borrower shall indemnify and hold harmless each Agent-Related Person, each Lender and their respective Affiliates, directors, officers, employees, counsel, agents, trustees, investment advisors and attorneys-in-fact (collectively the “Indemnitees”) from and against any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against any such Indemnitee in any way relating to or arising out of or in connection with (a) the execution, delivery, enforcement, performance or administration of any Loan Document or any other agreement, letter or instrument delivered in connection with the transactions contemplated thereby or the consummation of the transactions contemplated thereby, (b) any Commitment, Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by an L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), or (c) any actual or alleged presence or Release of Hazardous Materials on, at, under or from any property currently or formerly owned, leased or operated by the Borrower, any Subsidiary or any other Loan Party, or any Environmental Liability related in any way to the Borrower, any Subsidiary or any other Loan

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Party, or (d) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory (including any investigation of, preparation for, or defense of any pending or threatened claim, investigation, litigation or proceeding) and regardless of whether any Indemnitee is a party thereto (all the foregoing, collectively, the “Indemnified Liabilities”), in all cases, whether or not caused by or arising, in whole or in part, out of the negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses or disbursements resulted from the gross negligence or willful misconduct of such Indemnitee or of any affiliate, director, officer, employee, counsel, agent or attorney-in-fact of such Indemnitee. No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through IntraLinks or other similar information transmission systems in connection with this Agreement, nor shall any Indemnitee or any Loan Party have any liability for any special, punitive, indirect or consequential damages relating to this Agreement or any other Loan Document or arising out of its activities in connection herewith or therewith (whether before or after the Original Closing Date). In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 10.05 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, stockholders or creditors or an Indemnitee or any other Person, whether or not any Indemnitee is otherwise a party thereto and whether or not any of the transactions contemplated hereunder or under any of the other Loan Documents is consummated. All amounts due under this Section 10.05 shall be paid within ten (10) Business Days after demand therefor; provided, however, that such Indemnitee shall promptly refund such amount to the extent that there is a final judicial or arbitral determination that such Indemnitee was not entitled to indemnification or contribution rights with respect to such payment pursuant to the express terms of this Section 10.05. The agreements in this Section 10.05 shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.

SECTION 10.06. Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to any Agent or any Lender, or any Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by such Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share of any amount so recovered from or repaid by any Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the applicable Overnight Rate from time to time in effect.

SECTION 10.07. Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither Holdings nor the Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee, (ii) by way of participation in accordance with the provisions of Section 10.07(e), (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.07(g) or (iv) to an SPC in accordance with the provisions of Section 10.07(h) (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 10.07(e) and, to the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement.

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(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees (“Assignees”) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this Section 10.07(b), participations in L/C Obligations and in Swing Line Loans) at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:

(A) the Borrower, provided that no consent of the Borrower shall be required for an assignment during the initial syndication, to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default under Section 8.01(a), (f) or (g) has occurred and is continuing, any Assignee;

(B) the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment (i) of all or any portion of a Term Loan to a Lender, an Affiliate of a Lender or an Approved Fund or (ii) to an Agent or an Affiliate of an Agent;

(C) each L/C Issuer at the time of such assignment, provided that no consent of the L/C Issuers shall be required for any assignment of a Term Loan or any assignment to an Agent or an Affiliate of an Agent; and

(D) the Swing Line Lender; provided that no consent of the Swing Line Lender shall be required for any assignment of a Term Loan or any assignment to an Agent or an Affiliate of an Agent.

(ii) Assignments shall be subject to the following additional conditions:

(A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans of any Class, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 (in the case of the Revolving Credit Facility), or $1,000,000 (in the case of a Term Loan) unless each of the Borrower and the Administrative Agent otherwise consents, provided that (1) no such consent of the Borrower shall be required if an Event of Default under Section 8.01(a), (f) or (g) has occurred and is continuing and (2) such amounts shall be aggregated in respect of each Lender and its Affiliates or Approved Funds, if any;

(B) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; and

(C) the Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

This paragraph (b) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate Facilities on a non-pro rata basis.

(c) Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 10.07(d), from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, 10.04 and 10.05 with respect to facts and circumstances occurring prior to the effective date of such assignment). Upon request, and the surrender by the assigning Lender of its Note, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of

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rights or obligations under this Agreement that does not comply with this clause (c) shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.07(e).

(d) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and related interest amounts) of the Loans, L/C Obligations (specifying the Unreimbursed Amounts), L/C Borrowings and amounts due under Section 2.03, owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, absent manifest error, and the Borrower, the Agents and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, any Agent and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(e) Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender’s participations in L/C Obligations and/or Swing Line Loans) owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Agents and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and the other Loan Documents and to approve any amendment, modification or waiver of any provision of this Agreement or the other Loan Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that directly affects such Participant. Subject to Section 10.07(f), the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 (subject to the requirements and limitations of such Sections) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 10.07(c). To the extent permitted by applicable Law, each Participant also shall be entitled to the benefits of Section 10.09 as though it were a Lender; provided that such Participant agrees to be subject to Section 2.13 as though it were a Lender. Each Lender that sells a participation to a Participant pursuant to this Section 10.07(e) shall, as agent of the Borrower solely for the purpose of this sentence, record in book entries maintained by such Lender the name and the amount of the participating interest of each Participant entitled to receive payments in respect of such participation.

(f) A Participant shall not be entitled to receive any greater payment under Section 3.01, 3.04 or 3.05 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant shall be subject to the limitations and requirements of Section 3.01 as if it were a Lender.

(g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(h) Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower (an “SPC”) the option to provide all or any

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part of any Loan that such Granting Lender would otherwise be obligated to make pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to fund any Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrower under this Agreement (including its obligations under Section 3.01, 3.04 or 3.05), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would be liable, and (iii) the Granting Lender shall for all purposes, including the approval of any amendment, waiver or other modification of any provision of any Loan Document, remain the lender of record hereunder. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Notwithstanding anything to the contrary contained herein, any SPC may (i) with notice to, but without prior consent of the Borrower and the Administrative Agent and with the payment of a processing fee of $3,500, assign all or any portion of its right to receive payment with respect to any Loan to the Granting Lender and (ii) disclose on a confidential basis any non-public information relating to its funding of Loans to any rating agency, commercial paper dealer or provider of any surety or Guarantee or credit or liquidity enhancement to such SPC.

(i) Notwithstanding anything to the contrary contained herein, (1) any Lender may in accordance with applicable Law create a security interest in all or any portion of the Loans owing to it and the Note, if any, held by it and (2) any Lender that is a Fund may create a security interest in all or any portion of the Loans owing to it and the Note, if any, held by it to the trustee for holders of obligations owed, or securities issued, by such Fund as security for such obligations or securities; provided that unless and until such trustee actually becomes a Lender in compliance with the other provisions of this Section 10.07, (i) no such pledge shall release the pledging Lender from any of its obligations under the Loan Documents and (ii) such trustee shall not be entitled to exercise any of the rights of a Lender under the Loan Documents even though such trustee may have acquired ownership rights with respect to the pledged interest through foreclosure or otherwise.

(j) Notwithstanding anything to the contrary contained herein, any L/C Issuer or the Swing Line Lender may, upon thirty (30) days’ notice to the Borrower and the Lenders, resign as an L/C Issuer or the Swing Line Lender, respectively; provided that on or prior to the expiration of such 30-day period with respect to such resignation, the relevant L/C Issuer or the Swing Line Lender shall have identified a successor L/C Issuer or Swing Line Lender reasonably acceptable to the Borrower willing to accept its appointment as successor L/C Issuer or Swing Line Lender, as applicable. In the event of any such resignation of an L/C Issuer or the Swing Line Lender, the Borrower shall be entitled to appoint from among the Lenders willing to accept such appointment a successor L/C Issuer or Swing Line Lender hereunder; provided that no failure by the Borrower to appoint any such successor shall affect the resignation of the relevant L/C Issuer or the Swing Line Lender, as the case may be, except as expressly provided above. If an L/C Issuer resigns as an L/C Issuer, it shall retain all the rights and obligations of an L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as an L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c)). If the Swing Line Lender resigns as Swing Line Lender, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Loans or fund risk participations in outstanding Swing Line Loans pursuant to Section 2.04(c).

SECTION 10.08. Confidentiality. Each of the Agents and the Lenders agrees to maintain the confidentiality of the Information, except that Information may be disclosed (a) to its Affiliates and its and its Affiliates’ directors, officers, employees, trustees, investment advisors and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) to the extent

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requested by any Governmental Authority; (c) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process; (d) to any other party to this Agreement; (e) subject to an agreement containing provisions substantially the same as those of this Section 10.08 (or as may otherwise be reasonably acceptable to the Borrower), to any pledgee referred to in Section 10.07(g), counterparty to a Swap Contract, Eligible Assignee of or Participant in, or any prospective Eligible Assignee of or Participant in, any of its rights or obligations under this Agreement; (f) with the written consent of the Borrower; (g) to the extent such Information becomes publicly available other than as a result of a breach of this Section 10.08; (h) to any Governmental Authority or examiner (including the National Association of Insurance Commissioners or any other similar organization) regulating any Lender; or (i) to any rating agency when required by it (it being understood that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Information relating to the Loan Parties received by it from such Lender). In addition, the Agents and the Lenders may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry, and service providers to the Agents and the Lenders in connection with the administration and management of this Agreement, the other Loan Documents, the Commitments, and the Credit Extensions. For the purposes of this Section 10.08, “Information” means all information received from any Loan Party relating to any Loan Party or its business, other than any such information that is publicly available to any Agent or any Lender prior to disclosure by any Loan Party other than as a result of a breach of this Section 10.08; provided that, in the case of information received from a Loan Party after the date hereof, such information is clearly identified at the time of delivery as confidential or (ii) is delivered pursuant to Section 6.01, 6.02 or 6.03 hereof.

SECTION 10.09. Setoff. In addition to any rights and remedies of the Lenders provided by Law, upon the occurrence and during the continuance of any Event of Default, each Lender and its Affiliates is authorized at any time and from time to time, without prior notice to the Borrower or any other Loan Party, any such notice being waived by the Borrower (on its own behalf and on behalf of each Loan Party and its Subsidiaries) to the fullest extent permitted by applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other Indebtedness at any time owing by, such Lender and its Affiliates to or for the credit or the account of the respective Loan Parties and their Subsidiaries against any and all Obligations owing to such Lender and its Affiliates hereunder or under any other Loan Document, now or hereafter existing, irrespective of whether or not such Agent or such Lender or Affiliate shall have made demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured or denominated in a currency different from that of the applicable deposit or Indebtedness. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such set off and application made by such Lender; provided, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Administrative Agent and each Lender under this Section 10.09 are in addition to other rights and remedies (including other rights of setoff) that the Administrative Agent and such Lender may have.

SECTION 10.10. Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If any Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by an Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

SECTION 10.11. Counterparts. This Agreement and each other Loan Document may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery by telecopier of an executed counterpart of a signature page to this Agreement and

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each other Loan Document shall be effective as delivery of an original executed counterpart of this Agreement and such other Loan Document. The Agents may also require that any such documents and signatures delivered by telecopier be confirmed by a manually signed original thereof; provided that the failure to request or deliver the same shall not limit the effectiveness of any document or signature delivered by telecopier.

SECTION 10.12. Integration. This Agreement, together with the other Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and thereof and supersedes all prior agreements, written or oral, on such subject matter. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control; provided that the inclusion of supplemental rights or remedies in favor of the Agents or the Lenders in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof.

SECTION 10.13. Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by each Agent and each Lender, regardless of any investigation made by any Agent or any Lender or on their behalf and notwithstanding that any Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.

SECTION 10.14. Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

SECTION 10.15. [Reserved].

SECTION 10.16. GOVERNING LAW.

(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

(b) ANY LEGAL ACTION OR PROCEEDING ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER, HOLDINGS, EACH AGENT AND EACH LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. THE BORROWER, HOLDINGS, EACH AGENT AND EACH LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO.

SECTION 10.17. WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED

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WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 10.17 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

SECTION 10.18. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and Holdings and the Administrative Agent shall have been notified by each Lender, Swing Line Lender and L/C Issuer that each such Lender, Swing Line Lender and L/C Issuer has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, each Agent, the Swing Line Lender, the L/C Issuer and each Lender and their respective successors and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders except as permitted by Section 7.04.

SECTION 10.19. Lender Action. Each Lender agrees that it shall not take or institute any actions or proceedings, judicial or otherwise, for any right or remedy against any Loan Party or any other obligor under any of the Loan Documents or the Secured Hedge Agreements (including the exercise of any right of setoff, rights on account of any banker’s lien or similar claim or other rights of self-help), or institute any actions or proceedings, or otherwise commence any remedial procedures, with respect to any Collateral or any other property of any such Loan Party, without the prior written consent of the Administrative Agent. The provision of this Section 10.19 are for the sole benefit of the Lenders and shall not afford any right to, or constitute a defense available to, any Loan Party.

SECTION 10.20. USA PATRIOT Act. Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

117

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

CRC HEALTH GROUP, INC.
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
CRC HEALTH CORPORATION
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer
CITIBANK, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer
By:	/s/    AARON DANNENBERG
Name:	Aaron Dannenberg
Title:	Vice President
JPMORGAN CHASE BANK, N.A., as Syndication Agent
By:	/s/    BARBARA R. MARKS
Name:	Barbara R. Marks
Title:	Vice President
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Documentation Agent
By:	/s/    MICHAEL E. O’BRIEN
Name:	Michael E. O’Brien
Title:	Director

S-1

EX-10.2(A)

EXHIBIT 10.2a

SUPPLEMENT NO. 1 dated as of June 22, 2006, to the Security Agreement dated as of February 6, 2006 among CRC HEALTH CORPORATION, a Delaware corporation (f/k/a CRC HEALTH GROUP, INC.) (the “Borrower”), CRC INTERMEDIATE HOLDINGS, INC. (“Holdings”), and the Subsidiaries of the Borrower identified therein and CITIBANK, N.A., as Collateral Agent for the Secured Parties (as defined below).

A. Reference is made to the Credit Agreement dated as of February 6, 2006 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Holdings, the Borrower, the lenders from time to time party thereto, Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse, as Co-Documentation Agents.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Security Agreement referred to therein.

C. The Grantors have entered into the Security Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 7.14 of the Security Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Restricted Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Security Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Collateral Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 7.14 of the Security Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Grantor) and Grantor under the Security Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Security Agreement applicable to it as a Subsidiary Party and Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Subsidiary, as security for the payment and performance in full of the Obligations does hereby create and grant to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and lien on all of the New Subsidiary’s right, title and interest in and to the Collateral (as defined in the Security Agreement) of the New Subsidiary. Each reference to a “Grantor” in the Security Agreement shall be deemed to include the New Subsidiary. The Security Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute a single contract. Delivery by telecopier of an executed counterpart of a signature page to this Supplement shall be as effective as delivery of an original executed counterpart of this Supplement. This Supplement shall become effective when the Collateral Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such New Subsidiary and the Collateral Agent and their respective permitted successors and assigns, and shall inure to the benefit of such New Subsidiary, the Collateral Agent and the other Secured Parties and their respective successors and assigns, except that the New Subsidiary shall not have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly contemplated by the Security Agreement or the Credit Agreement.

SECTION 4. The New Subsidiary hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of the location of any and all Collateral of the New Subsidiary and (b) set forth under its signature hereto is the true and correct legal name of the New Subsidiary, its jurisdiction of formation and the location of its chief executive office.

SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect.

SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7. Any provision of this Supplement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Security Agreement.

SECTION 9. The New Subsidiary agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent.

-2-

IN WITNESS WHEREOF, the New Subsidiary and the Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written.

CRC HEALTH TENNESSEE, INC.
By:
Name:
Title:
	Legal Name: CRC Health Tennessee, Inc.
	Jurisdiction of Formation: Tennessee
	Location of Chief Executive office:
	20400 Stevens Creek Blvd.
	Suite 600
	Cupertino, California 95014
CITIBANK, N.A., as Collateral Agent
By:
Name:
Title:

-3-

Schedule I to Security Agreement Supplement

None.

EX-10.2(B)

EXHIBIT 10.2b

SUPPLEMENT NO. 2 dated as of June 22, 2006, to the Security Agreement dated as of February 6, 2006 among CRC HEALTH CORPORATION, a Delaware corporation (f/k/a CRC HEALTH GROUP, INC.) (the “Borrower”), CRC INTERMEDIATE HOLDINGS, INC. (“Holdings”), and the Subsidiaries of the Borrower identified therein and CITIBANK, N.A., as Collateral Agent for the Secured Parties (as defined below).

A. Reference is made to the Credit Agreement dated as of February 6, 2006 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Holdings, the Borrower, the lenders from time to time party thereto, Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse, as Co-Documentation Agents.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Security Agreement referred to therein.

C. The Grantors have entered into the Security Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 7.14 of the Security Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Restricted Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Security Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Collateral Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 7.14 of the Security Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Grantor) and Grantor under the Security Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Security Agreement applicable to it as a Subsidiary Party and Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Subsidiary, as security for the payment and performance in full of the Obligations does hereby create and grant to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and lien on all of the New Subsidiary’s right, title and interest in and to the Collateral (as defined in the Security Agreement) of the New Subsidiary. Each reference to a “Grantor” in the Security Agreement shall be deemed to include the New Subsidiary. The Security Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute a single contract. Delivery by telecopier of an executed counterpart of a signature page to this Supplement shall be as effective as delivery of an original executed counterpart of this Supplement. This Supplement shall become effective when the Collateral Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such New Subsidiary and the Collateral Agent and their respective permitted successors and assigns, and shall inure to the benefit of such New Subsidiary, the Collateral Agent and the other Secured Parties and their respective successors and assigns, except that the New Subsidiary shall not have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly contemplated by the Security Agreement or the Credit Agreement.

SECTION 4. The New Subsidiary hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of the location of any and all Collateral of the New Subsidiary and (b) set forth under its signature hereto is the true and correct legal name of the New Subsidiary, its jurisdiction of formation and the location of its chief executive office.

SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect.

SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7. Any provision of this Supplement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Security Agreement.

SECTION 9. The New Subsidiary agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent.

-2-

IN WITNESS WHEREOF, the New Subsidiary and the Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written.

CRC HEALTH OREGON, INC.
By:
Name:
Title:
	Legal Name: CRC Health Oregon, Inc.
	Jurisdiction of Formation: Oregon
	Location of Chief Executive office:
	20400 Stevens Creek Blvd.
	Suite 600
	Cupertino, California 95014
CITIBANK, N.A., as Collateral Agent
By:
Name:
Title:

-3-

Schedule I to Security Agreement Supplement

None.

EX-10.2(C)

EXHIBIT 10.2c

SUPPLEMENT NO. 3 dated as of September 27, 2006, to the Security Agreement dated as of February 6, 2006 among CRC HEALTH CORPORATION, a Delaware corporation (f/k/a CRC HEALTH GROUP, INC.) (the “Borrower”), CRC HEALTH GROUP, INC., a Delaware corporation, (f/k/a/ CRCA Holdings, Inc.) (“Holdings”), and the Subsidiaries of the Borrower identified therein and CITIBANK, N.A., as Collateral Agent for the Secured Parties (as defined below).

A. Reference is made to the Credit Agreement dated as of February 6, 2006 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Holdings, the Borrower, the lenders from time to time party thereto, Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse, as Co-Documentation Agents.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Security Agreement referred to therein.

C. The Grantors have entered into the Security Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 7.14 of the Security Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Restricted Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Security Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Collateral Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 7.14 of the Security Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Grantor) and Grantor under the Security Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Security Agreement applicable to it as a Subsidiary Party and Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Subsidiary, as security for the payment and performance in full of the Obligations does hereby create and grant to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and lien on all of the New Subsidiary’s right, title and interest in and to the Collateral (as defined in the Security Agreement) of the New Subsidiary. Each reference to a “Grantor” in the Security Agreement shall be deemed to include the New Subsidiary. The Security Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute a single contract. Delivery by telecopier of an executed counterpart of a signature page to this Supplement shall be as effective as delivery of an original executed counterpart of this Supplement. This Supplement shall become effective when the Collateral Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such New Subsidiary and the Collateral Agent and their respective permitted successors and assigns, and shall inure to the benefit of such New Subsidiary, the Collateral Agent and the other Secured Parties and their respective successors and assigns, except that the New Subsidiary shall not have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly contemplated by the Security Agreement or the Credit Agreement.

SECTION 4. The New Subsidiary hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of the location of any and all Collateral of the New Subsidiary and (b) set forth under its signature hereto is the true and correct legal name of the New Subsidiary, its jurisdiction of formation and the location of its chief executive office.

SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect.

SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7. Any provision of this Supplement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Security Agreement.

SECTION 9. The New Subsidiary agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent.

Signature Page to Supplement to Security Agreement

IN WITNESS WHEREOF, the New Subsidiary and the Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written.

