On May 19, 2005, the stockholders approved an amendment to The Providence Service Corporation's (the "Company") 2003 Stock Option Plan (the "Plan") which increased the number of shares of Common Stock authorized for issuance under the Plan by 400,000 shares from 1,000,000 shares to 1,400,000 shares. Pursuant to the Plan, stock options may be granted that are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as well as stock options not intended to so qualify which are referred to as non-qualified stock options.

b. 2005 Annual Incentive Compensation Plan

On May 19, 2005, the Company's Board of Directors, upon the recommendation of the Compensation Committee, approved the 2005 Annual Incentive Compensation Plan (the "Compensation Plan") for certain of the Company's executive officers. Pursuant to the Compensation Plan each of Messrs. Michael N. Deitch (Chief Financial Officer), William Boyd Dover (President), Craig A. Norris (Chief Operating Officer), Fred D. Furman (General Counsel), Martin J. Favis (Chief Development Officer) and Ms. Mary J. Shea (Executive Vice President of Program Services) are eligible to receive a cash bonus based on the the Company exceeding its budgeted net income and earnings per share target amounts for the fiscal year 2005 (calculated after giving effect to any bonuses accrued under the Compensation Plan) as follows: (1) if net income and earnings per share exceed budgeted target amounts by 1% to 5%, the cash bonus payable to each executive officer will be 25% of the executive officer's 2005 base salary; and (2) if net income and earnings per share exceed budgeted target amounts by more than 5%, the cash bonus payable to each executive officer will be 50% of the executive officer's 2005 base salary.