YOUTH SERVICES INTERNATIONAL INC, S-3/A, 1996-10-25

YOUTH SERVICES INTERNATIONAL INC
S-3/A, 1996-10-25
CHILD DAY CARE SERVICES

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<PAGE> 1

As filed with the Securities and Exchange Commission on October 25, 1996.
Registration No. 333-09089

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1
TO

FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
YOUTH SERVICES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

MARYLAND 52-1715690
(State or other jurisdiction of (I.R.S. Employer
incorporation organization) or Identification No.)

2 Park Center Court, Suite 200
Owings Mills, Maryland 21117
(410) 356-8600

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

WILLIAM P. MOONEY
Chief Financial Officer
Youth Services International, Inc.
2 Park Center Court, Suite 200
Owings Mills, Maryland 21117
(410) 356-8600

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

COPIES TO:
MARK S. DEMILIO, ESQUIRE

Miles & Stockbridge, a Professional Corporation
10 Light Street

Baltimore, Maryland 21202
(410) 727-6464

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this registration statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are being
offered on a delayed or continuous basis, pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /x/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /

If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. / /

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.

===============================================================================
<PAGE> 2

PROSPECTUS

$31,600,000
7% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2006

2,534,082 SHARES OF COMMON STOCK

YOUTH SERVICES INTERNATIONAL, INC.

This Prospectus relates to up to $31,600,000 aggregate principal
amount of 7% Convertible Subordinated Debentures due 2006 (the "Exchange Offer
Debentures") of Youth Services International, Inc., a Maryland corporation
("YSI" or the "Company"), issued under the Indenture (the "Indenture"), dated
as of October 15,1996, by and between the Company and The Chase Manhattan Bank,
as trustee (the "Trustee"), and the 2,534,082 shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), issuable upon conversion
of the Exchange Offer Debentures and the Restricted Debentures (as defined
below). The Company originally issued and sold $37,950,000 aggregate principal
amount of 7% Convertible Subordinated Debentures due 2006 (the "Original
Debentures") on January 29, 1996 in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act").
A portion of the Original Debentures (the "Rule 144A Debentures") were offered
and sold to persons reasonably believed to be "qualified institutional buyers,"
as such term is defined under Rule 144A under the Securities Act, a portion of
the Original Debentures (the "Accredited Investor Debentures") were offered and
sold to persons reasonably believed to be "accredited investors," as such term
is defined by Rule 501(a) under the Securities Act and a portion of the
Original Debentures (the "Regulation S Debentures") were offered and sold in
transactions complying with the provisions of Regulation S under the Securities
Act.

On September 30, 1996, the Company commenced an exchange offer
pursuant to which the Company offered holders of the Rule 144A Debentures and
the Accredited Investor Debentures (collectively, the "Restricted Debentures")
the opportunity to exchange such Restricted Debentures for an equal principal
amount of Exchange Offer Debentures issued under the Indenture. The exchange
offer expires on October 31, 1996. As of September 30, 1996, there were
outstanding an aggregate principal amount of $31,600,000 of Restricted
Debentures and 2,534,082 shares of Common Stock issuable upon conversion of the
Restricted Debentures. Accordingly, an aggregate principal amount of up to
$31,600,000 of the Exchange Offer Debentures and up to 2,534,082 shares of
Common Stock issuable upon conversion of the Exchange Offer Debentures and upon
conversion of the Restricted Debentures (the "Conversion Shares") may be
offered and sold from time to time by the holders named herein or by their
transferees, pledgees, donees or their successors (the "Selling Holders")
pursuant to this Prospectus.

The Exchange Offer Debentures have substantially the same terms as the
Restricted Debentures. The Exchange Offer Debentures will mature on February
1, 2006, pay interest semi-annually in arrears on February 1 and August 1 of
each year and are convertible at the option of the holder thereof at any time
after the date of this Prospectus and prior to redemption and maturity, into
shares of Common Stock at a conversion price of $12.47 per share, subject to
adjustment under certain conditions. On October 17, 1996, the reported closing
sales price of the Common Stock on the Nasdaq National Market was $16 7/8 per
share.