SOBER LIVING BY THE SEA, INC.
By:
Name:
Title:
	Legal Name: Sober Living By The Sea, Inc.
	Jurisdiction of Formation: California
	Location of Chief Executive office:
	20400 Stevens Creek Blvd.
	Suite 600
	Cupertino, California 95014

Signature Page to Supplement to Security Agreement

CITIBANK, N.A.,

as Collateral Agent

By:

Name:

Title:

Signature Page to Supplement to Security Agreement

Schedule I to Security Agreement Supplement

1. Orange County, California

2. Riverside County, California

EX-10.2(D)

EXHIBIT 10.2d

SUPPLEMENT NO. 4 dated as of October 18, 2006, to the Security Agreement dated as of February 6, 2006 among CRC HEALTH CORPORATION, a Delaware corporation (f/k/a CRC HEALTH GROUP, INC.) (the “Borrower”), CRC HEALTH GROUP, INC., a Delaware corporation, (f/k/a/ CRCA Holdings, Inc.) (“Holdings”), and the Subsidiaries of the Borrower identified therein and CITIBANK, N.A., as Collateral Agent for the Secured Parties (as defined below).

A. Reference is made to the Credit Agreement dated as of February 6, 2006 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Holdings, the Borrower, the lenders from time to time party thereto, Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse, as Co-Documentation Agents.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Security Agreement referred to therein.

C. The Grantors have entered into the Security Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 7.14 of the Security Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Restricted Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Security Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Collateral Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 7.14 of the Security Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Grantor) and Grantor under the Security Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Security Agreement applicable to it as a Subsidiary Party and Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Subsidiary, as security for the payment and performance in full of the Obligations does hereby create and grant to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and lien on all of the New Subsidiary’s right, title and interest in and to the Collateral (as defined in the Security Agreement) of the New Subsidiary. Each reference to a “Grantor” in the Security Agreement shall be deemed to include the New Subsidiary. The Security Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute a single contract. Delivery by telecopier of an executed counterpart of a signature page to this Supplement shall be as effective as delivery of an original executed counterpart of this Supplement. This Supplement shall become effective when the Collateral Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such New Subsidiary and the Collateral Agent and their respective permitted successors and assigns, and shall inure to the benefit of such New Subsidiary, the Collateral Agent and the other Secured Parties and their respective successors and assigns, except that the New Subsidiary shall not have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly contemplated by the Security Agreement or the Credit Agreement.

SECTION 4. The New Subsidiary hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of the location of any and all Collateral of the New Subsidiary and (b) set forth under its signature hereto is the true and correct legal name of the New Subsidiary, its jurisdiction of formation and the location of its chief executive office.

SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect.

SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7. Any provision of this Supplement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Security Agreement.

SECTION 9. The New Subsidiary agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent.

Signature Page to Supplement to Security Agreement

IN WITNESS WHEREOF, the New Subsidiary and the Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written.

MADRID MERGER CORPORATION
By:
Name:
Title:
	Legal Name: Madrid Merger Corporation
	Jurisdiction of Formation: California
	Location of Chief Executive office:
	20400 Stevens Creek Blvd.
	Suite 600
	Cupertino, California 95014

Signature Page to Supplement to Security Agreement

CITIBANK, N.A.,

as Collateral Agent

By:

Name:

Title:

Signature Page to Supplement to Security Agreement

Schedule I to Security Agreement Supplement

None.

EX-10.2(E)

EXHIBIT 10.2e

SUPPLEMENT NO. 5 dated as of November 17, 2006, to the Security Agreement dated as of February 6, 2006 among CRC HEALTH CORPORATION, a Delaware corporation (f/k/a CRC HEALTH GROUP, INC.) (the “Borrower”), CRC HEALTH GROUP, INC., a Delaware corporation, (f/k/a/ CRCA Holdings, Inc.) (“Holdings”), and the Subsidiaries of the Borrower identified therein and CITIBANK, N.A., as Collateral Agent for the Secured Parties (as defined below).

A. Reference is made to the Credit Agreement dated as of February 6, 2006, as amended and restated as of November 16, 2006 (as further amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Holdings, the Borrower, the lenders from time to time party thereto, Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Documentation Agent.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Security Agreement referred to therein.

C. The Grantors have entered into the Security Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 7.14 of the Security Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. Each of the Restricted Subsidiaries listed on Schedule I hereto (individually, the “New Subsidiary” and collectively, the “New Subsidiaries”) are executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Security Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Collateral Agent and the New Subsidiaries agree as follows:

SECTION 1. In accordance with Section 7.14 of the Security Agreement, each New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Grantor) and Grantor under the Security Agreement with the same force and effect as if originally named therein as a Subsidiary Party and each New Subsidiary hereby (a) agrees to all the terms and provisions of the Security Agreement applicable to it as a Subsidiary Party and Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, each New Subsidiary, as security for the payment and performance in full of the Obligations does hereby create and grant to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and lien on all of such New Subsidiary’s right, title and interest in and to the Collateral (as defined in the Security Agreement) of such New Subsidiary. Each reference to a “Grantor” in the Security Agreement shall be deemed to include the New Subsidiaries. The Security Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiaries represent and warrant to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute a single contract. Delivery by telecopier of an executed counterpart of a signature page to this Supplement shall be as effective as delivery of an original executed counterpart of this Supplement. This Supplement shall become effective when the Collateral Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiaries and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding

upon such New Subsidiaries and the Collateral Agent and their respective permitted successors and assigns, and

shall inure to the benefit of such New Subsidiaries, the Collateral Agent and the other Secured Parties and their respective successors and assigns, except that the New Subsidiaries shall not have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly contemplated by the Security Agreement or the Credit Agreement.

SECTION 4. The New Subsidiaries hereby represent and warrants that set forth on the Schedules to the Perfection Certificate Supplement dated the date hereof is a true and correct schedule of the location of any and all Collateral of the New Subsidiaries and the true and correct legal name of each New Subsidiary, its jurisdiction of formation and the location of its chief executive office.

SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect.

SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7. Any provision of this Supplement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Security Agreement.

SECTION 9. The New Subsidiaries agree to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent.

IN WITNESS WHEREOF, the New Subsidiaries and the Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written.

CORPORATE SUBSIDIARIES:
ASPEN EDUCATION GROUP, INC.
ASPEN YOUTH, INC.
AYS MANAGEMENT, INC.
AHS OF IDAHO, INC.
LONE STAR EXPEDITIONS, INC.
SUWS OF THE CAROLINAS, INC.
WILDERNESS THERAPY PROGRAMS, INC.
MOUNT BACHELOR EDUCATIONAL CENTER, INC.
NEW LEAF ACADEMY, INC.
NORTHSTAR CENTER, INC.
SUNHAWK ACADEMY OF UTAH, INC.
TALISMAN SCHOOL, INC.
TEXAS EXCEL ACADEMY, INC.
TURN-ABOUT RANCH, INC.
YOUTH CARE OF UTAH, INC.
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

Signature Page to Supplement to Security Agreement

LIMITED LIABILITY COMPANY SUBSIDIARIES:
ACADEMY OF THE SIERRAS, LLC
EATING DISORDER VENTURE, LLC
ADIRONDACK LEADERSHIP EXPEDITIONS, LLC
ASPEN ACHIEVEMENT ACADEMY, LLC
FOUR CIRCLES RECOVERY CENTER, LLC
OUTBACK THERAPEUTIC EXPEDITIONS, LLC
PASSAGES TO RECOVERY, LLC
TALISMAN SUMMER CAMP, LLC
ASPEN RANCH, LLC
BROMLEY BROOK SCHOOL, LLC
CEDARS ACADEMY, LLC
COPPER CANYON ACADEMY, LLC
ISLAND VIEW RESIDENTIAL TREATMENT CENTER, LLC
NEW LEAF ACADEMY OF NORTH CAROLINA, LLC
ASPEN INSTITUTE FOR BEHAVIORAL ASSESSMENT, LLC
OAKLEY SCHOOL, LLC
SWIFT RIVER ACADEMY, L.L.C.
By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

Signature Page to Supplement to Security Agreement

CITIBANK, N.A.,
as Collateral Agent
By:	/s/    AARON DANNENBERG
Name:	Aaron Dannenberg
Title:	Vice President

Signature Page to Supplement to Security Agreement

Schedule I to Security Agreement Supplement

Aspen Education Group, Inc.

Aspen Youth, Inc.

AYS Management, Inc.

Academy of the Sierras, LLC

Eating Disorder Venture, LLC

Adirondack Leadership Expeditions, LLC

AHS of Idaho, Inc.

Aspen Achievement Academy, LLC

Four Circles Recovery Center, LLC

Lone Star Expeditions, Inc.

Outback Therapeutic Expeditions, LLC

Passages to Recovery, LLC

SUWS of the Carolinas, Inc.

Talisman Summer Camp, LLC

Wilderness Therapy Programs, Inc.

Aspen Ranch, LLC

Bromley Brook School, LLC

Cedars Academy, LLC

Copper Canyon Academy, LLC

Island View Residential Treatment Center, LLC

Mount Bachelor Educational Center, Inc.

New Leaf Academy of North Carolina, LLC

New Leaf Academy, Inc.

NorthStar Center, Inc.

Aspen Institute for Behavioral Assessment, LLC

Oakley School, LLC

SunHawk Academy of Utah, Inc.

Swift River Academy, L.L.C.

Talisman School, Inc.

Texas Excel Academy, Inc.

Turn-About Ranch, Inc.

Youth Care of Utah, Inc.

EX-10.3(A)

EXHIBIT 10.3a

SUPPLEMENT NO. 1 dated as of June 22, 2006, to the Guarantee Agreement dated as of February 6, 2006, among CRC INTERMEDIATE HOLDINGS, INC. (“Holdings”), CRC HEALTH CORPORATION, the Subsidiaries of the Borrower (as defined below) identified herein and CITIBANK, N.A., as Administrative Agent.

A. Reference is made to the Credit Agreement dated as of February 6, 2006 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among CRC Intermediate Holdings, a Delaware corporation (“Holdings”), CRC Health Group, Inc.(to be renamed CRC Health Corporation), a Delaware corporation (“Borrower), the Guarantors party thereto (collectively, the “Guarantors”), Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse, as Co-Documentation Agents.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Guarantee Agreement referred to therein.

C. The Guarantors have entered into the Guarantee Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 4.14 of the Guarantee Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Restricted Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Guarantee Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Administrative Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 4.14 of the Guarantee Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Guarantor) and Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Guarantee Agreement applicable to it as a Subsidiary Party and Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a “Guarantor” in the Security Agreement shall be deemed to include the New Subsidiary. The Guarantee Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Administrative Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Administrative Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and the Administrative Agent has executed a counterpart hereof. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement.

SECTION 4. Except as expressly supplemented hereby, the Guarantee Agreement shall remain in full force and effect.

SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 4.01 of the Guarantee Agreement.

SECTION 8. The New Subsidiary agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Administrative Agent.

-2-

IN WITNESS WHEREOF, the New Subsidiary and the Administrative Agent have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written.

CRC HEALTH TENNESSEE, INC.

By:

Name:

Title:

CITIBANK, N.A., as Administrative Agent

By:

Name:

Title:

-3-

EX-10.3(B)

EXHIBIT 10.3b

SUPPLEMENT NO. 2 dated as of June 22, 2006, to the Guarantee Agreement dated as of February 6, 2006, among CRC INTERMEDIATE HOLDINGS, INC. (“Holdings”), CRC HEALTH CORPORATION, the Subsidiaries of the Borrower (as defined below) identified herein and CITIBANK, N.A., as Administrative Agent.

A. Reference is made to the Credit Agreement dated as of February 6, 2006 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among CRC Intermediate Holdings, a Delaware corporation (“Holdings”), CRC Health Group, Inc.(to be renamed CRC Health Corporation), a Delaware corporation (“Borrower), the Guarantors party thereto (collectively, the “Guarantors”), Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse, as Co-Documentation Agents.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Guarantee Agreement referred to therein.

C. The Guarantors have entered into the Guarantee Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 4.14 of the Guarantee Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Restricted Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Guarantee Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Administrative Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 4.14 of the Guarantee Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Guarantor) and Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Guarantee Agreement applicable to it as a Subsidiary Party and Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a “Guarantor” in the Security Agreement shall be deemed to include the New Subsidiary. The Guarantee Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Administrative Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Administrative Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and the Administrative Agent has executed a counterpart hereof. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement.

SECTION 4. Except as expressly supplemented hereby, the Guarantee Agreement shall remain in full force and effect.

SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 4.01 of the Guarantee Agreement.

SECTION 8. The New Subsidiary agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Administrative Agent.

-2-

IN WITNESS WHEREOF, the New Subsidiary and the Administrative Agent have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written.

CRC HEALTH OREGON, INC.

By:

Name:

Title:

CITIBANK, N.A., as Administrative Agent

By:

Name:

Title:

-3-

EX-10.3(C)

EXHIBIT 10.3c

SUPPLEMENT NO. 3 dated as of September 27, 2006, to the Guarantee Agreement dated as of February 6, 2006, among CRC HEALTH GROUP, INC. (“Holdings”), CRC HEALTH CORPORATION, the Subsidiaries of the Borrower (as defined below) identified herein and CITIBANK, N.A., as Administrative Agent.

A. Reference is made to the Credit Agreement dated as of February 6, 2006 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among CRC Intermediate Holdings, a Delaware corporation (“Holdings”), CRC Health Group, Inc.(to be renamed CRC Health Corporation), a Delaware corporation (“Borrower), the Guarantors party thereto (collectively, the “Guarantors”), Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse, as Co-Documentation Agents.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Guarantee Agreement referred to therein.

C. The Guarantors have entered into the Guarantee Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 4.14 of the Guarantee Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Restricted Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Guarantee Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Administrative Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 4.14 of the Guarantee Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Guarantor) and Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Guarantee Agreement applicable to it as a Subsidiary Party and Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a “Guarantor” in the Security Agreement shall be deemed to include the New Subsidiary. The Guarantee Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Administrative Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of

which when taken together shall constitute a single contract. This Supplement shall become effective when the Administrative Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and the Administrative Agent has executed a counterpart hereof. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement.

SECTION 4. Except as expressly supplemented hereby, the Guarantee Agreement shall remain in full force and effect.

SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 4.01 of the Guarantee Agreement.

SECTION 8. The New Subsidiary agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Administrative Agent.

Signature Page to Supplement to Guarantee Agreement

IN WITNESS WHEREOF, the New Subsidiary and the Administrative Agent have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written.

SOBER LIVING BY THE SEA, INC.

By:

Name:

Title:

Signature Page to Supplement to Guarantee Agreement

EX-10.3(D)

EXHIBIT 10.3d

SUPPLEMENT NO. 4 dated as of October 18, 2006, to the Guarantee Agreement dated as of February 6, 2006, among CRC HEALTH GROUP, INC. (“Holdings”), CRC HEALTH CORPORATION, the Subsidiaries of the Borrower (as defined below) identified herein and CITIBANK, N.A., as Administrative Agent.

A. Reference is made to the Credit Agreement dated as of February 6, 2006 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among CRC Health Group, Inc., a Delaware corporation (“Holdings”), CRC Health Corporation, a Delaware corporation (“Borrower), the Guarantors party thereto (collectively, the “Guarantors”), Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse, as Co-Documentation Agents.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Guarantee Agreement referred to therein.

C. The Guarantors have entered into the Guarantee Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 4.14 of the Guarantee Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Restricted Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Guarantee Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Administrative Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 4.14 of the Guarantee Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Guarantor) and Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Guarantee Agreement applicable to it as a Subsidiary Party and Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a “Guarantor” in the Security Agreement shall be deemed to include the New Subsidiary. The Guarantee Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Administrative Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of

which when taken together shall constitute a single contract. This Supplement shall become effective when the Administrative Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and the Administrative Agent has executed a counterpart hereof. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement.

SECTION 4. Except as expressly supplemented hereby, the Guarantee Agreement shall remain in full force and effect.

SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 4.01 of the Guarantee Agreement.

SECTION 8. The New Subsidiary agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Administrative Agent.

Signature Page to Supplement to Security Agreement

IN WITNESS WHEREOF, the New Subsidiary and the Administrative Agent have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written.

MADRID MERGER CORPORATION

By:

Name:

Title:

Signature Page to Supplement to Security Agreement

EX-10.3(E)

EXHIBIT 10.3e

SUPPLEMENT NO. 5 dated as of November 17, 2006, to the Guarantee Agreement dated as of February 6, 2006, among CRC HEALTH GROUP, INC. (“Holdings”), CRC HEALTH CORPORATION, the Subsidiaries of the Borrower (as defined below) identified herein and CITIBANK, N.A., as Administrative Agent.

A. Reference is made to the Credit Agreement dated as of February 6, 2006, as amended and restated as of November 16, 2006 (as further amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among CRC Health Group, Inc., a Delaware corporation (“Holdings”), CRC Health Corporation, a Delaware corporation (“Borrower), the Guarantors party thereto (collectively, the “Guarantors”), Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Documentation Agent.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Guarantee Agreement referred to therein.

C. The Guarantors have entered into the Guarantee Agreement in order to induce the Lenders to make Lones and the L/C Issuers to issue Letters of Credit. Section 4.14 of the Guarantee Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. Each of the Restricted Subsidiaries listed on Schedule I hereto (individually, the “New Subsidiary” and collectively, the “New Subsidiaries”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Guarantee Agreement in order to induce the Lenders to make additional Lones and the L/C Issuers to issue additional Letters of Credit and as consideration for Lones previously made and Letters of Credit previously issued.

Accordingly, the Administrative Agent and the New Subsidiaries agree as follows:

SECTION 1. In accordance with Section 4.14 of the Guarantee Agreement, each New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Guarantor) and Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Party and each New Subsidiary hereby (a) agrees to all the terms and provisions of the Guarantee Agreement applicable to it as a Subsidiary Party and Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a “Guarantor” in the Security Agreement shall be deemed to include each New Subsidiary. The Guarantee Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiaries represent and warrant to the Administrative Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Administrative Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiaries and the Administrative Agent has executed a counterpart hereof. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement.

SECTION 4. Except as expressly supplemented hereby, the Guarantee Agreement shall remain in full force and effect.

SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 4.01 of the Guarantee Agreement.

SECTION 8. The New Subsidiaries agree to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Administrative Agent.

IN WITNESS WHEREOF, the New Subsidiaries and the Administrative Agent have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written.

CORPORATE SUBSIDIARIES:

ASPEN EDUCATION GROUP, INC.

ASPEN YOUTH, INC.

AYS MANAGEMENT, INC.

AHS OF IDAHO, INC.

LONE STAR EXPEDITIONS, INC.

SUWS OF THE CAROLINAS, INC.

WILDERNESS THERAPY PROGRAMS, INC.

MOUNT BACHELOR EDUCATIONAL CENTER, INC.

NEW LEAF ACADEMY, INC.

NORTHSTAR CENTER, INC.

SUNHAWK ACADEMY OF UTAH, INC.

TALISMAN SCHOOL, INC.

TEXAS EXCEL ACADEMY, INC.

TURN-ABOUT RANCH, INC.

YOUTH CARE OF UTAH, INC.

By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

Signature Page to Supplement to Guarantee Agreement

LIMITED LIABILITY COMPANY SUBSIDIARIES:

ACADEMY OF THE SIERRAS, LLC

EATING DISORDER VENTURE, LLC

ADIRONDACK LEADERSHIP EXPEDITIONS, LLC

ASPEN ACHIEVEMENT ACADEMY, LLC

FOUR CIRCLES RECOVERY CENTER, LLC

OUTBACK THERAPEUTIC EXPEDITIONS, LLC

PASSAGES TO RECOVERY, LLC

TALISMAN SUMMER CAMP, LLC

ASPEN RANCH, LLC

BROMLEY BROOK SCHOOL, LLC

CEDARS ACADEMY, LLC

COPPER CANYON ACADEMY, LLC

ISLAND VIEW RESIDENTIAL TREATMENT CENTER, LLC

NEW LEAF ACADEMY OF NORTH CAROLINA, LLC

ASPEN INSTITUTE FOR BEHAVIORAL ASSESSMENT, LLC

OAKLEY SCHOOL, LLC

SWIFT RIVER ACADEMY, L.L.C.

By:	/s/    KEVIN HOGGE
Name:	Kevin Hogge
Title:	Chief Financial Officer

Signature Page to Supplement to Guarantee Agreement

CITIBANK, N.A.,
	as Collateral Agent
By:	/s/    AARON DANNENBERG
Name:	Aaron Dannenberg
Title:	Vice President

Signature Page to Supplement to Guarantee Agreement

Schedule I to Guarantee Agreement Supplement

Aspen Education Group, Inc.

Aspen Youth, Inc.

AYS Management, Inc.

Academy of the Sierras, LLC

Eating Disorder Venture, LLC

Adirondack Leadership Expeditions, LLC

AHS of Idaho, Inc.

Aspen Achievement Academy, LLC

Four Circles Recovery Center, LLC

Lone Star Expeditions, Inc.

Outback Therapeutic Expeditions, LLC

Passages to Recovery, LLC

SUWS of the Carolinas, Inc.

Talisman Summer Camp, LLC

Wilderness Therapy Programs, Inc.

Aspen Ranch, LLC

Bromley Brook School, LLC

Cedars Academy, LLC

Copper Canyon Academy, LLC

Island View Residential Treatment Center, LLC

Mount Bachelor Educational Center, Inc.

New Leaf Academy of North Carolina, LLC

New Leaf Academy, Inc.

NorthStar Center, Inc.

Aspen Institute for Behavioral Assessment, LLC

Oakley School, LLC

SunHawk Academy of Utah, Inc.

Swift River Academy, L.L.C.

Talisman School, Inc.

Texas Excel Academy, Inc.

Turn-About Ranch, Inc.

Youth Care of Utah, Inc.

EX-10.8(A)

Adopted as of February 6, 2006,

as amended January 25, 2007

EXHIBIT 10.8a

CRC HEALTH GROUP, INC.

2006 EXECUTIVE INCENTIVE PLAN

1. DEFINED TERM

Exhibit A, which is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms.

2. PURPOSE

The Plan has been established to advance the interests of the Company and its Affiliates by providing for the grant to Participants of Stock-based and other incentive Awards. Awards under the Plan are intended to align the incentives of the Company’s executives and investors and to improve the performance of the Company. Unless the Administrator determines otherwise, Awards to be granted under this Plan are expected to be substantially in the form attached hereto as Exhibit B. Unless the Administrator determines otherwise, Awards under the Plan are intended to be exempt from registration under the Securities Act of 1933, as amended, either because they constitute private placements under Regulation D or because they are exempt offers pursuant to a compensatory benefit plan in accordance with Rule 701. Unless the Administrator determines otherwise, Awards granted under the Plan are intended to qualify as a limited offer under Section 25102(f) of the California Corporations Code.

3. ADMINISTRATION

The Administrator has discretionary authority, subject only to the express provisions of the Plan and the Award Agreements, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures; and otherwise do all things necessary to carry out the purposes of the Plan. Except as otherwise provided by the express terms of an Award Agreement, all determinations of the Administrator made under the Plan will be conclusive and will bind all parties.

4. LIMITS ON AWARDS UNDER THE PLAN

(a) Number of Shares. A maximum of 1,184,809 shares of Class A Common and 131,647 shares of Class L Common, in each case pursuant to substitution options granted on February 6, 2006 and November 17, 2006, and, in addition, an aggregate maximum of 5,554,051 shares of Class A Common and 617,117 shares of Class L Common may be delivered in satisfaction of Awards under the Plan and the Company’s 2006 Management Incentive Plan. The number of shares of Stock delivered in satisfaction of Awards shall, for purposes of the preceding sentence, be determined net of shares of Stock withheld by the Company in payment of the exercise price of the Award or in satisfaction of tax withholding requirements with respect to the Award. The limits set forth in this Section 4(a) shall be construed to comply with Section 422 of the Code and the regulations thereunder. To the extent consistent with the requirements of Section 422 of the Code and regulations thereunder, Stock issued under awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition shall not reduce the number of shares available for Awards under the Plan.

(b) Type of Shares. Stock delivered under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company or any of its subsidiaries. No fractional shares of Stock will be delivered under the Plan.

5. ELIGIBILITY AND PARTICIPATION

The Administrator will select Participants from among those key Employees and directors of, and consultants and advisors to, the Company or its Affiliates who, in the opinion of the Administrator, are in a position to make a significant contribution to the success of the Company and its Affiliates. Eligibility for ISOs is limited to employees of the Company or of a “parent corporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code.

6. RULES APPLICABLE TO AWARDS

(a) All Awards

(1) Award Provisions. The Administrator will determine the terms of all Awards, subject to the limitations provided herein, and shall furnish to each Participant an Award Agreement setting forth the terms applicable to the Participant’s Award. By entering into an Award Agreement, the Participant agrees to the terms of the Award and of the Plan, to the extent not inconsistent with the express terms of the Award Agreement. Notwithstanding any provision of this Plan to the contrary, awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition may contain terms and conditions that are inconsistent with the terms and conditions specified herein, as determined by the Administrator.

(2) Transferability. Neither ISOs, nor, except as the Administrator otherwise expressly provides, other Awards may be transferred other than by will or by the laws of descent and distribution, and during a Participant’s lifetime ISOs (and, except as the Administrator otherwise expressly provides, other non-transferable Awards requiring exercise) may be exercised only by the Participant.

(3) Vesting, Etc. The Administrator may determine the time or times at which an Award will vest or become exercisable and the terms on which an Award requiring exercise will remain exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, however, the following rules will apply if a Participant’s Employment ceases: Immediately upon the cessation of Employment, an Award requiring exercise will cease to be exercisable and will terminate, and all other Awards to the extent not already vested will be forfeited, except that:

(A) subject to (B) and (C) below, all Stock Options and other Awards requiring exercise held by the Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment, to the extent then exercisable, will remain exercisable for the shorter of (i) a period of three months or (ii) the period ending on the latest date on which such Award could have been exercised without regard to this Section 6(a)(3), and will thereupon terminate;

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(B) all Stock Options and other Awards requiring exercise held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the Participant’s death or disability, to the extent then exercisable, will remain exercisable for the shorter of (i) the one year period ending with the first anniversary of the Participant’s death or disability, as the case may be, or (ii) the period ending on the latest date on which such Award could have been exercised without regard to this Section 6(a)(3), and will thereupon terminate; and

(C) all Stock Options and other Awards requiring exercise held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation if such cessation of Employment has resulted in connection with an act or failure to act constituting Cause.

(4) Taxes. The Administrator will make such provision for the withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares of Stock from an Award or permit a Participant to tender previously owned shares of Stock in satisfaction of tax withholding requirements (but not in excess of the applicable minimum statutory withholding rate).

(5) Rights Limited. Nothing in the Plan will be construed as giving any person the right to continued Employment with the Company or its Affiliates, or any rights as a stockholder except as to shares of Stock actually issued under the Plan. The loss of potential appreciation in Awards will not constitute an element of damages in the event of termination of Employment for any reason, even if the termination is in violation of an obligation of the Company or its Affiliate to the Participant.

(6) Stockholders Agreement. Unless otherwise specifically provided, all Awards issued under the Plan and all Stock issued thereunder will be subject to the Stockholders Agreement.

(7) Section 409A. Awards under the Plan are intended either to be exempt from the rules of Section 409A of the Code or to satisfy those rules, and the Plan and such Awards shall be construed accordingly. Granted Awards may be modified at any time, in the Administrator’s discretion, so as to increase the likelihood of exemption from or compliance with the rules of Section 409A of the Code.

(b) Awards Requiring Exercise

(1) Time And Manner Of Exercise. Unless the Administrator expressly provides otherwise, an Award requiring exercise by the holder will not be deemed to have been exercised until the Administrator receives a notice of exercise (in form acceptable to the Administrator) signed by the appropriate person and accompanied by any payment required under the Award. If the Award is exercised by any person other than the Participant, the Administrator may require satisfactory evidence that the person exercising the Award has the right to do so.

(2) Exercise Price. The Administrator will determine the exercise price, if any,

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of each Award requiring exercise. Unless the Administrator determines otherwise, and in all events in the case of a Stock Option (except as otherwise permitted pursuant to Section 7(b)(1) hereof), the exercise price of an Award requiring exercise will not be less than the fair market value of the Stock subject to the Award, determined as of the date of grant, and in the case of an ISO granted to a ten-percent shareholder within the meaning of Section 422(b)(6) of the Code, the exercise price will not be less than 110% of the fair market value of the Stock subject to the Award, determined as of the date of grant.

(3) Payment Of Exercise Price. Where the exercise of an Award is to be accompanied by payment, the Administrator may determine the required or permitted forms of payment, subject to the following: (a) all payments will be by cash or check acceptable to the Administrator, or (b) if so permitted by the Administrator, (i) through the delivery of shares of Stock that have a fair market value equal to the exercise price, except where payment by delivery of shares would adversely affect the Company’s results of operations under Generally Accepted Accounting Principles or where payment by delivery of shares outstanding for less than six months would require application of securities laws relating to profit realized on such shares, (ii) at such time, if any, as the Stock is publicly traded, through a broker-assisted exercise program acceptable to the Administrator, (iii) by other means acceptable to the Administrator, or (iv) by any combination of the foregoing permissible forms of payment. The delivery of shares in payment of the exercise price under clause (b)(i) above may be accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe.

(4) ISOs. No ISO may be granted under the Plan after February 6, 2016, but ISOs previously granted may extend beyond that date.

(5) Stock Options etc. Except as determined by the Administrator, no Stock Option shall be exercisable as to Shares of a single class but instead shall be exercisable only as to Units.

(c) Awards Not Requiring Exercise

Awards of Restricted Stock and Unrestricted Stock, whether delivered outright or under Awards of Stock Units or other Awards that do not require exercise, may be made in exchange for such lawful consideration, including services, as the Administrator determines.

7. EFFECT OF CERTAIN TRANSACTIONS

(a) Except as otherwise provided in an Award Agreement:

(1) Assumption or Substitution. In the event of a Corporate Transaction in which there is an acquiring or surviving entity, the Administrator may, unless the Administrator determines that doing so is inappropriate or unfeasible, provide for the continuation or assumption of some or all outstanding Awards, or for the grant of new awards in substitution therefor, by the acquiror or survivor or any entity controlling, controlled by or under common control with the acquiror or survivor, in each case on such terms and subject to such conditions (including vesting or other restrictions) as the Administrator determines are appropriate. Unless

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the Administrator determines otherwise, the continuation or assumption shall be done on terms and conditions consistent with Section 409A of the Code.

(2) Acceleration of Certain Awards. In the event of a Corporate Transaction (whether or not there is an acquiring or surviving entity) in which there is no assumption or substitution as to some or all outstanding Awards, the Administrator may provide (unless the Administrator determines otherwise, on terms and conditions consistent with Section 409A of the Code) for (i) treating as satisfied any vesting condition on any such Award or for (ii) the accelerated delivery of shares of Stock issuable under each such Award consisting of Restricted Stock Units, in each case on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, following exercise of the Award or the issuance of the shares, as the case may be, to participate as a stockholder in the Corporate Transaction.

(3) Termination of Awards. Except as otherwise provided in an Award Agreement, each Award (unless assumed pursuant to the Section 7(a)(1)), will terminate upon consummation of the Corporate Transaction, provided that Restricted Stock Units accelerated pursuant to clause (ii) of Section 7(a)(2) shall be treated in the same manner as other shares of Stock (subject to Section 7(a)(4)).

(4) Additional Limitations. Any share of Stock delivered pursuant to Section 7(a)(2) above with respect to an Award may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect any performance or other vesting conditions to which the Award was subject and that did not lapse in connection with the Corporate Transaction. In the case of Restricted Stock, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of Stock in connection with the Corporate Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan.

(b) Changes In, Distributions With Respect To And Redemptions Of The Stock

(1) Basic Adjustment Provisions. In the event of any stock dividend or other similar distribution of stock or other securities of the Company, stock split or combination of shares (including a reverse stock split), recapitalization, conversion, reorganization, consolidation, split-up, spin-off, combination, merger, exchange of stock, redemption or repurchase of all or part of the shares of any class of stock or any change in the capital structure of the Company or an Affiliate or other transaction or event, the Administrator shall, as appropriate in order to prevent enlargement or dilution of benefits intended to be made available under the Plan, make proportionate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4(a) and shall also make appropriate, proportionate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change. Unless the Administrator determines otherwise, any adjustments hereunder shall be done on terms and conditions consistent with Section 409A of the Code.

(2) Certain Other Adjustments. The Administrator may also make adjustments of the type described in paragraph (1) above to take into account distributions to

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stockholders or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of Awards made hereunder, having due regard for the qualification of ISOs under Section 422 of the Code, where applicable.

(3) Continuing Application of Plan Terms. References in the Plan to shares of Stock will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 7.

8. LEGAL CONDITIONS ON DELIVERY OF STOCK

The Company shall use best efforts to ensure, prior to delivering shares of Stock pursuant to the Plan or removing any restriction from shares of Stock previously delivered under the Plan, that (a) all legal matters in connection with the issuance and delivery of such shares have been addressed and resolved, and (b) if the outstanding Stock is at the time of delivery listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance. Neither the Company nor any Affiliate will be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan until the conditions set forth in the preceding sentence have been satisfied and all other conditions of the Award have been satisfied or waived. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Stock, and the Company may hold the certificates pending lapse of the applicable restrictions.

9. AMENDMENT AND TERMINATION

The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; provided, that except as otherwise expressly provided in the Plan the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to affect adversely the Participant’s rights under the Award, unless the Administrator expressly reserved the right to do so at the time of the Award. The Administrator expressly reserves the right to amend or alter the terms of any Award if such Award or a portion thereof would be reasonably likely to be treated as a “liability award” under guidance issued or provided by the Financial Accounting Standards Board (FASB), provided that the Administrator may not make any such amendment or alteration unless the Chief Executive Officer of the Company has provided prior written consent thereto. Any amendments to the Plan shall be conditioned upon stockholder approval only to the extent, if any, such approval is required by applicable law (including the Code), as determined by the Administrator.

10. OTHER COMPENSATION ARRANGEMENTS

The existence of the Plan or the grant of any Award will not in any way affect the right of

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the Company or an Affiliate to Award a person bonuses or other compensation in addition to Awards under the Plan.

11. WAIVER OF JURY TRIAL

(a) Waiver of Jury Trial. By accepting an Award under the Plan, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Award, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim shall be tried before a court and not before a jury. By accepting an Award under the Plan, each Participant certifies that no officer, representative or attorney of the Company or any Affiliate has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers.

(b) Arbitration. In the event the waiver in Section 11(a) is held to be invalid or unenforceable, if requested by the Company, the parties shall attempt in good faith to resolve any controversy or claim arising out of or relating to this Plan or any Award hereunder promptly by negotiations between themselves or their representatives who have authority to settle the controversy. If the matter has not been resolved within sixty (60) days of the initiation of such procedure, the Company may require that the parties submit the controversy to arbitration by one arbitrator mutually agreed upon by the Parties, and if no agreement can be reached within 30 days after names of potential arbitrators have been proposed by the American Arbitration Association (the “AAA”), then by one arbitrator having reasonable experience in corporate incentive plans of the type provided for in this Plan and who is chosen by the AAA. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. Section 1, et seq., and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The place of arbitration shall be Cupertino, California, or any other location mutually agreed to between the parties. The arbitrator shall apply the law as established by decisions of the Delaware federal and/or state courts in deciding the merits of claims and defenses under federal law or any state or federal anti-discrimination law. The arbitrator is required to state, in writing, the reasoning on which the award rests. Notwithstanding the foregoing, this paragraph shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in circumstances in which such relief is appropriate.

12. GOVERNING LAW

Except as otherwise provided by the express terms of an Award Agreement, the provisions of the Plan and of Awards under the Plan shall be governed by and interpreted in accordance with the laws of the State of Delaware.

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EXHIBIT A

Definitions of Terms

The following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below:

“Administrator”: The Board or, if one or more has been appointed, the Committee. The Administrator may delegate ministerial tasks to such persons as it deems appropriate.

“Affiliate”: Any corporation or other entity that stands in a relationship to the Company that would result in the Company and such corporation or other entity being treated as one employer under Section 414(b) or Section 414(c) of the Code, except that in determining eligibility for the grant of a Stock Option by reason of service for an Affiliate, Sections 414(b) and 414(c) of the Code shall be applied by substituting “at least 50%” for “at least 80%” under Section 1563(a)(1), (2) and (3) of the Code and Treas. Regs. § 1.414(c)-2; provided, that to the extent permitted under Section 409A of the Code, “at least 20%” shall be used in lieu of “at least 50%”; and further provided, that the lower ownership threshold described in this definition (50% or 20% as the case may be) shall apply only if the same definition of affiliation is used consistently with respect to all compensatory stock options or stock awards (whether under the Plan or another plan). The Company may at any time by amendment provide that different ownership thresholds (consistent with Section 409A of the Code) apply but any such change shall not be effective for twelve (12) months. In addition, any Affiliate must also meet the requirements of subsection (c) under Rule 701.

“Award”: Any or a combination of the following:

(i) Stock Options;

(ii) Restricted Stock;

(iii) Unrestricted Stock;

(iv) Stock Units, including Restricted Stock Units;

(v) Awards (other than Awards described in (i) through (iv) above) that are convertible into or exchangeable for Stock on such terms and conditions as the Administrator determines;

(vi) Performance Awards; and/or

(vii) Current or deferred grants of cash (which the Company may make payable by any of its direct or indirect subsidiaries) or loans, made in connection with other Awards.

“Award Agreement”: A written agreement between the Company and the Participant evidencing the Award.

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“Board”: The Board of Directors of CRC Health Group, Inc.

“Cause”: In the case of any Participant, a termination by the Company or an Affiliate of the Participant’s Employment or a termination by the Participant of the Participant’s Employment, in either case following the occurrence of any of the following events: (i) the willful failure by the Participant to substantially perform his duties with the Company or any Affiliate (other than any such failure due to the Participant’s physical or mental illness); (ii) the Participant’s gross negligence, gross or willful misconduct or illegal conduct in the performance of his or her duties for the Company or any Affiliate which has resulted in or is reasonably expected to result in injury to the Company or any Affiliate; (iii) the Participant’s conviction of, or entering a plea of guilty or nolo contendere to, a misdemeanor involving theft or embezzlement, or a felony; or (iv) the breach by the Participant of any obligations under any written agreement or covenant with the Company or any of its Affiliates which breach has resulted in or is reasonably expected to result in injury to the Company or any Affiliates. Notwithstanding the foregoing, if the Participant is party to an employment or severance agreement with the Company that contains a definition of cause, such definition shall apply (in the case of such Participant) in lieu of the definition set forth in the preceding sentence.

“Class A Common”: Class A Common Stock of CRC Health Group, Inc., par value $.001 per share or another class of Class A Common Stock of the Company as designated by the Board.

“Class L Common”: Class L Common Stock of CRC Health Group, Inc., par value $.001 per share.

“Code”: The U.S. Internal Revenue Code of 1986 as from time to time amended and in effect, or any successor statute as from time to time in effect. For the avoidance of doubt, any reference to any section of the Code includes reference to any regulations (including proposed or temporary regulations) promulgated under that section and any IRS guidance thereunder.

“Committee”: One or more committees of the Board.

“Company”: CRC Health Group, Inc., a Delaware corporation, formerly known as CRCA Holdings, Inc.

“Corporate Transaction”: Any of the following: any sale of all or substantially all of the assets of the Company, change in the ownership of the capital stock of the Company, reorganization, recapitalization, merger (whether or not the Company is the surviving entity), consolidation, exchange of capital stock of the Company or other restructuring involving the Company, provided, that, in each case, to the extent any amount constituting “nonqualified deferred compensation” subject to Section 409A of the Code would become payable under an Award by reason of a Corporate Transaction, it shall become payable only if the event or circumstances constituting the Corporate Transaction would also constitute a change in the ownership or effective control of the Company, or a change in the ownership of a substantial portion of the Company’s assets, within the meaning of subsection (a)(2)(A)(v) of Section 409A of the Code.

“Employee”: Any person who is employed by the Company or an Affiliate.

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“Employment”: A Participant’s employment or other service relationship with the Company and its Affiliates. Unless the Administrator provides otherwise: A change in the capacity in which a Participant is employed by or renders services to the Company and/or its Affiliates, whether as an Employee, director, consultant or advisor, or a change in the entity by which the Participant is employed or to which the Participant rendered services, will not be deemed a termination of Employment so long as the Participant continues providing services in a capacity and to an entity described in Section 5. If a Participant’s relationship is with an Affiliate and that entity ceases to be an Affiliate, the Participant will be deemed to cease Employment when the entity ceases to be an Affiliate unless the Participant transfers Employment to the Company or its remaining Affiliates.

“ISO”: A Stock Option intended to be an “incentive stock option” within the meaning of Section 422 of the Code. Each option granted pursuant to the Plan will be treated as providing by its terms that it is to be a non-incentive stock option unless, as of the date of grant, it is expressly designated as an ISO.

“Participant”: A person who is granted an Award under the Plan.

“Performance Award”: An Award subject to Performance Criteria.

“Performance Criteria”: Specified criteria the satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award. If a Performance Award so provides, such criteria may be made subject to appropriate adjustments taking into account the effect of significant corporate transactions or similar events for the purpose of maintaining the probability that the specified criteria will be satisfied. Such adjustments shall be made only in the amount deemed reasonably necessary, after consultation with the Company’s accountants, to reflect accurately the direct and measurable effect of such event on such criteria.

“Plan”: CRC Health Group, Inc. 2006 Executive Incentive Plan as from time to time amended and in effect.

“Restricted Stock”: An Award of Stock for so long as the Stock remains subject to restrictions under this Plan or such Award requiring that it be redelivered or offered for sale to the Company if specified conditions are not satisfied.