The Exchange Offer Debentures are redeemable at the option of the
Company, in whole or in part, at any time on or after February 1, 1999, at the
redemption prices set forth therein. See "Description of Exchange Offer
Debentures." The Company is not required to make any mandatory redemptions or
annual sinking fund payments with regard to the Exchange Offer Debentures.

The Exchange Offer Debentures are unsecured obligations of the Company
and are subordinate in right of payment to the prior payment in full of all
Senior Indebtedness (as defined) of the Company and its subsidiaries, including
all existing and future liabilities of the Company and its subsidiaries. The
Company estimates that as of September 30, 1996, the Senior Indebtedness was
approximately $16.6 million. The ability of the Company and its subsidiaries
to incur additional indebtedness and liabilities is not limited by the terms of
the Exchange Offer Debentures.

The Exchange Offer Debentures and the Conversion Shares may be sold by
the Selling Holders from time to time directly to purchasers. The Selling
Holders will receive all of the net proceeds from the sale of the Exchange
Offer Debentures and the Conversion Shares and will pay all underwriting
discounts and selling commissions, if any,
<PAGE> 3
applicable to the sale of the Exchange Offer Debentures and the Conversion
Shares. The Company is responsible for payment of all other expenses in
connection with the performance by the Company of its obligations under the
terms and provisions of the Exchange Offer Debentures and the Restricted
Debentures.

The Selling Holders and any broker-dealers, agents or underwriters
that participate in the distribution of the Exchange Offer Debentures or the
Conversion Shares may be deemed to be "underwriters," as such term is defined
under Section 2(11) of the Securities Act, and any commission or profit
received by them in connection with the resale of the Exchange Offer Debentures
or the Conversion Shares may be deemed to be underwriting commissions or
discounts under the Securities Act.

SEE "RISK FACTORS" COMMENCING ON PAGE 3 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE EXCHANGE OFFER
DEBENTURES OR THE CONVERSION SHARES.

__________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is October , 1996.

<PAGE> 4
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10048, and copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a site on the World Wide Web, the address of which is
http:/www.sec.gov., that contains reports, proxy and information statements and
other information regarding issuers, such as the Company, that file
electronically with the Commission. Such reports, proxy statements and other
information concerning the Company also may be inspected at the offices of the
Nasdaq Stock Market, Reports Section, at 1735 K Street, Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on
Form S-3 (hereinafter, together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the
securities covered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Company and the securities covered by
this Prospectus, reference is made to the Registration Statement that is on
file at the offices of the Commission and may be obtained upon payment of the
fee prescribed by the Commission, may be examined without charge at the offices
of the Commission or may be obtained from the Commission's site on the World
Wide Web. Statements contained in this Prospectus as to the contents of any
documents referred to are not necessarily complete, and in each such incidence,
are qualified in all respects by reference to the applicable documents filed
with the Commission.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The Company hereby incorporates by reference in this Prospectus the
following documents filed with the Commission:

(a) the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996;

(b) the Company's Current Reports on Form 8-K/A dated September 25,
1995; Form 8-K/A dated October 2, 1995; Form 8-K dated March 27, 1996 (as
filed with the SEC on April 10, 1996); and Form 8-K/A dated October 17, 1996;
and

(c) the description of the Company's Common Stock contained in the
section titled "Description of Capital Stock" in the Preliminary Prospectus
included as part of the Company's Registration Statement on Form SB-2 (Reg. No.
33-71958) as filed with the Commission on November 19, 1993 and thereafter
amended and incorporated by reference in the Company's Registration Statement
on Form 8-A filed with the Commission pursuant to Section 12 of the Exchange
Act, and any amendment or report filed for the purpose of updating such
description.

All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
and prior to the termination of the offering of securities hereunder shall be
deemed to be incorporated herein by reference and to be a part hereof from the
respective dates of the filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company hereby undertakes to provide, without charge, to each
person to whom a copy of this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents incorporated by
reference herein, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference in such documents). Requests for
such copies should be directed to Youth Services International, Inc., 2 Park
Center Court, Suite 200, Owings Mills, Maryland 21117, Attention: Kendel S.
Ehrlich, Secretary, telephone: (410) 356-8600.