“Restricted Stock Unit”: A Stock Unit that is, or as to which the delivery of Stock or cash in lieu of Stock is, subject to the satisfaction of specified performance or other vesting conditions.

“Stock”: Class A Common and Class L Common.

“Stockholders Agreement”: Stockholders Agreement, dated as of February 6, 2006, among the Company and certain Affiliates, stockholders and Participants.

“Stock Option”: An option entitling the recipient to acquire Units (or, to the extent permitted by Section 6(b)(5) hereof, shares of Stock) upon payment of the exercise price.

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“Stock Unit”: An unfunded and unsecured promise, denominated in shares of Stock, to deliver Stock or cash measured by the value of the Stock in the future.

“Unit”: An undivided interest in 9 shares of Class A Common and 1 share of Class L Common, determined at the date of grant, as it may be adjusted as provided herein or in the Award Agreement.

“Unrestricted Stock”: An Award of Stock not subject to any restrictions under the Plan.

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EXHIBIT B

Form of Option Agreement

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EX-10.9(A)

Adopted as of February 6, 2006,

as amended January 25, 2007

EXHIBIT 10.9a

CRC HEALTH GROUP, INC.

2006 MANAGEMENT INCENTIVE PLAN

1. DEFINED TERM

Exhibit A, which is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms.

2. PURPOSE

The Plan has been established to advance the interests of the Company and its Affiliates by providing for the grant to Participants of Stock-based and other incentive Awards. Awards under the Plan are intended to compensate members of the Company’s management who contribute to the performance of the Company. Unless the Administrator determines otherwise, Awards to be granted under this Plan are expected to be substantially in the form attached hereto as Exhibit B. Unless the Administrator determines otherwise, Awards under the Plan are intended to be exempt from registration under the Securities Act of 1933, as amended, because they are exempt offers pursuant to a compensatory benefit plan in accordance with Rule 701. Unless the Administrator determines otherwise, Awards granted under the Plan are intended to be exempt from qualification under Section 25102(o) of the California Corporations Code.

3. ADMINISTRATION

The Administrator has discretionary authority, subject only to the express provisions of the Plan and the Award Agreements, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures; and otherwise do all things necessary to carry out the purposes of the Plan. Except as otherwise provided by the express terms of an Award Agreement, all determinations of the Administrator made under the Plan will be conclusive and will bind all parties.

4. LIMITS ON AWARDS UNDER THE PLAN

(a) Number of Shares. An aggregate maximum of 5,554,051 shares of Class A Common and 617,117 shares of Class L Common may be delivered in satisfaction of Awards under the Plan and the Company’s 2006 Executive Incentive Plan. The number of shares of Stock delivered in satisfaction of Awards shall, for purposes of the preceding sentence, be determined net of shares of Stock withheld by the Company in payment of the exercise price of the Award or in satisfaction of tax withholding requirements with respect to the Award. The limits set forth in this Section 4(a) shall be construed to comply with Section 422 of the Code and the regulations thereunder. To the extent consistent with the requirements of Section 422 of the Code and regulations thereunder, Stock issued under awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition shall not reduce the number of shares available for Awards under the Plan. Notwithstanding anything in this Section 4, at any such time as the offer and sale of securities pursuant to the Plan is subject to compliance with Section 260.140.45 of Title 10 of the California Code of Regulations (“Section 260.140.45”), the total number of shares of Stock issuable upon the exercise of all outstanding Awards (together with options outstanding under any other stock plan of the Company) and the total

number of shares provided for under any stock bonus or similar plan of the Company shall not exceed thirty percent (30%) (or such other higher percentage limitation as may be approved by the stockholders of the Company pursuant to Section 260.140.45) of the then outstanding shares of the Company as calculated in accordance with the conditions and exclusions of Section 260.140.45

(b) Type of Shares. Stock delivered under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company or any of its subsidiaries. No fractional shares of Stock will be delivered under the Plan.

5. ELIGIBILITY AND PARTICIPATION

The Administrator will select Participants from among those key Employees and directors of, and consultants and advisors to, the Company or its Affiliates who, in the opinion of the Administrator, are in a position to make a significant contribution to the success of the Company and its Affiliates. Eligibility for ISOs is limited to employees of the Company or of a “parent corporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code.

6. RULES APPLICABLE TO AWARDS

(a) All Awards

(1) Award Provisions. The Administrator will determine the terms of all Awards, subject to the limitations provided herein, and shall furnish to each Participant an Award Agreement setting forth the terms applicable to the Participant’s Award. By entering into an Award Agreement, the Participant agrees to the terms of the Award and of the Plan, to the extent not inconsistent with the express terms of the Award Agreement. Notwithstanding any provision of this Plan to the contrary, awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition may contain terms and conditions that are inconsistent with the terms and conditions specified herein, as determined by the Administrator.

(2) Transferability. During the lifetime of the Participant, an Award shall be exercisable only by the Participant or the Participant’s guardian or legal representative. No Award shall be assignable or transferable by the Participant, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Administrator, in its discretion, and set forth in the Award Agreement evidencing such Award, an Award (except for an ISO which shall only be assignable pursuant to the first two sentences of this Section 6(a)(2)) shall be assignable or transferable subject to the applicable limitations, if any, described in Section 260.140.41 of Title 10 of the California Code of Regulations, Rule 701 under the Securities Act, and the General Instructions to Form S-8 Registration Statement under the Securities Act.

(3) Vesting, Etc. The Administrator may determine the time or times at which an Award will vest or become exercisable and the terms on which an Award requiring exercise will remain exercisable; provided, however, that (i) no Award shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Award and (ii) with the exception of an Award granted to an officer, a director or a non-employee consultant of the

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Company (which Awards may become exercisable at whatever rate is determined by the Administrator), no Award shall become exercisable at a rate less than twenty percent (20%) per year over a period of five (5) years from the effective date of grant of such Award; provided that such Award may be subject to such reasonable forfeiture conditions as the Administrator may choose to impose and which are not inconsistent with Section 260.140.41 of the California Code of Regulations. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, however, the following rules will apply if a Participant’s Employment ceases: Immediately upon the cessation of Employment, an Award requiring exercise will cease to be exercisable and will terminate, and all other Awards to the extent not already vested will be forfeited, except that:

(A) subject to (B) and (C) below, all Stock Options and other Awards requiring exercise held by the Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment, to the extent then exercisable, will remain exercisable for the shorter of (i) a period of three months or (ii) the period ending on the latest date on which such Award could have been exercised without regard to this Section 6(a)(3), and will thereupon terminate;

(B) all Stock Options and other Awards requiring exercise held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the Participant’s death or disability, to the extent then exercisable, will remain exercisable for the shorter of (i) the one year period ending with the first anniversary of the Participant’s death or disability, as the case may be, or (ii) the period ending on the latest date on which such Award could have been exercised without regard to this Section 6(a)(3), and will thereupon terminate; and

(C) all Stock Options and other Awards requiring exercise held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation if such cessation of Employment has resulted in connection with an act or failure to act constituting Cause.

(4) Taxes. The Administrator will make such provision for the withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares of Stock from an Award or permit a Participant to tender previously owned shares of Stock in satisfaction of tax withholding requirements (but not in excess of the applicable minimum statutory withholding rate).

(5) Rights Limited. Nothing in the Plan will be construed as giving any person the right to continued Employment with the Company or its Affiliates, or any rights as a stockholder except as to shares of Stock actually issued under the Plan. The loss of potential appreciation in Awards will not constitute an element of damages in the event of termination of Employment for any reason, even if the termination is in violation of an obligation of the Company or its Affiliate to the Participant.

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(6) Stockholders Agreement. Unless otherwise specifically provided, all Awards issued under the Plan and all Stock issued thereunder will be subject to the Stockholders Agreement.

(7) Section 409A. Awards under the Plan are intended either to be exempt from the rules of Section 409A of the Code or to satisfy those rules, and the Plan and such Awards shall be construed accordingly. Granted Awards may be modified at any time, in the Administrator’s discretion, so as to increase the likelihood of exemption from or compliance with the rules of Section 409A of the Code.

(b) Awards Requiring Exercise

(1) Time And Manner Of Exercise. Unless the Administrator expressly provides otherwise, an Award requiring exercise by the holder will not be deemed to have been exercised until the Administrator receives a notice of exercise (in form acceptable to the Administrator) signed by the appropriate person and accompanied by any payment required under the Award. If the Award is exercised by any person other than the Participant, the Administrator may require satisfactory evidence that the person exercising the Award has the right to do so.

(2) Exercise Price. The Administrator will determine the exercise price, if any, of each Award requiring exercise. Except as otherwise permitted pursuant to Section 7(b)(1) hereof, (i) the exercise price of an Award requiring exercise will not be less than 100% of the fair market value of the Stock subject to the Award (to the extent consistent with Section 409A of the Code), determined as of the date of grant, and in the case of an ISO granted to a ten-percent shareholder within the meaning of Section 422(b)(6) of the Code, the exercise price will not be less than 110% of the fair market value of the Stock subject to the Award, determined as of the date of grant and (ii) the purchase price of any Award not requiring exercise will not be less than 100% of the fair market value of the Stock subject to the Award, determined as of the date of grant.

(3) Payment Of Exercise Price. Where the exercise of an Award is to be accompanied by payment, the Administrator may determine the required or permitted forms of payment, subject to the following: (a) all payments will be by cash or check acceptable to the Administrator, or (b) if so permitted by the Administrator, (i) through the delivery of shares of Stock that have a fair market value equal to the exercise price, except where payment by delivery of shares would adversely affect the Company’s results of operations under Generally Accepted Accounting Principles or where payment by delivery of shares outstanding for less than six months would require application of securities laws relating to profit realized on such shares, (ii) at such time, if any, as the Stock is publicly traded, through a broker-assisted exercise program acceptable to the Administrator, (iii) by other means acceptable to the Administrator, or (iv) by any combination of the foregoing permissible forms of payment. The delivery of shares in payment of the exercise price under clause (b)(i) above may be accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe.

(4) ISOs. No ISO may be granted under the Plan after [insert ten years from plan adoption], but ISOs previously granted may extend beyond that date.

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(5) Stock Options etc. Except as determined by the Administrator, no Stock Option shall be exercisable as to Shares of a single class but instead shall be exercisable only as to Units.

(c) Awards Not Requiring Exercise

Awards of Restricted Stock and Unrestricted Stock, whether delivered outright or under Awards of Stock Units or other Awards that do not require exercise, may be made in exchange for such lawful consideration, including services, as the Administrator determines.

7. EFFECT OF CERTAIN TRANSACTIONS

(a) Except as otherwise provided in an Award Agreement:

(1) Assumption or Substitution. In the event of a Corporate Transaction in which there is an acquiring or surviving entity, the Administrator may, unless the Administrator determines that doing so is inappropriate or unfeasible, provide for the continuation or assumption of some or all outstanding Awards, or for the grant of new awards in substitution therefor, by the acquiror or survivor or any entity controlling, controlled by or under common control with the acquiror or survivor, in each case on such terms and subject to such conditions (including vesting or other restrictions) as the Administrator determines are appropriate. Unless the Administrator determines otherwise, the continuation or assumption shall be done on terms and conditions consistent with Section 409A of the Code.

(2) Acceleration of Certain Awards. In the event of a Corporate Transaction (whether or not there is an acquiring or surviving entity) in which there is no assumption or substitution as to some or all outstanding Awards, the Administrator may provide (unless the Administrator determines otherwise, on terms and conditions consistent with Section 409A of the Code) for treating as satisfied any vesting condition on any such Award on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, following exercise of the Award or the issuance of the shares, as the case may be, to participate as a stockholder in the Corporate Transaction.

(3) Termination of Awards. Except as otherwise provided in an Award Agreement, each Award (unless assumed pursuant to the Section 7(a)(1)), will terminate upon consummation of the Corporate Transaction.

(4) Additional Limitations. Any share of Stock delivered pursuant to Section 7(a)(2) above with respect to an Award may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect any performance or other vesting conditions to which the Award was subject and that did not lapse in connection with the Corporate Transaction. In the case of Restricted Stock, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of Stock in connection with the Corporate Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan.

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(b) Changes In, Distributions With Respect To And Redemptions Of The Stock

(1) Basic Adjustment Provisions. In the event of any stock dividend or other similar distribution of stock or other securities of the Company, stock split or combination of shares (including a reverse stock split), recapitalization, conversion, reorganization, consolidation, split-up, spin-off, combination, merger, exchange of stock, redemption or repurchase of all or part of the shares of any class of stock or any change in the capital structure of the Company or an Affiliate or other transaction or event, the Administrator shall, as appropriate in order to prevent enlargement or dilution of benefits intended to be made available under the Plan, make proportionate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4(a) and shall also make appropriate, proportionate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change. Unless the Administrator determines otherwise, any adjustments hereunder shall be done on terms and conditions consistent with Section 409A of the Code.

(2) Certain Other Adjustments. The Administrator may also make adjustments of the type described in paragraph (1) above to take into account distributions to stockholders or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of Awards made hereunder, having due regard for the qualification of ISOs under Section 422 of the Code, where applicable.

(3) Continuing Application of Plan Terms. References in the Plan to shares of Stock will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 7.

8. LEGAL CONDITIONS ON DELIVERY OF STOCK

The Company shall use best efforts to ensure, prior to delivering shares of Stock pursuant to the Plan or removing any restriction from shares of Stock previously delivered under the Plan, that (a) all legal matters in connection with the issuance and delivery of such shares have been addressed and resolved, and (b) if the outstanding Stock is at the time of delivery listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance. Neither the Company nor any Affiliate will be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan until the conditions set forth in the preceding sentence have been satisfied and all other conditions of the Award have been satisfied or waived. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Stock, and the Company may hold the certificates pending lapse of the applicable restrictions.

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9. AMENDMENT AND TERMINATION

The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; provided, that except as otherwise expressly provided in the Plan the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to affect adversely the Participant’s rights under the Award, unless the Administrator expressly reserved the right to do so at the time of the Award. Any amendments to the Plan shall be conditioned upon stockholder approval only to the extent, if any, such approval is required by applicable law (including the Code), as determined by the Administrator.

10. OTHER COMPENSATION ARRANGEMENTS

The existence of the Plan or the grant of any Award will not in any way affect the right of the Company or an Affiliate to Award a person bonuses or other compensation in addition to Awards under the Plan.

11. WAIVER OF JURY TRIAL

(a) Waiver of Jury Trial. By accepting an Award under the Plan, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Award, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim shall be tried before a court and not before a jury. By accepting an Award under the Plan, each Participant certifies that no officer, representative or attorney of the Company or any Affiliate has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers.

(b) Arbitration. In the event the waiver in Section 11(a) is held to be invalid or unenforceable, if requested by the Company, the parties shall attempt in good faith to resolve any controversy or claim arising out of or relating to this Plan or any Awards promptly by negotiations between themselves or their representatives who have authority to settle the controversy. If the matter has not been resolved within sixty (60) days of the initiation of such procedure, the Company may require that the parties submit the controversy to arbitration by one arbitrator mutually agreed upon by the Parties, and if no agreement can be reached within 30 days after names of potential arbitrators have been proposed by the American Arbitration Association (the “AAA”), then by one arbitrator having reasonable experience in corporate incentive plans of the type provided for in this Plan and who is chosen by the AAA. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. Section 1, et seq., and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The place of arbitration shall be Cupertino, California, or any other location mutually agreed to between the parties. The arbitrator shall apply the law as established by decisions of the Delaware federal and/or state courts in deciding the merits of claims and defenses under federal law or any state or federal anti-discrimination law. The arbitrator is required to state, in writing, the reasoning on which the award rests. Notwithstanding the foregoing, this paragraph shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in circumstances in which such relief is appropriate.

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12. GOVERNING LAW

Except as otherwise provided by the express terms of an Award Agreement, the provisions of the Plan and of Awards under the Plan shall be governed by and interpreted in accordance with the laws of the State of Delaware.

13. MISCELLANEOUS PROVISIONS

(a) Requirement to Provide Information to Participants. The Company shall provide to each Participant and to each Participant who acquires Stock pursuant to the Plan, not less frequently than annually, copies of annual financial statements (which need not be audited). The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.

(b) Limitations on Timing of Awards. No Award granted to a Participant shall become vested or exercisable unless the Plan has been approved by the Company’s stockholders within 12 months before or after the date the Plan was adopted by the Board.

(c) Limitations Relating to Definition of Fair Market Value. For purposes of this Plan, “fair market value” shall be determined in a manner not inconsistent with Section 260.140.50 of the California Code of Regulations and in a manner consistent with Section 409A of the Code.

(d) Voting Rights. Stock issued to a Participant pursuant to the Plan shall be subject to the rules regarding voting rights set forth in Section 260.140.1 of the California Code of Regulations.

(e) Term. The Plan will be deemed to terminate no later than 10 years from the earlier of the date the Plan was adopted by the Board or the date the Plan was approved by the Company’s stockholders.

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EXHIBIT A

Definitions of Terms

The following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below:

“Administrator”: The Board or, if one or more has been appointed, the Committee. The Administrator may delegate ministerial tasks to such persons as it deems appropriate.

“Affiliate”: Any corporation or other entity that stands in a relationship to the Company that would result in the Company and such corporation or other entity being treated as one employer under Section 414(b) or Section 414(c) of the Code, except that in determining eligibility for the grant of a Stock Option by reason of service for an Affiliate, Sections 414(b) and 414(c) of the Code shall be applied by substituting “at least 50%” for “at least 80%” under Section 1563(a)(1), (2) and (3) of the Code and Treas. Regs. § 1.414(c)-2; provided, that to the extent permitted under Section 409A of the Code, “at least 20%” shall be used in lieu of “at least 50%”; and further provided, that the lower ownership threshold described in this definition (50% or 20% as the case may be) shall apply only if the same definition of affiliation is used consistently with respect to all compensatory stock options or stock awards (whether under the Plan or another plan). The Company may at any time by amendment provide that different ownership thresholds (consistent with Section 409A of the Code) apply but any such change shall not be effective for twelve (12) months. In addition, any Affiliate must also meet the requirements of subsection (c) under Rule 701

“Award”: Any or a combination of the following:

(i) Stock Options,

(ii) Restricted Stock, and/or

(iii) Unrestricted Stock.

“Award Agreement”: A written agreement between the Company and the Participant evidencing the Award.

“Board”: The Board of Directors of CRC Health Group, Inc.

“Cause”: In the case of any Participant, a termination by the Company or an Affiliate of the Participant’s Employment or a termination by the Participant of the Participant’s Employment, in either case following the occurrence of any of the following events: (i) the willful failure by the Participant to substantially perform his duties with the Company or any Affiliate (other than any such failure due to the Participant’s physical or mental illness); (ii) the Participant’s gross negligence, gross or willful misconduct or illegal conduct in the performance of his or her duties for the Company or any Affiliate which has resulted in or is reasonably expected to result in injury to the Company or any Affiliate; (iii) the Participant’s conviction of, or entering a plea of guilty or nolo contendere to, a misdemeanor involving theft or embezzlement, or a felony; or (iv) the breach by the Participant of any obligations under any

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written agreement or covenant with the Company or any of its Affiliates which breach has resulted in or is reasonably expected to result in injury to the Company or any Affiliates. Notwithstanding the foregoing, if the Participant is party to an employment or severance agreement with the Company that contains a definition of cause, such definition shall apply (in the case of such Participant) in lieu of the definition set forth in the preceding sentence.

“Class A Common”: Class A Common Stock of CRC Health Group, Inc., par value $.001 per share or another class of Class A Common Stock of the Company as designated by the Board.

“Class L Common”: Class L Common Stock of CRC Health Group, Inc., par value $.001 per share.

“Code”: The U.S. Internal Revenue Code of 1986 as from time to time amended and in effect, or any successor statute as from time to time in effect. For the avoidance of doubt, any reference to any section of the Code includes reference to any regulations (including proposed or temporary regulations) promulgated under that section and any IRS guidance thereunder.

“Committee”: One or more committees of the Board.

“Company”: CRC Health Group, Inc., a Delaware corporation, formerly known as CRCA Holdings, Inc.

“Corporate Transaction”: Any of the following: any sale of all or substantially all of the assets of the Company, change in the ownership of the capital stock of the Company, reorganization, recapitalization, merger (whether or not the Company is the surviving entity), consolidation, exchange of capital stock of the Company or other restructuring involving the Company, provided, that, in each case, to the extent any amount constituting “nonqualified deferred compensation” subject to Section 409A of the Code would become payable under an Award by reason of a Corporate Transaction, it shall become payable only if the event or circumstances constituting the Corporate Transaction would also constitute a change in the ownership or effective control of the Company, or a change in the ownership of a substantial portion of the Company’s assets, within the meaning of subsection (a)(2)(A)(v) of Section 409A of the Code.

“Employee”: Any person who is employed by the Company or an Affiliate.

“Employment”: A Participant’s employment or other service relationship with the Company and its Affiliates. Unless the Administrator provides otherwise: A change in the capacity in which a Participant is employed by or renders services to the Company and/or its Affiliates, whether as an Employee, director, consultant or advisor, or a change in the entity by which the Participant is employed or to which the Participant rendered services, will not be deemed a termination of Employment so long as the Participant continues providing services in a capacity and to an entity described in Section 5. If a Participant’s relationship is with an Affiliate and that entity ceases to be an Affiliate, the Participant will be deemed to cease Employment when the entity ceases to be an Affiliate unless the Participant transfers Employment to the Company or its remaining Affiliates.

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“ISO”: A Stock Option intended to be an “incentive stock option” within the meaning of Section 422 of the Code. Each option granted pursuant to the Plan will be treated as providing by its terms that it is to be a non-incentive stock option unless, as of the date of grant, it is expressly designated as an ISO.

“Participant”: A person who is granted an Award under the Plan.

“Plan”: CRC Health Group, Inc. 2006 Management Incentive Plan as from time to time amended and in effect.

“Restricted Stock”: An Award of Stock for so long as the Stock remains subject to restrictions under this Plan or such Award requiring that it be redelivered or offered for sale to the Company if specified conditions are not satisfied.

“Stock”: Class A Common and Class L Common.

“Stockholders Agreement”: Stockholders Agreement, dated as of February 6, 2006, among the Company and certain Affiliates, stockholders and Participants.

“Stock Option”: An option entitling the recipient to acquire Units (or, to the extent permitted by Section 6(b)(5) hereof, shares of Stock) upon payment of the exercise price.

“Unit”: An undivided interest in 9 shares of Class A Common and 1 share of Class L Common, determined at the date of grant, as it may be adjusted as provided herein or in the Award Agreement.

“Unrestricted Stock”: An Award of Stock not subject to any restrictions under the Plan.

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EXHIBIT B

Form of Option Agreement

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EX-10.10(A)

EXHIBIT 10.10a

Final Form

2007 SENIOR EXECUTIVE OPTION CERTIFICATE

Optionee: [            ]

This Option and any securities issued upon exercise of this Option are subject to restrictions on voting and transfer and requirements of sale and other provisions as set forth in the Stockholders Agreement among CRC Health Group, Inc. and certain investors, dated as of February 6, 2006, as amended from time to time (the “Stockholders Agreement”). This Option and any securities issued upon exercise of this Option constitute Management Shares as defined therein.

CRC HEALTH GROUP, INC.

STOCK OPTION

CERTIFICATE

This stock option (the “Agreement”) is granted by CRC Health Group, Inc., a Delaware corporation (the “Company”), to the Optionee, pursuant to the Company’s 2006 Executive Incentive Plan, as amended from time to time (the “Plan”). For the purpose of this Agreement, the “Grant Date” shall mean [                    ] and the “Initial Vesting Date” shall mean [                    ].

1. Grant of Option. This certificate evidences the grant by the Company on the Grant Date to the Optionee of an option to purchase (the “Option”), in whole or in part, on the terms provided herein and in the Plan, the following Units as set forth below.

(a) [            ]Units at $[            ] per Unit (the “Tranche 1 Options”);

(b) [            ]Units at $[            ] per Unit (the “Tranche 2 Options”); and

(c) [            ]Units at $[            ] per Unit (the “Tranche 3 Options” and together with the Tranche 1 Options and Tranche 2 Options, the “Options”).

Each “Unit” consists of 9 shares of Class A Common Stock of the Company, par value $.001 per share, and 1 share of Class L Common Stock of the Company, par value $.001 per share, subject to adjustment as provided in the Plan. The Option evidenced by this certificate is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code (the “Code”).

2. Vesting. During the Optionee’s Employment, this Option shall vest as follows:

(a) The Tranche 1 Options will vest and become exercisable (i) with respect to 20% of the Units subject to the Tranche 1 Options on the first anniversary of the Initial Vesting Date, (ii) with respect to 10% of the Units subject to the Tranche 1 Options every six months following the first anniversary of the Initial Vesting Date until 100% of the Tranche 1 Options are vested and (ii) if earlier, with respect to 100% of the Units subject to the Tranche 1 Options, on a Change of Control.

(b) If a Tranche 2 Vesting Event occurs on a Measurement Date, then all or a portion of the Tranche 2 Options will vest and become exercisable such that the Tranche 2 Options will then be vested and exercisable with respect to a number of Units equal to (i) the Tranche 2 Maximum Percentage with respect to such Measurement Date multiplied by (ii) the number of Units subject to the Tranche 2 Options.

(c) Prior to a Change of Control, the Tranche 3 Options will vest and become exercisable in installments on March 31, 2008, March 31, 2009, March 31, 2010, March 31, 2011 and March 31, 2012 with respect to a number of Units equal to (i) the Vesting Percentage for the previous calendar year multiplied by the number of Units subject to the Tranche 3 Options plus (ii) the Catch-up Vesting Percentage for the previous calendar year multiplied by the number of Units subject to the Tranche 3 Options. In addition, on a Change of Control, unvested Tranche 3 Options will vest with respect to a number of Units equal to the product of (i) the Average Vesting Percentage multiplied by (iii) the number of Undetermined Years multiplied by (iii) the number of Units subject to the Tranche 3 Options.

3. Exercise of Option.

(a) Each election to exercise this Option shall be subject to the terms and conditions of the Plan and shall be in writing, signed by the Optionee or by his or her executor or administrator or by the person or persons to whom this Option is transferred by will or the applicable laws of descent and distribution (the “Legal Representative”), and made pursuant to and in accordance with the terms and conditions set forth in the Plan. The latest date on which this Option may be exercised (the “Final Exercise Date”) is the date which is the tenth (10th) anniversary of the Grant Date, subject to earlier termination in accordance with the terms and provisions of the Plan and this Agreement.

(b) Prior to an Initial Public Offering, in addition to the forms of payment expressly permitted under the Plan for the payment of the purchase price of Units subject to this Option, if the Optionee’s employment by the Company or any of its subsidiaries is terminated by the Company without Cause, terminates due to the Optionee’s death or disability, or is terminated by the Optionee for Good Reason, then, subject to the vesting and other conditions herein and the Company’s ability to require payment with a promissory note, the Optionee may exercise this Option for all or a portion of the Units subject hereto by notifying the Company in writing (a “Cashless Exercise Notice”) that the Optionee elects to exercise in a Cashless Exercise. Within ten business days following its receipt of a Cashless Exercise Notice, the Company may elect to require the Optionee to pay the purchase price of the Units subject to this Option in the form of a full recourse promissory note bearing interest at the applicable federal rate, which note will be secured by a pledge of the Units to be issued pursuant to this Option and all other equity securities of the Company held by the Optionee. If the Company does not elect to require the Optionee to pay such purchase price using a promissory note, the Company shall issue Units to the Optionee pursuant to a Cashless Exercise.

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4. Representations and Warranties of Optionee.

Optionee represents and warrants that:

(a) Authorization. Optionee has full legal capacity, power, and authority to execute and deliver this Agreement and to perform Optionee’s obligations hereunder. This Agreement has been duly executed and delivered by Optionee and is the legal, valid, and binding obligation of Optionee enforceable against Optionee in accordance with the terms hereof.

(b) No Conflicts. The execution, delivery, and performance by Optionee of this Agreement and the consummation by Optionee of the transactions contemplated hereby will not, with or without the giving of notice or lapse of time, or both (i) violate any provision of law, statute, rule or regulation to which Optionee is subject, (ii) violate any order, judgment or decree applicable to Optionee, or (iii) conflict with, or result in a breach of default under, any term or condition of any agreement or other instrument to which Optionee is a party or by which Optionee is bound.

(c) No Other Agreements. Except as provided by this Agreement, the Stockholders Agreement and the Plan, Optionee is not a party to or subject to any agreement or arrangement with respect to the voting or transfer of this Option or the shares of common stock issued upon exercise hereof.

(d) Thorough Review, etc. Optionee has thoroughly reviewed the Plan and this Agreement in their entirety. Optionee has had an opportunity to obtain the advice of counsel (other than counsel to the Company or its Affiliates) prior to executing this Agreement, and fully understands all provisions of the Plan and this Agreement.

(e) Investment Intent. The Optionee is acquiring the Units solely for the Optionee’s own account for investment and not with a view to or for sale in connection with any distribution of the Units or any portion thereof and not with any present intention of selling, offering to sell or otherwise disposing of or distributing the Units or any portion thereof in any transaction other than a transaction exempt from registration under the Securities Act. The Optionee further represents that the entire legal and beneficial interest of the Units is being acquired, and will be held, for the account of the Optionee only and neither in whole nor in part for any other person.

(f) Absence of Solicitation. The Optionee was not presented with or solicited by any form of general solicitation or general advertising, including, but not limited to, any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media, or broadcast over television, radio or similar communications media, or presented at any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

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(g) Residence. The Optionee’s principal residence is located at the address indicated beneath the Optionee’s signature below.

(h) Information Concerning the Company. The Optionee is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Units. The Optionee further represents and warrants that the Optionee has discussed the Company and its plans, operations and financial condition with its officers, has received all such information as the Optionee deems necessary and appropriate to enable the Optionee to evaluate the financial risk inherent in acquiring the Units and has received satisfactory and complete information concerning the business and financial condition of the Company in response to all inquiries in respect thereof.

(i) Capacity to Protect Interests. The Optionee has either (i) a preexisting personal or business relationship with the Company or any of its officers, directors, or controlling persons, consisting of personal or business contacts of a nature and duration to enable the Optionee to be aware of the character, business acumen and general business and financial circumstances of the person with whom such relationship exists, or (ii) such knowledge and experience in financial and business matters as to make the Optionee capable of evaluating the merits and risks of an investment in the Units and to protect the Optionee’s own interests in the transaction, or (iii) both such relationship and such knowledge and experience.

(j) Reliance by the Company. The Optionee understands that the Option and any Units acquired upon exercise of the Option have not been qualified under the Corporate Securities Law of 1968, as amended, of the State of California by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Optionee’s representations as expressed herein. The Optionee understands that the Company is relying on the Optionee’s representations and warrants that the Company is entitled to rely on such representations and that such reliance is reasonable.

5. Other Agreements. Optionee acknowledges and agrees that the shares received upon exercise of this Option shall be subject to the Stockholders Agreement and the transfer and other restrictions, rights, and obligations set forth therein. By executing this Agreement, Optionee hereby becomes a party to and bound by the Stockholders Agreement as a Manager (as such term is defined in the Stockholders Agreement), without any further action on the part of Optionee, the Company or any other person.

6. Legends. Certificates evidencing any shares issued upon exercise of the Option granted hereby may bear the following legends, in addition to any legends which may be required by the Stockholders Agreement:

“The securities represented by this certificate were issued in a private placement, without registration under the Securities Act of 1933, as amended (the “Act”), and may not be sold, assigned, pledged, or otherwise transferred in the absence of an effective registration under the Act covering the transfer or an opinion of counsel, satisfactory to the issuer, that registration under the Act is not required.”

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7. Withholding. No Units will be transferred pursuant to the exercise of this Option unless and until the person exercising this Option shall have remitted to the Company an amount sufficient to satisfy any federal, state, or local withholding tax requirements, or shall have made other arrangements satisfactory to the Company with respect to such taxes.

8. Nontransferability of Option. Except as provided by the following sentence, this Option is not transferable by the Optionee other than by will or the applicable laws of descent and distribution, and is exercisable during the Optionee’s lifetime only by the Optionee. Subject to the Stockholders Agreement, this Option shall be transferable to the extent permitted by Rule 701 under the Securities Act of 1933, as amended.

9. Status Change. Upon the termination of the Optionee’s Employment, this Option shall continue or terminate, as and to the extent provided in the Plan.

10. Effect on Employment. Neither the grant of this Option, nor the issuance of Units upon exercise of this Option, shall give the Optionee any right to be retained in the employ of the Company or its Affiliates, affect the right of the Company or its Affiliates to discharge or discipline such Optionee at any time, or affect any right of such Optionee to terminate his or her Employment at any time.

11. Indemnity. Optionee hereby indemnifies and agrees to hold the Company harmless from and against all losses, damages, liabilities and expenses (including without limitation reasonable attorneys fees and charges) resulting from any breach of any representation, warranty, or agreement of Optionee in this Agreement or any misrepresentation of Optionee in this Agreement.

12. Provisions of the Plan. This Option is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference. A copy of the Plan as in effect on the date of the grant of this Option has been furnished to the Optionee. By exercising all or any part of this Option, the Optionee agrees to be bound by the terms of the Plan and this Option. In the event of any conflict between the terms of this Option and the Plan, the terms of this Option shall control.

13. Definitions. The initially capitalized terms Optionee and Grant Date shall have the meanings set forth on the first page of this Agreement; initially capitalized terms not otherwise defined herein shall have the meaning provided in the Plan and the Stockholders Agreement, and, as used herein, the following terms shall have the meanings set forth below:

“Actual Internal EBITDA” means , with respect to a calendar year, the Company’s actual earnings before interest, taxes, depreciation and amortization for such year, determined based on the Company’s audited financials. Actual Internal EBITDA shall also exclude (i) out of pocket expenses of the Investor that are reimbursed by the Company, (ii) non-cash gains or losses on dispositions of assets by the Company, (iii) gains or losses on interest rate swap agreements, (iv) costs directly associated with

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refinancing the Company’s indebtedness or with any cash equity financing, and (v) non-cash compensation charges related to the Company’s compensation plans. Actual Internal EBITDA shall not be reduced by costs of the acquisition of the former CRC Health Group, Inc. by the Company, management and transaction fees payable to the Investors or their Affiliates, or non-cash equity incentive expenses. Actual Internal EBITDA shall be calculated without giving effect to purchase accounting for the acquisition of the former CRC Health Group, Inc. by the Company.

“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.

“Average Vesting Percentage” means, as of any date, (i) the sum of the Vesting Percentage and Catch-up Vesting Percentage, if any for all calendar years in the Performance Period for which the Vesting Percentage and Catch-up Vesting Percentage, if any, have been determined, divided by (ii) the number of calendar years in the Performance Period for which the Vesting Percentage and Catch-up Vesting Percentage, if any, have been determined.

“Base Case” means, with respect to a specified calendar year within the Performance Period, the Actual Internal EBITDA target for the Company for such calendar year, which target shall be adjusted from time to time in good faith by the Compensation Committee to reflect the consequences of acquisitions, dispositions and start-ups of any new facilities and changes in GAAP promulgated by FASB or the SEC. Such adjustment by the Compensation Committee shall be made for the purpose of providing a consistent basis from year to year for computing the relationship of Actual Internal EBITDA to the Base Case in order to prevent the dilution or enlargement of the Optionee’s rights under this Agreement. Notwithstanding the foregoing, no adjustment to the Company’s Actual Internal EBITDA targets shall be made in respect of outpatient methadone based treatment start-ups (other than pain management start-ups for which an adjustment would be made). The initial Actual Internal EBITDA targets for the Company are set forth below:

Base Case	2007		2008		2009		2010		2011
Actual Internal EBITDA	$	119,717,541	$	143,768,663	$	167,463,714	$	191,181,092	$	212,211,012

“Cashless Exercise” means a procedure by which the Company will issue to Optionee a number of Unites determined in accordance with the following formula, and the remaining portion of this Option shall be terminated:

N=X(A-B)/A, where

“N” = the net number of Units with respect to which shares of Stock are to be issued to the Optionee upon exercise of this Option;

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“X” = the total number of Units with respect to which the Optionee has elected to exercise this Option;

“A” = the Fair Market Value of one (1) Unit on the exercise date as determined by the Board in good faith; and

“B” = the exercise price per Unit.

“Catch-up Vesting Percentage” means a percentage determined as follows:

(a) the calendar year 2007, the Catch-up Vesting Percentage will equal zero percent.

(b) for any of calendar years 2008, 2009, 2010 or 2011, if the Historic Vesting Percentage was equal to 20%, the Catch-up Vesting Percentage will equal zero percent;

(c) for any of calendar years 2008, 2009, 2010 or 2011, if the Historic Vesting Percentage was less than 20%, the Catch-up Vesting Percentage will be an amount (expressed as a percentage) equal to (i) the product of (A) two multiplied by (B) the Revised EBITDA Percentage minus 90% minus (ii) the Historic Vesting Percentage. For example, if the Revised EBITDA Percentage for 2007 were 98% and the Historic Vesting Percentage for 2007 were 10%, the Catch-up Vesting Percentage for such year (as determined on March 31, 2009) would be 6%.

“Change of Control” means (a) any Sale Transaction if immediately after giving effect to such Sale Transaction the Investors no longer hold, directly or indirectly, at least 80% of the Investor Shares held by the Investors immediately prior to the Sale Transaction or (b) any Sale Transaction if the Company or one of its Affiliates terminates the Participant’s Employment without cause or the Participant terminates his Employment with Good Reason, in either case, within 12 months following the date of such Sale Transaction.

“EBITDA Percentage” means, with respect to a calendar year in the Performance Period, the percentage obtained by dividing the Actual Internal EBITDA for such calendar year by the Base Case for that year.

“Excess EBITDA” means, with respect to a calendar year, the difference, if a positive number, between (i) the Actual Internal EBITDA for such calendar year minus (ii) the Base Case for such calendar year.

“Good Reason” means a termination by Participant of his employment with the Company, by written notice to the Company specifying in reasonable detail the circumstances claimed to provide the basis for such termination, within 30 days following the occurrence, without Participant’s written consent, of any of the following events and the failure of the Company to correct the circumstances set forth in Participant’s written notice within 30 days of receipt of such notice: (i) the assignment to Participant of duties or title(s) that are significantly different from, and that result in a substantial diminution of, the duties and titles that he is to assume on the date hereof,

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(ii) a reduction in the rate of Participant’s base salary or formula with respect to Participant’s incentive compensation, unless such reduction is implemented in connection with an across the board reduction of the base salaries and incentive compensation of all senior executives of the Company and is not greater than 10% of Participant’s base salary or incentive compensation formula, as the case may be, (iii) a material breach of this Agreement by the Company; or (iv) a change in the principal work location of the Participant to a location greater than 50 miles from Participant’s primary location with the Company, without the consent of Participant. A corporate reorganization by the Company and/or its Affiliates pursuant to which the Company ceases to exist or Participant’s title is changed shall not constitute Good Reason hereunder so long as there is no substantial diminution or significant change in the nature of Participant’s duties described herein.

“Historic Base Case” means, with respect to a calendar year, the Base Case for the year immediately prior to such calendar year.

“Historic EBITDA” means, with respect to a calendar year, the Actual Internal EBITDA for the year immediately prior to such calendar year.

“Historic Vesting Percentage” means, with respect to a calendar year, the Vesting Percentage for the year immediately prior to such calendar year.

“Initial Public Offering” means the initial public offering of the common stock of the Company.

“Investor” shall have the meaning set forth in the Stockholders Agreement.

“Investor Shares” has the meaning set forth in the Stockholders Agreement and shall include any stock, securities or other property or interests received by the Investors in respect of Investor Shares in connection with any stock dividend or other similar distribution, stock split or combination of shares, recapitalization, conversion, reorganization, consolidation, split-up, spin-off, combination, repurchase, merger, exchange of stock or other transaction or event that affects the Company’s capital stock occurring after the date of issuance.

“Performance Period” means the five (5) year period beginning on January 1, 2007.

“Person” shall mean any individual, partnership, corporation, association, trust, joint venture, unincorporated organization or other entity.

“Revised EBITDA Percentage” means, with respect to a calendar year in the Performance Period, the lower of (A) the percentage obtained by dividing (i) the sum of Excess EBITDA for such calendar year plus Historic EBITDA with respect to such calendar year by (ii) the Historic Base Case with respect to such calendar year or (B) 100%.

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“Sale Transaction” shall mean: (i) any change in the ownership of the capital stock of the Company (whether by way of sale of stock, merger, or otherwise) if, immediately after giving effect thereto, any Person (or group of Persons acting in concert) other than the Investors and their Affiliates will have the direct or indirect power to elect a majority of the members of the Board, or (ii) a sale or transfer of all or substantially all of the Company’s assets to a Person who is not a subsidiary of the Company.

“Tranche 2 Maximum Percentage” means (i) 33 1/3^rd % on the first anniversary of an Initial Public Offering, (ii) 66 2/3^rds % on the eighteen month anniversary of an Initial Public Offering, and (iii) 100% on a Sale Transaction or any Tranche 2 Measurement Date after the eighteen month anniversary of an Initial Public Offering.

“Tranche 2 Measurement Date” means (i) the first anniversary of an Initial Public Offering, (ii) each six month anniversary thereafter and (iii) the date of a Sale Transaction.

“Tranche 2 Vesting Event” means, with respect to a Tranche 2 Measurement Date, that the Unit Value equals or exceeds $180 on such Tranche 2 Measurement Date.

“Undetermined Years” means, as of any date, the number of calendar years in the Performance Period for which the Vesting Percentage has not been determined.