2
<PAGE> 5

RISK FACTORS

In addition to the other information in this Prospectus, the following
information should be considered carefully by potential purchasers in
evaluating the Company and its business before making an investment in the
securities offered hereunder:

ALL SHARE AND PER SHARE AMOUNTS IN THIS PROSPECTUS HAVE BEEN ADJUSTED
TO REFLECT A 3-FOR-2 STOCK SPLIT (EFFECTED THROUGH A STOCK DIVIDEND OF ONE
SHARE FOR EVERY TWO SHARES OUTSTANDING OR RESERVED FOR ISSUANCE) EFFECTED MAY
24, 1996.

MANAGEMENT OF GROWTH

The Company has experienced significant growth since its inception and
expects to continue to grow in the foreseeable future. The Company's success
will depend in part on the ability of the Company to obtain and train qualified
personnel to handle the increasing number of youths in its care; to develop and
operate the information technology systems and financial controls to manage the
increased number of personnel, responsibilities and youths; to manage its
resources over a larger base of programs and activities; to integrate
efficiently and effectively the business and financial functions of any
acquired or other newly developed programs; and to integrate any acquired
programs into the Company's programmatic functions and philosophy. There can
be no assurance that the Company will be able to successfully accomplish such
integration from its historic acquisitions or that it will be able to do so on
the larger scale that may occur as the Company continues to grow.

CONTRACT REVENUES AND PROFIT

The Company's operations currently consist of programs that are based
on various contractual relationships. The Company's program revenues are
generated under the terms of these contracts that generally call for fixed per
diem payments that are based upon program occupancy. Such payments are
recognized as revenues for financial statement purposes as services are
performed. One of the Company's contracts contains a gross maximum price cost
reimbursement provision that results in the recognition of revenues as
specific reimbursable costs are incurred. The Company's ability to estimate
and control its costs with respect to all of these contracts is critical to
its profitability.

DEPENDENCE UPON SIGNIFICANT CONTRACTS

Two of the Company's long-term contracts constituted, in the
aggregate, approximately 23.5% of the Company's revenues for the fiscal year
ended June 30, 1996 (the contract to operate The Charles H. Hickey, Jr. School
(15%) which expires on June 30, 1998, and the contract to operate the Victor
Cullen Academy (8.5%) which expires on August 31, 1997). These contracts,
will be subject to competitive bidding when they expire. The Company's
ability to maintain profitable operations will be dependent upon, among other
factors, the successful continuance of its existing contracts and programs.
There can be no assurance that such contracts will be renewed or extended or
that they will be renewed or extended on terms favorable to the Company, that
such programs will be continued or that the Company will be able to maintain
profitable operations.

POSSIBLE TERMINATION OF CONTRACTS AT THE DISCRETION OF GOVERNMENT AGENCIES

The terms of a number of the contracts with government agencies
pursuant to which the Company operates its programs provide that such contracts
(i) are subject to the ongoing appropriation by state legislatures and
authorities of sufficient funds, and (ii) may be terminated for any reason by
providing the Company notice of termination immediately or within specified
periods of time (ranging from 10 to 90 days) or otherwise at the "convenience"
of the state and local authorities. These terms give state and local
authorities significant discretion in terminating or modifying their
contractual arrangements with the Company. A number of state and local
governments have experienced fiscal pressures associated with a reduced tax
base and other factors. Accordingly, the Company's operations could be
materially adversely affected by the termination or modification of an
agreement or agreements at any time for reasons that may be outside of the
Company's control.

3
<PAGE> 6

GOVERNMENT CONTRACTS AND CONTRACTING PROCESS

Many of the Company's contracts are with government agencies.
Government contracts generally are subject to audits and investigations by
government agencies. These audits and investigations involve a review of the
contractor's performance on its contracts, as well as its pricing practices,
its cost structure and its compliance with applicable laws, regulations and
standards. If any costs are improperly charged to a contract, the costs are
not reimbursable and, if already reimbursed, will have to be refunded to the
government agency. Furthermore, if improper or illegal activities are
discovered in the course of any audits or investigations, the contractor may be
subject to various civil and criminal penalties and administrative sanctions,
which may include termination of contracts, forfeitures of profits, suspension
of payments, fines and suspension or debarment from doing business with the
government agency.

Typically, the Company must invest significant time and resources to
prepare detailed analyses and proposals addressing the needs of a government
authority with which it seeks to do business. Such proposals must be reviewed
by appropriate government authorities before the contract is awarded.
Accordingly, new contracts tend to have long lead times from initiation of
marketing efforts to execution and are subject to significant uncertainty
regarding successful conclusion at all times during the process. There can be
no assurance that additional contracts will be obtained by the Company or
continued once they are obtained.

NOT-FOR-PROFIT ORGANIZATIONS

The Company has conducted and will conduct a portion of its business
pursuant to subcontracts or similar relationships with not-for- profit entities
organized under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"), that have obtained status as organizations exempt from
federal income taxation under Section 501(a) of the Code. State governments,
agencies or licensing authorities that contract with the not-for-profit
organizations are eligible to receive matching funds from the federal
government as a partial reimbursement for certain program expenses charged by
the Company. If the exempt status of any of these not-for-profit organizations
is revoked, the state governments, agencies or licensing authorities may be
denied federal matching funds and may reduce their placement of students with,
or the use of, such organization, causing a loss of gross revenues to the
Company. In addition, in such event, these organizations would be taxed on
their net income, if any, which could adversely affect their ability to pay the
Company pursuant to their subcontracts.

4
<PAGE> 7

GOVERNMENTAL LIMITATIONS AND REGULATIONS

The industry in which the Company operates is subject to extensive
federal, state and local regulation including stringent licensing requirements.
Failure to comply with any applicable laws, rules or regulations or to maintain
its licenses could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, the current and
future operations of the Company may be subject to additional regulations as a
result of, among other factors, new statutes and regulations and changes in the
manner in which existing statutes and regulations are or may be interpreted or
applied. Any such additional regulations may have a material adverse effect on
the Company's business, financial condition and results of operations.

In the course of the Company's business, licensing authorities may
place certain provisions on program operations that are required to be resolved
in order to maintain a license. During such provisional period, the Company
may not be able to obtain approvals for increases in licensed capacity and may
experience other limitations.

The Company's ability to implement its business strategy may be
significantly affected by the legal power and structures of the state and local
governments with which the Company does or seeks to do business. The Company
believes that the laws of many states neither specifically authorize nor
prohibit governments from entering into contracts with private sector companies
for the types of services offered by the Company. It is possible that a third
party could challenge a government's decision to award a contract to the
Company in such a situation. In certain jurisdictions, governments may be
altogether precluded by law from entering into management contracts with
private sector companies. Also, while privatization of services has been used
in one form or another by many states, there can be no assurance that state and
local governments will continue to utilize private vendors to manage facilities
and/or programs for juvenile offenders. In addition, many state and local
governments are required to enter into a competitive bidding procedure before
awarding contracts for products or services. The laws of certain jurisdictions
may also require the Company to award subcontracts on a competitive basis and
to subcontract to varying degrees with businesses owned by women or minorities.
It is possible that a third party could challenge sole-source awards to the
Company or the Company's subcontracts as inconsistent with competitive bidding
or minority contracting requirements.

The health care industry is subject to extensive regulation by
federal, state and local governments, including regulations under Medicare,
Medicaid and Civilian Health and Medical Program of the Uniformed Services
("CHAMPUS") programs. Certain of the Company's programs, including its RTC's,
are subject to such regulation. Failure to comply with such laws and
regulations can cause fines and other penalties to the Company and can cause
expulsion from Medicare, Medicaid, CHAMPUS or other program involvement which
sanctions could have a material adverse affect on the Company.
Government-imposed limitations on Medicare and Medicaid reimbursement have
placed downward pressures on rates charged under these programs and have caused
the private sector to bear a greater share of increasing health care costs. As
a result of the continued escalation of health care costs and the inability of
many individuals to obtain health insurance, numerous proposals have been or
may be considered in the United States Congress and various state legislatures
relating to health care reform. Certain measures, if adopted, could affect the
rates charged by the Company for certain of its services, could affect the
manner in which care must be provided or could otherwise have a material
adverse affect on the Company's business.

The Company believes it is in compliance in all material respects with
all applicable rules and regulations.