“Unit Value” means (i) upon a Sale Transaction, the fair market value, as determined in good faith by the Board, of a Unit (including any shares or other securities issued upon conversion of or in respect of such Unit) plus the aggregate of any dividends or distributions in respect of such Unit from and after February 6, 2006 and (ii) on any other Tranche 2 Measurement Date, the average of the closing price of a Unit (including any shares or other securities issued upon conversion of or in respect of such Unit) for the 180 days prior to such date on which the relevant market was open for trading, plus the aggregate of any dividends and distributions in respect of such Unit from and after February 6, 2006.

“Vesting Percentage” means, with respect to a calendar year, a percentage determined as follows:

(a) if the EBITDA Percentage for such calendar year is less than or equal to 90%, the Vesting Percentage will equal zero percent;

(b) if the EBITDA Percentage for such calendar year is equal to or greater than 100%, the Vesting Percentage will equal 20 percent; and

(c) if the EBITDA Percentage for such calendar year is between 90% and 100%, the Vesting Percentage will equal the product (expressed as a percentage) of (i) two multiplied by (ii) the EBITDA Percentage for such calendar year minus 90%. For example, if the EBITDA Percentage for a calendar year were 97%, the Vesting Percentage for such year would be 14%.

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14. General. For purposes of this Option and any determinations to be made by the Administrator or Compensation Committee, as the case may be, hereunder, the determinations by the Administrator or Compensation Committee, as the case may be, shall be binding upon the Optionee and any transferee.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Company has caused this Option to be executed under its corporate seal by its duly authorized officer. This Option shall take effect as a sealed instrument.

CRC HEALTH GROUP, INC.
By:
Name:	Dr. Barry Karlin
Title:	Chairman and CEO

Dated:

Acknowledged and Agreed

Name:

Address of Principal Residence:

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EX-10.11(A)

EXHIBIT 10.11a

Final Form

2007 EXECUTIVE OPTION CERTIFICATE

Optionee: [Name]

This Option and any securities issued upon exercise of this Option are subject to restrictions on voting and transfer and requirements of sale and other provisions as set forth in the Stockholders Agreement among CRC Health Group, Inc. and certain investors, dated as of February 6, 2006, as amended from time to time (the “Stockholders Agreement”). This Option and any securities issued upon exercise of this Option constitute Management Shares as defined therein.

CRC HEALTH GROUP, INC.

STOCK OPTION

CERTIFICATE

This stock option (the “Agreement”) is granted by CRC Health Group, Inc., a Delaware corporation (the “Company”), to the Optionee, pursuant to the Company’s 2006 Executive Incentive Plan, as amended from time to time (the “Plan”). For the purpose of this Agreement, the “Grant Date” shall mean [                ] and the “Initial Vesting Date” shall mean                         .

1. Grant of Option. This certificate evidences the grant by the Company on the Grant Date to the Optionee of an option to purchase (the “Option”), in whole or in part, on the terms provided herein and in the Plan, the following Units as set forth below.

(a)             Units at $[            ] per Unit (the “Tranche 1 Options”);

(b)             Units at $[            ] per Unit (the “Tranche 2 Options”); and

(c)             Units at $[            ] per Unit (the “Tranche 3 Options” and together with the Tranche 1 Options and Tranche 2 Options, the “Options”).

Each “Unit” consists of 9 shares of Class A Common Stock of the Company, par value $.001 per share, and 1 share of Class L Common Stock of the Company, par value $.001 per share, subject to adjustment as provided in the Plan. The Option evidenced by this certificate is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code (the “Code”).

2. Vesting. During the Optionee’s Employment, this Option shall vest as follows:

(a) The Tranche 1 Options will vest and become exercisable (i) with respect to 20% of the Units subject to the Tranche 1 Options on the first anniversary of the Initial Vesting Date, (ii) with respect to 10% of the Units subject to the Tranche 1 Options every six months following the first anniversary of the Initial Vesting Date until 100% of the Tranche 1 Options are vested and (ii) if earlier, with respect to 100% of the Units subject to the Tranche 1 Options, on a Change of Control.

(b) If a Tranche 2 Vesting Event occurs on a Measurement Date, then all or a portion of the Tranche 2 Options will vest and become exercisable such that the Tranche 2 Options will then be vested and exercisable with respect to a number of Units equal to (i) the Tranche 2 Maximum Percentage with respect to such Measurement Date multiplied by (ii) the number of Units subject to the Tranche 2 Options.

(c) Prior to a Change of Control, the Tranche 3 Options will vest and become exercisable in installments on March 31, 2008, March 31, 2009, March 31, 2010, March 31, 2011 and March 31, 2012 with respect to a number of Units equal to (i) the Vesting Percentage for the previous calendar year multiplied by the number of Units subject to the Tranche 3 Options plus (ii) the Catch-up Vesting Percentage for the previous calendar year multiplied by the number of Units subject to the Tranche 3 Options. In addition, on a Change of Control, unvested Tranche 3 Options will vest with respect to a number

of Units equal to the product of (i) the Average Vesting Percentage multiplied by (iii) the number of Undetermined Years multiplied by (iii) the number of Units subject to the Tranche 3 Options.

3. Exercise of Option. Each election to exercise this Option shall be subject to the terms and conditions of the Plan and shall be in writing, signed by the Optionee or by his or her executor or administrator or by the person or persons to whom this Option is transferred by will or the applicable laws of descent and distribution (the “Legal Representative”), and made pursuant to and in accordance with the terms and conditions set forth in the Plan. The latest date on which this Option may be exercised (the “Final Exercise Date”) is the date which is the tenth (10th) anniversary of the Grant Date, subject to earlier termination in accordance with the terms and provisions of the Plan and this Agreement.

4. Representations and Warranties of Optionee.

Optionee represents and warrants that:

(a) Authorization. Optionee has full legal capacity, power, and authority to execute and deliver this Agreement and to perform Optionee’s obligations hereunder. This Agreement has been duly executed and delivered by Optionee and is the legal, valid, and binding obligation of Optionee enforceable against Optionee in accordance with the terms hereof.

(b) No Conflicts. The execution, delivery, and performance by Optionee of this Agreement and the consummation by Optionee of the transactions contemplated hereby will not, with or without the giving of notice or lapse of time, or both (i) violate any provision of law, statute, rule or regulation to which Optionee is subject, (ii) violate any order, judgment or decree applicable to Optionee, or (iii) conflict with, or result in a breach of default under, any term or condition of any agreement or other instrument to which Optionee is a party or by which Optionee is bound.

(c) No Other Agreements. Except as provided by this Agreement, the Stockholders Agreement and the Plan, Optionee is not a party to or subject to any agreement or arrangement with respect to the voting or transfer of this Option or the shares of common stock issued upon exercise hereof.

(d) Thorough Review, etc. Optionee has thoroughly reviewed the Plan and this Agreement in their entirety. Optionee has had an opportunity to obtain the advice of counsel (other than counsel to the Company or its Affiliates) prior to executing this Agreement, and fully understands all provisions of the Plan and this Agreement.

(e) Investment Intent. The Optionee is acquiring the Units solely for the Optionee’s own account for investment and not with a view to or for sale in connection with any distribution of the Units or any portion thereof and not with any present intention of selling, offering to sell or otherwise disposing of or distributing the Units or any portion thereof in any transaction other than a transaction exempt from registration under the Securities Act. The Optionee further represents that the entire legal and beneficial interest of the Units is being acquired, and will be held, for the account of the Optionee only and neither in whole nor in part for any other person.

(f) Absence of Solicitation. The Optionee was not presented with or solicited by any form of general solicitation or general advertising, including, but not limited to, any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media, or broadcast over television, radio or similar communications media, or presented at any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

(g) Residence. The Optionee’s principal residence is located at the address indicated beneath the Optionee’s signature below.

(h) Information Concerning the Company. The Optionee is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Units. The Optionee further represents and warrants that the Optionee has discussed the Company and its plans, operations and financial condition with its officers, has received

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all such information as the Optionee deems necessary and appropriate to enable the Optionee to evaluate the financial risk inherent in acquiring the Units and has received satisfactory and complete information concerning the business and financial condition of the Company in response to all inquiries in respect thereof.

(i) Capacity to Protect Interests. The Optionee has either (i) a preexisting personal or business relationship with the Company or any of its officers, directors, or controlling persons, consisting of personal or business contacts of a nature and duration to enable the Optionee to be aware of the character, business acumen and general business and financial circumstances of the person with whom such relationship exists, or (ii) such knowledge and experience in financial and business matters as to make the Optionee capable of evaluating the merits and risks of an investment in the Stock and to protect the Optionee’s own interests in the transaction, or (iii) both such relationship and such knowledge and experience.

(j) Reliance by the Company. The Optionee understands that the Option and any Units acquired upon exercise of the Option have not been qualified under the Corporate Securities Law of 1968, as amended, of the State of California by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Optionee’s representations as expressed herein. The Optionee understands that the Company is relying on the Optionee’s representations and warrants that the Company is entitled to rely on such representations and that such reliance is reasonable.

5. Other Agreements. Optionee acknowledges and agrees that the shares received upon exercise of this Option shall be subject to the Stockholders Agreement and the transfer and other restrictions, rights, and obligations set forth therein. By executing this Agreement, Optionee hereby becomes a party to and bound by the Stockholders Agreement as a Manager (as such term is defined in the Stockholders Agreement), without any further action on the part of Optionee, the Company or any other person.

6. Legends. Certificates evidencing any shares issued upon exercise of the Option granted hereby may bear the following legends, in addition to any legends which may be required by the Stockholders Agreement:

“The securities represented by this certificate were issued in a private placement, without registration under the Securities Act of 1933, as amended (the “Act”), and may not be sold, assigned, pledged, or otherwise transferred in the absence of an effective registration under the Act covering the transfer or an opinion of counsel, satisfactory to the issuer, that registration under the Act is not required.”

7. Withholding. No Units will be transferred pursuant to the exercise of this Option unless and until the person exercising this Option shall have remitted to the Company an amount sufficient to satisfy any federal, state, or local withholding tax requirements, or shall have made other arrangements satisfactory to the Company with respect to such taxes.

8. Nontransferability of Option. Except as provided by the following sentence, this Option is not transferable by the Optionee other than by will or the applicable laws of descent and distribution, and is exercisable during the Optionee’s lifetime only by the Optionee. Subject to the Stockholders Agreement, this Option shall be transferable to the extent permitted by Rule 701 under the Securities Act of 1933, as amended.

9. Status Change. Upon the termination of the Optionee’s Employment, this Option shall continue or terminate, as and to the extent provided in the Plan.

10. Effect on Employment. Neither the grant of this Option, nor the issuance of Units upon exercise of this Option, shall give the Optionee any right to be retained in the employ of the Company or its Affiliates, affect the right of the Company or its Affiliates to discharge or discipline such Optionee at any time, or affect any right of such Optionee to terminate his or her Employment at any time.

11. Indemnity. Optionee hereby indemnifies and agrees to hold the Company harmless from and against all losses, damages, liabilities and expenses (including without limitation reasonable attorneys fees and charges)

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resulting from any breach of any representation, warranty, or agreement of Optionee in this Agreement or any misrepresentation of Optionee in this Agreement.

12. Provisions of the Plan. This Option is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference. A copy of the Plan as in effect on the date of the grant of this Option has been furnished to the Optionee. By exercising all or any part of this Option, the Optionee agrees to be bound by the terms of the Plan and this Option. In the event of any conflict between the terms of this Option and the Plan, the terms of this Option shall control.

13. Definitions. The initially capitalized terms Optionee, Initial Vesting Date and Grant Date shall have the meanings set forth on the first page of this Agreement; initially capitalized terms not otherwise defined herein shall have the meaning provided in the Plan and the Stockholders Agreement, and, as used herein, the following terms shall have the meanings set forth below:

“Actual Internal EBITDA” means, with respect to a calendar year, the Company’s actual earnings before interest, taxes, depreciation and amortization for such year, determined based on the Company’s audited financials. Actual Internal EBITDA shall also exclude (i) out of pocket expenses of the Investor that are reimbursed by the Company, (ii) non-cash gains or losses on dispositions of assets by the Company, (iii) gains or losses on interest rate swap agreements, (iv) costs directly associated with refinancing the Company’s indebtedness or with any cash equity financing, and (v) non-cash compensation charges related to the Company’s compensation plans. Actual Internal EBITDA shall not be reduced by costs of the acquisition of the former CRC Health Group, Inc. by the Company, management and transaction fees payable to the Investors or their Affiliates, or non-cash equity incentive expenses. Actual Internal EBITDA shall be calculated without giving effect to purchase accounting for the acquisition of the former CRC Health Group, Inc. by the Company.

“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.

“Average Vesting Percentage” means, as of any date, (i) the sum of the Vesting Percentage and Catch-up Vesting Percentage, if any for all calendar years in the Performance Period for which the Vesting Percentage and Catch-up Vesting Percentage, if any, have been determined, divided by (ii) the number of calendar years in the Performance Period for which the Vesting Percentage and Catch-up Vesting Percentage, if any, have been determined.

“Base Case” means, with respect to a specified calendar year within the Performance Period, the Actual Internal EBITDA target for the Company for such calendar year, which target shall be adjusted from time to time in good faith by the Compensation Committee to reflect the consequences of acquisitions, dispositions and start-ups of any new facilities and changes in GAAP promulgated by FASB or the SEC. Such adjustment by the Compensation Committee shall be made for the purpose of providing a consistent basis from year to year for computing the relationship of Actual Internal EBITDA to the Base Case in order to prevent the dilution or enlargement of the Optionee’s rights under this Agreement. Notwithstanding the foregoing, no adjustment to the Company’s Actual Internal EBITDA targets shall be made in respect of outpatient methadone based treatment start-ups (other than pain management start-ups for which an adjustment would be made). The initial Actual Internal EBITDA targets for the Company are set forth below:

Base Case	2007		2008		2009		2010		2011
Actual Internal EBITDA	$	119,717,541	$	143,768,663	$	167,463,714	$	191,181,092	$	212,211,012

“Catch-up Vesting Percentage” means a percentage determined as follows:

(a) for the calendar year 2007, the Catch-up Vesting Percentage will equal zero percent.

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(b) for any of calendar years 2008, 2009, 2010 or 2011, if the Historic Vesting Percentage was equal to 20%, the Catch-up Vesting Percentage will equal zero percent;

(c) for any of calendar years 2008, 2009, 2010 or 2011, if the Historic Vesting Percentage was less than 20%, the Catch-up Vesting Percentage will be an amount (expressed as a percentage) equal to (i) the product of (A) two multiplied by (B) the Revised EBITDA Percentage minus 90% minus (ii) the Historic Vesting Percentage. For example, if the Revised EBITDA Percentage for 2007 were 98% and the Historic Vesting Percentage for 2007 were 10%, the Catch-up Vesting Percentage for such year (as determined on March 31, 2009) would be 6%.

“Change of Control” means any Sale Transaction if immediately after giving effect to such Sale Transaction the Investors no longer hold, directly or indirectly, at least 80% of the Investor Shares held by the Investors immediately prior to the Sale Transaction.

“EBITDA Percentage” means, with respect to a calendar year in the Performance Period, the percentage obtained by dividing the Actual Internal EBITDA for such calendar year by the Base Case for that year.

“Excess EBITDA” means, with respect to a calendar year, the difference, if a positive number, between (i) the Actual Internal EBITDA for such calendar year minus (ii) the Base Case for such calendar year.

“Historic Base Case” means, with respect to a calendar year, the Base Case for the year immediately prior to such calendar year.

“Historic EBITDA” means, with respect to a calendar year, the Actual Internal EBITDA for the year immediately prior to such calendar year.

“Historic Vesting Percentage” means, with respect to a calendar year, the Vesting Percentage for the year immediately prior to such calendar year.

“Initial Public Offering” means the initial public offering of the common stock of the Company.

“Investor” shall have the meaning set forth in the Stockholders Agreement.

“Investor Shares” has the meaning set forth in the Stockholders Agreement and shall include any stock, securities or other property or interests received by the Investors in respect of Investor Shares in connection with any stock dividend or other similar distribution, stock split or combination of shares, recapitalization, conversion, reorganization, consolidation, split-up, spin-off, combination, repurchase, merger, exchange of stock or other transaction or event that affects the Company’s capital stock occurring after the date of issuance.

“Performance Period” means the five (5) year period beginning on January 1, 2007.

“Person” shall mean any individual, partnership, corporation, association, trust, joint venture, unincorporated organization or other entity.

“Revised EBITDA Percentage” means, with respect to a calendar year in the Performance Period, the lower of (A) the percentage obtained by dividing (i) the sum of Excess EBITDA for such calendar year plus Historic EBITDA with respect to such calendar year by (ii) the Historic Base Case with respect to such calendar year or (B) 100%.

“Sale Transaction” shall mean: (i) any change in the ownership of the capital stock of the Company (whether by way of sale of stock, merger, or otherwise) if, immediately after giving effect thereto, any Person (or group of Persons acting in concert) other than the Investors and their Affiliates will have the direct or indirect power to elect a majority of the members of the Board, or (ii) a sale or transfer of all or substantially all of the Company’s assets to a Person who is not a subsidiary of the Company.

“Tranche 2 Maximum Percentage” means (i) 33 ¹/3^rd% on the first anniversary of an Initial Public Offering, (ii) 66 ²/3^rds% on the eighteen month anniversary of an Initial Public Offering, and (iii) 100% on a

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Sale Transaction or any Tranche 2 Measurement Date after the eighteen month anniversary of an Initial Public Offering.

“Tranche 2 Measurement Date” means (i) the first anniversary of an Initial Public Offering, (ii) each six month anniversary thereafter and (iii) the date of a Sale Transaction.

“Tranche 2 Vesting Event” means, with respect to a Tranche 2 Measurement Date, that the Unit Value equals or exceeds $180 on such Tranche 2 Measurement Date.

“Undetermined Years” means, as of any date, the number of calendar years in the Performance Period for which the Vesting Percentage has not been determined.

“Unit Value” means (i) upon a Sale Transaction, the fair market value, as determined in good faith by the Board, of a Unit (including any shares or other securities issued upon conversion of or in respect of such Unit) plus the aggregate of any dividends or distributions in respect of such Unit from and after February 6, 2006 and (ii) on any other Tranche 2 Measurement Date, the average of the closing price of a Unit (including any shares or other securities issued upon conversion of or in respect of such Unit) for the 180 days prior to such date on which the relevant market was open for trading, plus the aggregate of any dividends and distributions in respect of such Unit from and after February 6, 2006.

“Vesting Percentage” means, with respect to a calendar year, a percentage determined as follows:

(a) if the EBITDA Percentage for such calendar year is less than or equal to 90%, the Vesting Percentage will equal zero percent;

(b) if the EBITDA Percentage for such calendar year is equal to or greater than 100%, the Vesting Percentage will equal 20 percent; and

(c) if the EBITDA Percentage for such calendar year is between 90% and 100%, the Vesting Percentage will equal the product (expressed as a percentage) of (i) two multiplied by (ii) the EBITDA Percentage for such calendar year minus 90%. For example, if the EBITDA Percentage for a calendar year were 97%, the Vesting Percentage for such year would be 14%.

14. General. For purposes of this Option and any determinations to be made by the Administrator or Compensation Committee, as the case may be, hereunder, the determinations by the Administrator or Compensation Committee, as the case may be, shall be binding upon the Optionee and any transferee.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Company has caused this Option to be executed under its corporate seal by its duly authorized officer. This Option shall take effect as a sealed instrument.

CRC HEALTH GROUP, INC.
By:
Name:	Dr. Barry Karlin
Title:	Chairman and CEO

Dated:

Acknowledged and Agreed

Name:

Address of Principal Residence:

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EX-10.15

EXHIBIT 10.15

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of February 1, 2004, between ASPEN EDUCATION GROUP, INC, a California corporation (the “Company”), and ELLIOT A. SAINER, a resident of the State of California (the “Executive”).

WHEREAS, the Executive currently serves, and desires to continue to serve, in the capacity of President and Chief Executive Officer of the Company and as a member of the Board of Directors of the Company;

WHEREAS, the Company desires to continue to employ the Executive upon the terms and conditions specified in this Agreement and the Executive desires to serve in the employ of the Company upon such terms and conditions; and

WHEREAS, the Company and the Executive desire to set forth in this written agreement the terms and conditions of Executive’s employment with the Company to replace the prior Employment Agreement dated as of November 4, 1998;

NOW, THEREFORE, in consideration of the mutual premises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Employment. The Company hereby agrees to employ the Executive and the Executive agrees to accept such employment upon the terms and conditions herein set forth.

2. Employment Period. The initial term of employment hereunder shall commence on the date hereof and shall continue through November 4, 2006, and shall automatically be extended for three (3) successive one-year periods thereafter, unless either party to this Agreement gives the other party written notice of such party’s intention to terminate this Agreement and the employment of the Executive at least 60 days’ prior to the applicable termination date. For the purposes of this Agreement, the original term and all extensions thereof, if any, are hereinafter referred to as the “Employment Period”. The Employment Period shall be subject to earlier termination as provided herein. In the event that the Executive continues to be employed by the Company following the initial or any extended term hereof, such employment shall be governed by this Agreement, except that it will be “ at-will,” without a fixed term, and may be terminated by the Company or the Executive at any time, with or without notice, for any reason or no reason (and no reason need be given), and without obligation of severance or additional compensation beyond that owed for periods that the Executive was actually employed by the Company.

3. Position and Duties.

(a) Position. The Executive hereby agrees to serve as an employee of the Company as its President and Chief Executive Officer. The Executive shall devote his best efforts and his full business time and attention to the performance of services to the Company in accordance with the terms hereof and as may reasonably be requested by the Board of Directors

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of the Company (the “Board”). The Company shall retain full direction and control of the means and methods by which the Executive performs the above services. In addition, the Executive hereby consents to serve as a director of the Company and to devote such time and effort as shall be reasonably necessary to discharge in good faith his duties a member of the Board.

(b) Place of Employment. During the Employment Period, the Executive shall perform the services required by this Agreement principally at the Company’s offices located in, or within a 50-mile radius of, Cerritos, California, or such other Location(s) as may be agreed by the Company and the Executive from time to time; provided, however, that, if the Company pays the Executive’s expenses to travel home every second weekend, the Company may from time to time require the Executive to provide the services required by this Agreement on a temporary and short-term basis (not to exceed three (3) consecutive weeks at any time or an aggregate of two (2) months during any twelve (12) month period) at other locations where the Company or any of its subsidiaries may from time to time have operations; provided, further, that the Company may from time to time require the Executive to travel (on a short-term basis) to other locations on the business of the Company and/or any of its subsidiaries.

(c) Other Activities. During the Employment Period the Executive shall not engage in any other business or professional activities, either on a full-time or part-time basis, as an employee, consultant or in any other capacity, whether or not he receives any compensation therefor, without the prior written consent of the Board; provided, however, that nothing herein shall prevent the Executive from making and managing personal investments consistent with Section 10 of this Agreement or engaging in community and/or charitable activities, so long as such activities, either singly or in the aggregate, do not interfere with the proper performance of his duties and responsibilities to the Company.

4. Compensation and Other Terms of Employment.

(a) Compensation. In consideration of the performance of his duties hereunder, during the Employment Period the Executive shall be entitled to receive a salary of $243,727 per annum (the “Annual Salary”), which Annual Salary shall be subject to annual review by the Board and may be increased (but not decreased) from time to time by the Board in its sole discretion. All amounts payable to the Executive under this Section 4(a) shall be paid in accordance with the Company’s regular payroll practices (e.g., timing of payments and standard employee deductions, such as income tax withholdings and social security payments). No additional compensation shall be payable to the Executive by reason of the number of hours worked or any hours worked on Saturdays, Sundays or holidays, by reason of special responsibilities assumed, special projects completed, or otherwise.

(b) Bonus Plans. During the Employment Period, the Executive shall be eligible to participate in any incentive bonus plan implemented by the Company during the term of this Agreement. The Company agrees to maintain an annual bonus plan with respect to the Executive which is substantially comparable to the Company’s bonus plan applicable to the Executive in effect immediately prior to the date hereof (it being agreed that the Board of Directors or a committee thereof shall determine the performance targets/criteria); provided, however, that the Company shall have no obligation to provide or maintain an annual bonus plan pursuant to which the Executive shall be eligible to earn an amount equal to more than 50% of the amount of his Annual Salary.

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(c) Reimbursement of Business Expenses. During the Employment Period, upon presentation of vouchers and similar receipts, the Executive shall be entitled to receive reimbursement in accordance with the policies and procedures of the Company maintained from time to time for all reasonable business expenses actually incurred in the performance of his duties hereunder.

(d) Vacation. During the Employment Period, the Executive shall receive 248 hours of paid time off per year for holiday, vacation and short-term sick days with the ability to carry over any unused hours to future years up to a maximum accrual of 432 hours. The Executive shall not accrue any additional hours beyond the maximum accrual of 432 hours until Executive uses some of the accrued hours. In the event of the Executive’s termination, any unused hours shall be paid to the Executive at his final salary rate. Notwithstanding the foregoing, the Executive shall not be entitled to take more than three (3) calendar weeks of vacation, whether consecutively or in the aggregate, during any six (6) month period without the prior consent of the Board of Directors.

(e) Benefits. During the Employment Period, the Company shall provide to the Executive such other employment benefits (which shall include health insurance, including coverage for the Executive’s dependents at substantially the current level of co-payment by the Executive) as may from time to time, be made generally available to executives of the Company, subject to the terms and conditions thereof, including, without limitation, the eligibility rules thereof; provided, however, that the Company shall not be required to establish, continue or maintain any specific benefits or benefit plans.

(f) Life Insurance. The Company shall continue to maintain a life insurance policy for the benefit of the Executive’s selected beneficiaries of such type and in such coverage amount as are currently in force with Guardian Life Insurance Company; provided, however, that the Company shall not be required to pay any annual premiums with respect to such policy in excess of 125% of the current annual premiums applicable thereto as of the date hereof.

(g) Automobile Allowance. The Company shall provide the Executive with an automobile allowance of not less than $1,200 per month, payable monthly and reviewable annually.

5. Stock Options. The Executive currently holds options granted by the Company (the “Options”) to purchase an aggregate of 400,000 shares of the common stock of the Company, which Options have been issued under the Aspen Education Group, Inc. Stock Performance Plan (the “Stock Plan”) and are evidenced by Stock Option Agreements entered into between the Company and the Executive as of February 1, 2003. Such Options and any additional options granted to Executive shall become immediately vested upon the earliest of (i) the vesting dates set forth in the option agreements, (ii) the date the Company terminates Executive’s employment without Cause (as hereinafter defined), (iii) the date the Executive Voluntarily Terminates (as hereinafter defined) his employment with the Company with Good

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Reason (as hereinafter defined), or (iv) the date there is a Change of Control (as defined in the Amended Shareholders Agreement, dated as of November 4, 1998 (the “Shareholders Agreement”), among the Company, the Executive and the other shareholders of the Company.

6. Termination of Employment.

(a) Permanent Disability. In the event of the Permanent Disability (as defined below) of the Executive, the Company, in its sole discretion, may elect to terminate this Agreement and the Executive’s employment hereunder. In the event that the Company elects to terminate the Executive, the Company shall, subject to following sentence, pay to the Executive (A) within 60 days after the date of such termination, all amounts accrued pursuant to Section 4 above prior to the date of such termination, and (B) compensation on the basis of 100% of the then current Annual Salary for the first 90 days of such Permanent Disability and, thereafter, compensation on the basis of 60% of the then current Annual Salary through the end of the period of Permanent Disability. This benefit shall be provided by the Company to the Executive through the purchase of a disability insurance policy that is contingent upon the insurability of the Executive; provided, however, that the maximum premium that the Company shall be required to pay towards this benefit will not exceed $9,000 per year. Notwithstanding the foregoing, all payments hereunder shall end upon the earlier to occur of Executive’s attaining the age of 65 and the cessation of such Permanent Disability (whether as a result of recovery, rehabilitation, death or otherwise). Additionally, if prior to the termination of the Company’s obligation to make payments to the Executive pursuant to this Section 6(a) the Executive receives compensation for services rendered as an employee, such compensation shall reduce the payments due under this Section 6(a), dollar for dollar. The Executive shall promptly inform the Company of all such compensation received by him on a monthly basis during such period. In addition to the foregoing, the Executive shall continue to become vested in Options (on a per diem basis) during the first 90 days of such period of Permanent Disability.

(b) Death. In the event of the Executive’s death, the Company shall pay to the Executive’s authorized representative (on behalf of the Executive’s estate), within 60 days after the Company receives written notice of such representative’s appointment, all amounts accrued pursuant to Section 4 above as of the date of the Executive’s death. The Executive’s authorized representative (on behalf of the Executive’s estate), shall be entitled to exercise any vested but unexercised Options as of the date of the Executive’s death pursuant to the terms of the Stock Option Agreement (it being agreed and acknowledged that any unvested Options at the time of the Executive’s death and any vested Options which are not exercised within the prescribed exercise period under the Stock Option Agreement shall be forfeited). The Executive’s dependents shall also be entitled to any continuation of health insurance coverage rights, if any, under applicable law. For a period of six (6) months following the Executive’s death the Company shall also continue, at its expense, health insurance coverage for the Executive’s dependents who were covered under the Company’s policies upon the date of the Executive’s death.

(c) Termination for Cause or Voluntary Termination Without Good Reason. The Company may in its reasonable discretion terminate this Agreement and the Executive’s employment with the Company for Cause (as defined in Section 7(a) below) at any time and with or without advance notice to the Executive. If the Executive’s employment is terminated for Cause, or if the Executive Voluntarily Terminates (as defined in Section 7(b) below) his

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employment with the Company without Good Reason (as defined in Section 7(c) below): (i) the Company shall promptly pay to the Executive all amounts accrued pursuant to Section 4 above through the date of such termination or resignation, whereupon the Company shall have no further obligations to the Executive under this Agreement; and (ii) the Executive shall forfeit all unvested and/or vested but unexercised Options on and as of the date of such termination. The Executive and his dependents shall also be entitled to any continuation health insurance coverage rights, if any, under applicable law.

(d) Termination Without Cause or Voluntary Termination With Good Reason. Subject to the penultimate sentence of this paragraph, the Company may terminate this Agreement and the Executive’s employment with the Company without Cause at any time, with or without notice, for any reason or no reason (and no reason need be given). The Executive may terminate this Agreement and Voluntarily Terminate his employment with the Company with Good Reason upon 30 days’ prior written notice to the Company, provided, that the Company does not correct the circumstances giving the Executive Good Reason during such 30-day period. Subject to Section 10(e), in the event the Executive’s employment with the Company is terminated pursuant to this Section 6(d), (i) the Company shall pay to the Executive all amounts accrued pursuant to Section 4 above through the date of termination, (ii) the Executive shall be relieved of his obligations under Sections 1 and 3 hereof, (iii) the Executive shall be entitled to exercise any vested but unexercised Options as of the date of such termination pursuant to the terms of the Stock Option Agreement (it being agreed and acknowledged that any unvested Options at the time of the termination and any vested Options which are not exercised within the prescribed exercise period under the Stock Option Agreement shall be forfeited), and (iv) the Executive shall be free to seek other employment subject to the terms of Sections 8 and 10 hereof. In addition, subject to the provisions of Section 10(e) below, if the Executive’s employment with the Company is terminated pursuant to this Section 6(d), (A) the Company shall pay to the Executive, an amount equal to (i) one and one-half times his Annual Salary, based on the rate in effect as of the date of such termination, plus (ii) one and one-half times the average annual incentive bonus, if any, paid to the Executive during the most-recently completed three years, which amount shall be calculated at the time of termination and paid in 18 equal monthly installments commencing on the first day of the month following the month in which such termination occurs¹, and (B) the Company shall also continue, at its expense, for the period during which payments under clause (A) are being made, the Executive’s life insurance coverage as described in Section 4(f) and health insurance coverage for the Executive’s dependents who were covered under the Company’s policies on the date of such termination.

(e) Termination Obligations.

(i) The Executive hereby acknowledges and agrees that all personal property and equipment furnished to or prepared by the Executive in the course of or incident to his employment by the Company, belongs to the Company and shall be promptly returned to the

¹ E.g., if the Executive’s Annual Salary is equal to $300,000 on the date of such termination and the three-year average annual incentive bonus is equal to $150,000, the Executive would be entitled to a total payment of $675,000 (($300,000 x 1.5) + ($150,000 x 1.5)), payable in 18 equal installments of $37,500 each.

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Company upon termination of the Employment Period. The term “personal property” includes, without limitation, all books, manuals, records, reports, notes, contracts, requests for proposals, bids, lists, blueprints, and other documents, or materials, or copies thereof (including computer files), and all other proprietary information relating to the business of the Company or any of its subsidiaries. Following termination, the Executive will not retain any written or other tangible material containing any proprietary information of the Company or any of its subsidiaries.

(ii) Upon termination of the Employment Period, the Executive shall be deemed to have resigned from all offices and directorships then held with the Company and each of its subsidiaries.

(iii) The representations and warranties contained herein and the Executive’s obligations under Sections 6(e), 8, 9, 10 and 12(j) shall survive termination of the Employment Period and the expiration of this Agreement.

7. Definitions. For the purposes of this Agreement the following terms and phrases shall have the following meanings:

(a) “Cause” shall mean a termination of the Executive’s employment by the Company as a result of: (i) a conviction of the Executive (or a plea of nolo contendere in lieu thereof) for (A) a felony or (B) a crime involving fraud, dishonesty or moral turpitude; (ii) the Executive’s dishonesty, misappropriation or similar action which is intentional and materially injurious to the Company or any of its subsidiaries, (iii) the willful and continued failure (other than a failure as a result of Executive’s Permanent Disability) of the Executive, after written notice from the Company, to render services to the Company in accordance with the terms of this Agreement; or (iv) any breach by the Executive of any of the material terms or conditions of this Agreement, specifically, Sections 8 and 10 hereof, which breach, if capable of being cured, is not cured within fifteen (15) days following notice from the Company to the Executive thereof.

(b) “Voluntary Termination” shall mean the termination by the Executive of his employment by the Company by voluntary resignation or any other means other than death, retirement or Permanent Disability.

(c) “Good Reason” shall mean, with respect to a Voluntary Termination, if: (i) such Voluntary Termination occurs within 45 days following (A) any reduction of the Executive’s salary, (B) any material reduction in the aggregate amount of the Executive’s bonus (other than reductions that occur as a result of the Executive’s failure to achieve performance or other bonus targets), or (C) any material reduction of the Executive’s responsibilities; (ii) such Voluntary Termination occurs within 45 days following receipt by the Company of written notice of a breach by the Company of its payment obligations under this Agreement, which breach is not corrected within 15 days following written notice from the Executive to the Company thereof; (iii) such Voluntary Termination occurs within 15 days following a breach by the Company of its obligation not to require the Executive to relocate to a location outside of a 50-mile radius of Cerritos, California; (iv) such Voluntary Termination occurs within six (6) months following a Change of Control other than Change of Control (as defined in the Shareholders Agreement) as a result of a public offering of the stock of the Company; (v) the

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Board of Directors of the Company otherwise determines that such Voluntary Termination by he Executive is for “Good Reason” under the circumstances then prevailing; (vi) the Company requires that the Executive do something known to be unethical, immoral or illegal; or (vii) at any time after the Company has notified the Executive pursuant to Paragraph 2 of this Agreement that the Company intends not to renew the term of this Agreement and to terminate the Executive’s employment hereunder.

(d) “Permanent Disability” shall mean the Executive’s inability due to physical or mental condition, injury or illness to substantially perform the essential functions of his position with or without accommodation for more than 120 days during any consecutive six (6) month period and, if within 30 days after a notice of termination is thereafter given by the Company, the Executive cannot return to the full-time performance of the Executive’s essential functions within 60 days; provided, however, if the Executive shall not agree with a determination to terminate him because of Permanent Disability, the question of Executive’s disability shall be subject to the certificate of a qualified medical doctor agreed to by the Company and the Executive or, in the event of the Executive’s incapacity to designate a doctor, the Executive’s legal representative. In the absence of agreement between the Company and the Executive, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to Permanent Disability.

8. Records and Confidential Data.

(a) The Executive acknowledges that, in connection with the performance of his duties during the term of this Agreement, the Company and its subsidiaries will make available to the Executive, and/or the Executive will have access to, certain Confidential Information (as defined below) of the Company and its subsidiaries. The Executive acknowledges and agrees that any and all Confidential Information learned or obtained by the Executive during the course of his employment by the Company or otherwise (including, without limitation, information that the Executive obtained through or in connection with his ownership of equity interests in, or services as a director of, the Company), whether developed by the Executive alone or in conjunction with others or otherwise, shall be and is the property of the Company and its subsidiaries.

(b) The Confidential Information shall be kept confidential by the Executive, shall not be used in any manner which is detrimental to the Company or any of its subsidiaries, shall not be used other than in connection with the Executive’s discharge of his duties hereunder, and shall be safeguarded by the Executive from unauthorized disclosure.

(c) Following the first to occur of the termination of this Agreement or the Executive’s termination hereunder, as soon as possible after the Company’s written request, the Executive shall return to the Company all written Confidential Information which has been provided to the Executive and the Executive shall return all copies of any analyses, compilations, studies or other documents prepared by the Executive or for the Executive’s use containing or reflecting any Confidential Information. Within five (5) business days of the receipt of such request by the Executive, the Executive shall, upon written request of the Company, deliver to the Company a letter stating that such written Confidential Information has been returned or destroyed in accordance with this Section 8(c).

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(d) For the purposes of this Agreement, “Confidential Information” shall mean all confidential and proprietary information of the Company and/or its subsidiaries including, without limitation, information derived from reports, investigations, experiments, research, trade secrets, work in progress, drawing, designs, plans, proposals, requests for proposals, bids, codes, marketing and sales programs, client lists, client mailing lists, medical, psychological, academic and other records and reports, supplier lists, financial projections, cost summaries, payor information, pricing formulae, marketing studies relating to prospective business opportunities and all other concepts, ideas, materials, or information prepared for performed for or by the Company and/or any of its subsidiaries. For purposes of this Agreement, the Confidential Information shall not include and the Executive’s obligations under this Section 8 shall not extend to (i) information which is generally available to the public, (ii) information obtained by the Executive from third persons not under agreement to maintain the confidentiality of the same and (iii) information which is required to be disclosed by law or legal process (after giving the Company prior written notice thereof and an opportunity to contest such disclosure).

9. Additional Agreements.

(a) Ownership of Copyrights. The Executive agrees that any work prepared for the Company or any of its subsidiaries which is eligible for United States copyright protection or protection under the Universal Copyright Convention, the Berne Copyright Convention and/or the Buenos Aires Copyright Convention shall be a work made for hire and ownership of all copyrights (including all renewals and extensions) therein shall vest in the Company. If any such work is deemed not to be a work made for hire for any reason, the Executive hereby grants, transfers and assigns all right, title and interest in such work and all copyrights in such work and all renewals and extensions thereof to the Company, and agrees to provide all assistance reasonably requested by the Company in the establishment, preservation and enforcement of the Company’s copyright in such work, such assistance to be provided at the Company’s expense but without any additional compensation to the Executive. The Executive hereby agrees to and does hereby waive the enforcement of all moral rights with respect to the work developed or produced hereunder, including without limitation any and all rights of identification of authorship and any and all rights of approval, restriction or limitation on use or subsequent modifications.

(b) Litigation. The Executive agrees to render assistance and cooperation to the Company at its request regarding any matter, dispute or controversy with which the Company may become involved and of which the Executive has or may have reason to have knowledge, information or expertise. Such services will be without additional compensation if the Executive is then employed by the Company and for compensation at the hourly rate at which the Executive was last employed by the Company (plus reimbursement for reasonable travel expenses) and subject to his reasonable availability if he is not.

10. Noncompetition and Nonsolicitation Covenant.

(a) The Executive hereby covenants and agrees that for a period commencing on the date hereof and terminating on the eighteen (18) month anniversary of the Executive’s termination by the Company, for or other than for Cause, or the Executive’s voluntary termination, with or without Good Reason, the Executive shall not directly or indirectly (i) divert

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or attempt to divert or take advantage of or attempt to take advantage of any actual or potential business or opportunities of the Company or its subsidiaries; (ii) knowingly solicit or attempt to solicit any customers, students or clients which participate in programs conducted by, or use the services or products of the Company or its subsidiaries, except where such solicitation or attempted solicitation concerns business activities which are not competitive with the business of the Company or its subsidiaries; (iii) knowingly induce or attempt to induce any employee of the Company or any of its subsidiaries to leave or to terminate such employment; or (iv) engage in, or have an interest in (either individually, as a joint venturer, partner, member, officer, director, equity holder, lender, donor, grantor, financial or other consultant or employee of any person, or otherwise) any person or business that engages in a business which is competitive with the business of the Company or its subsidiaries in any region in which the Company or its subsidiaries is then operating or has, at the time of such termination, firm plans to commence operations (collectively, the “Covenant Not To Compete”).

(b) This Covenant Not To Compete shall in no way restrict the rights of the Executive to hold not more than five percent (5%) of the equity securities of any entity whose equity securities are listed on a national securities exchange, or regularly traded in the over-the-counter market or for which quotations are available on the NASDAQ system. Any holding acquired in reliance on the provisions of this Section 10(b) and in compliance with the limitations hereof shall not be deemed to be in violation of the Covenant Not To Compete if subsequent to its acquisition any such equity securities are no longer regularly traded in the over-the-counter market and quoted on the NASDAQ system.

(c) It is the intent and desire of the Executive and the Company that the restrictive provisions of the Covenant Not To Compete be enforced to the fullest extent permissible under the laws and public policies as applied in each jurisdiction in which enforcement of the Covenant Not To Compete is sought. If any particular provision of the Covenant Not To Compete shall be adjudicated by a court of competent jurisdiction to be invalid or unenforceable, the Covenant Not To Compete shall be amended, without any action on the part of either party hereto, to delete therefrom the portion so adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of the Covenant Not To Compete in the particular jurisdiction in which such adjudication is made. If the Covenant Not To Compete shall be adjudicated by a court of competent jurisdiction to be invalid or unenforceable in its entirety, this Agreement shall be amended to delete the Covenant Not To Compete therefrom and the remainder of this Agreement shall remain in full force and effect.

(d) Notwithstanding any remedies which may be available to the Company, the Executive hereby agrees that (i) damages at law will be an insufficient remedy to the Company if the Executive breaches or violates the provisions of Sections 8 or 10 and (ii) the Company may, without posting a bond or providing other security, apply for, and have injunctive relief in, any court of competent jurisdiction to restrain the breach or violation of or threatened breach or violation of or otherwise to specifically enforce any of the provisions contained in Sections 8 and 10 hereof.

(e) In addition to any other remedies available to the Company at law or in equity in the event the Executive breaches or violates any of the provisions of Sections 8 or 10, the Company’s obligations to make any payments or to provide any benefits to the Executive (or any member of his family) hereunder shall immediately terminate.

9.

11. No Assignment. This Agreement and the rights and duties hereunder are personal to the Executive and shall not be assigned, delegated, transferred, pledged or sold by the Executive without the prior written consent of the Company. The Executive hereby acknowledges and agrees that the Company may assign, delegate, transfer, pledge or sell this Agreement and the rights and duties hereunder (a) to a subsidiary of the Company or (b) to any third party in connection with (i) the sale of all or substantially all of the assets of the Company or (ii) a merger or consolidation involving the Company. This Agreement shall inure to the benefit of and be enforceable by the parties hereto, and their respective heirs, personal representatives, successors and assigns.

12. Miscellaneous Provisions.

(a) Payment of Taxes. To the extent that any personal income taxes become payable by the Executive by virtue of any payments made or benefits conferred by the Company, the Company shall not be liable to pay or obligated to reimburse the Executive for any such taxes or to make any adjustment under this Agreement. Any payments otherwise due under this Agreement to the Executive, including, but not limited to, the Annual Salary, shall be reduced by any required withholding for federal, state and/or local taxes and other appropriate payroll deductions. The Company shall be entitled to offset any payment obligations to the Executive under this Agreement against any amounts that the Company alleges in good faith the Executive owes to the Company and with respect to which the Company provides documentary evidence to the Executive.

(b) Insurance. The Company may, from time to time, apply for and take out, in its own name and at its own expense, life, health, accident, disability or other insurance on the Executive in any sum or sums that it may deem necessary to protect its interests, and the Executive shall aid and cooperate in all reasonable respects with the Company in procuring any and all such insurance, including, without limitation, submitting to the usual and customary medical examinations, and by filling out, executing and delivering such applications and other instruments in writing as may be reasonably required by an insurance company or companies to which an application or applications for such insurance may be made by or for the Company. In order to induce the Company to enter into this Agreement, the Executive represents and warrants to the Company that, to his knowledge, the Executive is insurable at standard (non-rated) premiums.

(c) Non-Disparagement. The Company and the Executive hereby affirm that each will not knowingly engage in any act to the detriment of the other party or the other party’s clients, employees, payors, employers, and other business relations and that neither of them shall make or cause others to make, whether in writing or orally, disparaging statements with respect to the other or the other party’s business, officers, shareholders, partners, affiliates, employees, employers or other business relationships.

10.

(d) Deceased Executive. In the event that the Executive shall die while entitled to benefits hereunder, the payment that would otherwise be made to the Executive, shall be made to the estate, or other appropriate legal representative, of the Executive.

(e) Notices. All notices, offers or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as properly given or made (i) if delivered personally, (ii) after the expiration of five (5) days from the date upon which such notice was mailed by United States mail from within the United States by certified mail, return receipt requested, postage prepaid, (iii) upon receipt by prepaid telegram or facsimile transmission (with written confirmation of receipt), or (iv) after the expiration of the second (2nd) business day following deposit with a nationally-recognized reputable overnight delivery service. All notices given or made pursuant hereto shall be so given or made to the parties at the following addresses:

if to the Executive:

Elliot A. Sainer

2000 Edgewood Drive

South Pasadena, California 91030

Telecopy: 626/799-8015

if to the Company:

Aspen Education Group, Inc.

17777 Center Court Drive

Suite 300

Cerritos, California 90703

Attention: Chairman of the Board of Directors

Telecopy: 562/402-7036

with a copy sent concurrently to:

Frazier & Company

601 Union Street, Suite 3300

Two Union Square

Seattle, Washington 98101

Attention: Nader Naini

Telecopy: 206/621-1848

The address of any party hereto may be changed by a notice in writing given in accordance with the provisions hereof.

(f) Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, illegal or unenforceable, such provision shall be severed and enforced to the extent possible or modified in such a way as to make it enforceable, and the invalidity, illegality or unenforceability thereof shall not affect the validity, legality or enforceability of the remaining provisions of this Agreement.

11.

(g) Governing, Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts executed in and to be performed entirely within that state, except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters, the law of the jurisdiction under which the respective entity derives its powers shall govern.

(h) Counterparts. This Agreement may be executed in counterparts, each of which shah be an original, but all of which shall constitute one and the same instrument.

(i) Entire Understanding. This Agreement including all Exhibits hereto which are incorporated herein by this reference, together with the other agreements and documents being executed and delivered concurrently herewith by the Executive, the Company and certain of its affiliates, constitute the entire understanding among all of the parties hereto and supersedes any prior understandings and agreements, written or oral, among them respecting the subject matter within, including, without limitation, that certain Employment Agreement, dated as of May 1, 1998, between the Executive and the Company.

(j) Arbitration. Notwithstanding anything herein to the contrary, except as provided by Section 10 hereof, in the event that there shall be a dispute among the parties arising out of or relating to this Agreement, or the breach thereof, the parties agree that such dispute shall be resolved by final and binding arbitration in Los Angeles, California, administered by the American Arbitration Association (the “AAA”), in accordance with AAA’s Commercial Arbitration Rules, to which shall be added the provisions of the Federal Rules of Civil Procedure relating to the Production of Evidence, and the parties agree that the arbitrators may impose sanctions in their discretion to enforce compliance with discovery and other obligations. Such arbitration shall be presided over by a single arbitrator. If the Executive, on the one hand, and the Company, on the other hand, do not agree on the arbitrator within fifteen (15) days after a party requests arbitration, the arbitrator shall be selected by the Company and the Executive from a list of five (5) potential arbitrators provided by AAA. Such list shall be provided within ten (10) days of the request of any party for arbitration. The party requesting arbitration shall delete one name from the list. The other party shall delete one name from the list. This process shall then be repeated in the same order, and the last remaining person on the list shall be the arbitrator. This selection process shall take place within the two business days following both parties’ receipt of the list of five (5) potential arbitrators. Hearings in the arbitration proceedings shall commence ‘within twenty (20) days of the selection of the arbitrator or as soon thereafter as the arbitrator is available. The arbitrator shall deliver his or her opinion within twenty (20) days after the completion of the arbitration hearings. The arbitrator’s decision shall be final and binding upon the parties, and may be entered and enforced in any court of competent jurisdiction by either of the parties. The arbitrator shall have the power to grant temporary, preliminary and permanent relief, including without limitation, injunctive relief and specific performance. Unless otherwise ordered by the arbitrator pursuant to Section 12(k) of this Agreement, the arbitrator’s expenses shall be shared equally by the parties.

(k) Attorneys’ Fees. If any arbitration is brought under Section 12(j), the arbitrator may award the successful or prevailing party reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. If

12.

any other proceeding is brought by one party against the other in connection with or relating in any manner to this Agreement, or to enforce an arbitration award, the successful or prevailing party shall be entitled to recover its reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled.

(l) Pronouns and Headings. As used herein, all pronouns shall include the masculine, feminine, neuter, singular and plural thereof wherever the context and facts require such construction. The headings, titles and subtitles herein are inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof.

(m) Amendments. This Agreement shall not be changed or amended unless in writing and signed by both the Executive and the Board.

(n) Executive’s Acknowledgment. The Executive acknowledges (i) that he has consulted with or has had the opportunity to consult with independent counsel of his own choice concerning this Agreement and has been advised to do so by the Company, and (ii) that he has read and understands this Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment.

13. Indemnification. The Company and its subsidiaries will indemnify the Executive to the fullest extent permitted by the laws of the state of the Company’s or, as applicable, its subsidiaries’ incorporation in effect at that time, or certificate/articles of incorporation and bylaws of the Company or its subsidiaries, whichever affords the greater protection to the Executive. The Executive will be entitled to any insurance policies the Company or its subsidiaries may elect to maintain generally for the benefit of its officers and directors against all costs, charges and expenses incurred in connection with any action, suit or proceeding to which he is or may be made a party by reason of being a director or officer of the Company or its subsidiaries (it being agreed that nothing herein shall obligate the Company or any of its subsidiaries to obtain or maintain such insurance policies).

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

13.

IN WITNESS WHEREOF, this Agreement has been executed as of the date and year first above written.

THE COMPANY:
ASPEN EDUCATION GROUP, INC
By:	/s/ Nader J. Naini
Name:	Nader J. Naini
Title:	Chairman
THE EXECUTIVE:
By:	/s/ Elliot A. Sainer
Name:	Elliot A. Sainer

[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

14.

EX-10.16

EXHIBIT 10.16

ELLIOT A. SAINER

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of November 17, 2006, made and entered into by and between Aspen Education Group, Inc., a California corporation (the “Company”) and Elliot A Sainer (the “Executive”), a resident of the state of California, shall constitute the first amendment of the agreement between the Company and the Executive dated February 1, 2004, concerning the terms of the Executive’s employment with the Company (the “Employment Agreement”). All capitalized terms in this Amendment shall have the meaning ascribed to them in the Employment Agreement, unless otherwise expressly provided herein.

WHEREAS, the Company and the Executive desire to amend the Employment Agreement in connection with the acquisition of the Company by CRC Health Corporation (“CRC”) pursuant the Agreement and Plan of Merger (the “Agreement”) by and among Aspen Education Group, Inc., a California corporation (“Aspen”), Madrid Merger Corporation, a California corporation, and other parties dated September 22, 2006 (the “CRC Merger”).

WHEREAS, upon consummation of the Change of Control, the Executive desires to serve as President of the Company, a division of CRC, upon the terms and conditions set forth in the Employment Agreement, as amended hereto.

WHEREAS, the Company desires to continue to employ the Executive upon the terms and conditions specified in the Employment Agreement, as amended hereto.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Executive and the Company agree as follows:

1. Section 1 of the Employment Agreement is hereby amended and restated as follows:

“Employment. The Company, a division of CRC, hereby agrees to employ the Executive and the Executive agrees to accept such employment upon the terms and conditions herein set forth.”

2. Section 3(a) of the Employment Agreement is hereby amended and restated as follows:

“(a) Position. The Executive hereby agrees to serve as the President of the Company, a division of CRC. The Executive shall devote his best efforts and his full business time and attention to the performance of services to the Company in accordance with the terms hereof and as may be requested by the Chief Executive Officer of CRC (the “CEO”). The Executive shall report to the CEO. Conditioned upon the continued consent of the shareholders of CRC, the Executive hereby consents to serve as a director of each of CRC and its parent corporation, CRC Health Group, Inc., and to devote such time and effort as shall be reasonably necessary to discharge in good faith his duties as a member of the Board of Directors of CRC and CRC Health Group, Inc.”

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3. Section 3(c) of the Employment Agreement is hereby amended and restated as follows:

“(c) Other Activities. During the Employment Period the Executive shall not engage in any other business or professional activities, either on a full-time or part-time basis, as an employee, consultant or in any other capacity, whether or not he receives any compensation therefor, without the prior written consent of the CEO; provided, however, that nothing herein shall prevent the Executive from making and managing personal investments consistent with Section 10 of this Agreement or engaging in community and/or charitable activities, so long as such activities, either singly or in the aggregate, do not interfere with the proper performance of his duties and responsibilities to the Company.”

4. Section 4(a) of the Employment Agreement is hereby amended and restated as follows:

“(a) Compensation. In consideration for the performance of his duties hereunder, during the Employment Period the Executive shall be entitled to receive a salary of $300,000 per annum (the “Annual Salary”), which Annual Salary shall be subject to annual review by the CEO and may be increased (but not decreased) from time to time by the CEO in the sole discretion of the CEO. All amounts payable to the Executive under this Section 4(a) shall be paid in accordance with the Company’s regular payroll practices (e.g., timing of payments and standard employee deductions, such as income tax withholdings and social security payments). No additional compensation shall be payable to the Executive by reason of the number of hours worked or any hours worked on Saturdays, Sundays or holidays, by reason of special responsibilities assumed, special projects completed, or otherwise.”

5. Section 4(b) of the Employment Agreement is hereby amended and restated as follows:

“(b) Bonus Plans. For the period January 1, 2006 through the closing of the CRC Merger, Executive shall be eligible to participate in the incentive bonus plan of the Company in existence prior to the CRC Merger (the “Aspen Bonus Plan”). Executive’s bonus for this period shall be determined on a pro rata basis for such time period in good faith and in accordance with the Aspen Bonus Plan by the Board of Directors of the Company in existence prior to the CRC Merger. Beginning as of the date of closing of the CRC Merger, Executive is eligible to participate in the CRC incentive bonus plan. Executive is eligible to receive a discretionary annual bonus commensurate with both the performance of CRC and your individual performance. Any bonus is paid within 30 days after the annual audit is completed each year. Executive must be an employee at the time the bonus is paid in order to be eligible to receive a bonus for the prior year. Executive’s target bonus is 50% of base salary (pro rated with any salary adjustments and pro rated for the number of months in a year in which Executive is an employee) based both on CRC’s performance relative to budget, and on Executive’s personal performance as follows:

a. 50% of your bonus will be tied to the overall actual EBITDA of CRC relative to budget

b. 25% of your bonus will be tied to the Aspen divisional actual EBITDA relative to budget

c. 25% of your target bonus will be subjectively determined by CEO based on your individual performance tied to specific personal goals to be mutually agreed upon by CEO and Executive.

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In the event that CRC achieves 100% of its budgeted EBITDA and the Aspen division achieves 100% of its budged EBITDA and Executive achieves all if his personal goals, Executive shall receive a bonus equal to 50% of Executive’s base salary. In the event that the Company fails to achieve 100% of its EBIDTA target, all bonuses, including Executive’s target bonus, are in the discretion of the Board of Directors and CEO of CRC. In the event that CRC exceeds 100% of the budgeted EBITDA, Executive is eligible to receive up to a maximum bonus of 75% of base salary.

6. Section 4(d) of the Employment Agreement is hereby amended and restated as follows:

“(d) Vacation. During the Employment Period, the Executive shall receive 248 hours of paid time off per year for holiday, vacation and short-term sick days with the ability to carry over any unused hours to future years up to a maximum accrual of 432 hours. The Executive shall not accrue any additional hours beyond the maximum accrual of 432 hours until the Executive uses some of the accrued hours. In the event of the Executive’s termination, any unused hours shall be paid to the Executive at his final salary rate. Notwithstanding the foregoing, the Executive shall not be entitled to take more than three (3) calendar weeks of vacation, whether consecutively or in the aggregate, during any six (6) month period without the prior consent of the CEO.”

7. Section 5 of the Employment Agreement is hereby amended and restated as follows:

“Stock Options. Executive will receive an option to purchase 18,476 units. Each unit contains 1 share of Class L Common Stock and 9 shares of Class A Common Stock. Accordingly, Executive will hold options exercisable for an aggregate of 166,284 shares of Class A Common Stock and 18,476 shares of Class L Common Stock. Executive’s options are subject to the terms of the Senior Executive Option Certificate and Executive Stock Option Plan of CRC Health Group, Inc. The exercise price will equal the fair market of a unit at the time of grant. Executive is eligible to receive additional options in the future based on exceptional performance. Executive agrees that the option grant is conditioned upon Executive becoming a party to the Stockholder’s Agreement by and among CRC Health Group, Inc. CRC Health Corporation and the investors, other investors and managers named therein dated as of February 6, 2006.

8. Section 7(c)(i)(C) and Section 7(c)(iv) of the Employment Agreement are hereby amended and restated as follows:

“(i)…(C) any material reduction of the Executives responsibilities; provided however that this First Amendment to the Employment Agreement, including Executive’s agreement to serve as President of the Company, a division to CRC, shall not be deemed to be a material reduction of the Executive’s responsibilities;”

“(iv) such Voluntary Termination occurs between nine months after the closing of the CRC Merger and prior to the 364^th day of the CRC Merger”

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9. For purposes of Sections 8, 9, 10, 11, 12(a), 12(b) and 12(c) of the Employment Agreement, the definition of term “Company” is hereby amended to include all affiliates of the Company, including without limitation CRC Health Group, Inc. and its subsidiaries.

10. Each party hereto hereby acknowledges that all terms and conditions of the employment Agreement, as amended hereby, are and shall remain in full force and effect. This Amendment is incorporated in the Employment Agreement by reference and shall constitute a part thereof as if fully set forth therein.

11. The invalidity or unenforceability of any one or more phrases, sentences, clauses or provisions contained in this Amendment shall not effect the validity or enforceability of the remaining portions of this Amendment, or any part thereof.

12. This Amendment shall be governed and construed in accordance with the laws of the State of California.

[Remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Executive, as of the date first above written.

THE EXECUTIVE	ASPEN EDUCATION GROUP, INC.
/x/ Elliot A. Sainer	By:	/x/ Kevin Hogge
Elliot A. Sainer	Title:	Kevin Hogge, Chief Financial Officer

EX-12

Exhibit 12

CRC HEALTH CORPORATION

Ratio of Earnings to Fixed Charges

(In thousands, except ratios)

	Eleven Months Ended December 31, 2006		One Month Ended January 31, 2006			Years Ended December 31,
						2005		2004		2003			2002			2001
	(Successor)		(Predecessor)			(Predecessor)
Earnings (loss) from continuing operations:
Income (loss) from continuing operations before income taxes	$	6,495	$	(51,437	)	$	28,917	$	23,210	$	(4,637	)	$	(12,981	)	$	4,011
Add: Fixed Charges		48,293		2,955			24,461		17,726		9,115			6,488			2,418
Earnings, as adjusted	$	54,788	$	(48,482	)	$	53,378	$	40,936	$	4,478		$	(6,493	)	$	6,429
Computation of fixed charges:
Total interest expense, including interest expensed and amortization of capitalized financing costs and debt discount	$	41,456	$	2,509		$	19,814	$	13,965	$	6,564		$	4,967		$	1,716
Interest portion of rent expense		6,837		446			4,647		3,761		2,551			1,521			702
Total fixed charges	$	48,293	$	2,955		$	24,461	$	17,726	$	9,115		$	6,488		$	2,418
Ratio of earnings to fixed charges(1)		1.13x		—			2.18x		2.31x		—			—			2.66x

(1) The ratio of earnings to fixed charges is completed by dividing earnings by fixed charges. “Earnings” consist of earnings before income taxes plus fixed charges. Fixed charges include (i) interest expense on borrowings and amortization of capitalized financing costs and debt discount and (ii) a reasonable approximation of the interest factor, which we deemed to be 80%, is included in rental expense. Earnings, as adjusted were not sufficient to cover fixed charges by approximately $51.4 million for one month ended January 31, 2006 and $4.6 million and $12.9 million for the fiscal years ended December 31, 2003 and 2002, respectively.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Dr. Barry W. Karlin, certify that:

1. I have reviewed this Annual Report on Form 10-K of CRC Health Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [not applicable];

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 2, 2007	/S/    DR. BARRY W. KARLIN
	Dr. Barry W. Karlin Chairman, Chief Executive Officer and President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kevin Hogge, certify that:

1. I have reviewed this Annual Report on Form 10-K of CRC Health Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [not applicable];

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 2, 2007	/S/    KEVIN HOGGE
	Kevin Hogge Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Dr. Barry W. Karlin, Chairman, Chief Executive Officer and President of CRC Health Corporation (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

• the Annual Report on Form 10-K of the Company for the year ended December 31, 2006, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 2, 2007

/S/    DR. BARRY W. KARLIN        

Dr. Barry W. Karlin

Chairman, Chief Executive Officer and President

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to CRC Health Corporation and will be retained by CRC Health Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin Hogge, Chief Financial Officer of CRC Health Corporation (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

• the Annual Report on Form 10-K of the Company for the year ended December 31, 2006, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 2, 2007

/S/    KEVIN HOGGE        

Kevin Hogge

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to CRC Health Corporation and will be retained by CRC Health Corporation and furnished to the Securities and Exchange Commission or its staff upon request.