5
<PAGE> 8

POTENTIAL THIRD-PARTY LIABILITY

Many aspects of the Company's operations involve risks of liability,
including potential third-party claims by students or other persons for
personal injury or other damage resulting from contact with the Company's
facilities, programs, personnel or students (including students who leave the
Company's facilities without Company authorization and cause bodily injury
or property damage). Furthermore, the Company's contracts often require the
Company to indemnify and hold the respective government agency harmless from
and against any damages to which the government agency may become subject by
reason of the Company's operations. The Company carries general liability
insurance that provides coverage for certain liability risks faced by the
Company, including accident and personal injury (including bodily injury
or property damage to a third party where the Company is found to be negligent
in its supervision practices). There can be no assurance, however, that the
Company's insurance will be adequate to cover any potential third-party claims.

Committed offenders often seek redress in federal courts pursuant to
federal civil rights statutes for alleged violations of their constitutional
rights caused by the overall condition of their confinement or by specific
conditions or incidents. The Company may be subject to liability if any such
claim or proceeding is made or instituted against the Company or the state with
which the Company contracts or subcontracts.

The operation of the Company's business also exposes it to a greater
than average risk of charges by employees of age or race discrimination filed
with the Equal Employment Opportunity Commission and equivalent state agencies
and related civil litigation. While the Company's management believes that
these claims and charges represent matters that arise in the ordinary course of
business for companies engaged in its industry, the defense of these claims can
be labor intensive and expensive.

PUBLIC SCRUTINY

The business of the Company is highly visible to the public and,
consequently, negative public reaction to the Company's policies or actions, or
to the statements or actions of juveniles in its care could adversely affect
the Company's ability to obtain additional programs or expand existing programs
or could otherwise adversely affect the Company's business. It is also
possible that, even absent such negative reaction to the Company, communities
may object to facilities such as the Company's which objections could
materially, adversely affect the ability of the Company to establish new
programs or expand existing programs.

ABILITY TO ATTRACT KEY PERSONNEL

The Company's operations depend to a great extent upon the
efforts of its executive officers, program directors and certain other
key personnel to obtain contracts, to operate and develop programs and to
administer the Company's business. In addition, the Company's ability to
perform under new contracts will depend, in part, on its ability to attract or
retain additional qualified personnel. There is significant competition for
qualified teachers, counselors, health care providers, program managers,
administrators and other key personnel, and there can be no assurance that the
Company will be successful in recruiting or training a sufficient number of
employees of the requisite caliber to enable the Company to operate its
business and implement its strategy as planned.

ANTITAKEOVER AND CHANGE-IN-CONTROL PROVISIONS

Pursuant to the Company's Charter, the Company's Board of Directors
has the authority to issue shares of preferred stock and to determine the
rights, preferences, privileges and restrictions of such shares without any
further vote or action by the stockholders. The issuance of preferred stock
under certain circumstances could have the effect of delaying or preventing a
change in control of the Company. In addition, the Maryland General
Corporation Law establishes special requirements with respect to "business
combinations" between Maryland corporations and "interested stockholders"
unless exemptions are applicable. Among other things, the law prohibits, for a
period of five years, after the date on which a stockholder becomes an
"interested stockholder," a merger and other transactions between a company and
an interested stockholder and requires a supermajority vote for such
transactions after the end of such five-year period. The Maryland General
Corporation Law also imposes limitations on the voting rights of shares of
capital stock acquired by stockholders in a "control share acquisition." These
provisions of the Maryland General Corporation Law could have the effect of
delaying or preventing a change in control of the Company.

In addition, the Exchange Offer Debentures provide the holders thereof
the right to cause the Company to redeem such debentures upon the occurrence of
a Change in Control (as defined in the Indenture). Such provision may make
more difficult and have the effect of delaying or preventing a change in
control of the Company.

CONCENTRATION OF SHARE OWNERSHIP AND CONTROL BY MANAGEMENT

The executive officers and directors of the Company and their
affiliates, as a group, owned or controlled approximately 35.7% of the
Company's outstanding Common Stock as of September 12, 1996, including all
shares that can be acquired pursuant to all outstanding options and warrants
exercisable within 60 days of such date held by such individuals. Assuming
full conversion of all Restricted Debentures and Regulation S Debentures as of
September 12, 1996, management ownership would have been approximately 28.0%
of the total outstanding Common Stock as of September 12, 1996. As a result,
the executive officers and directors and their affiliates may be able to
control the Company, to direct its affairs and business and to control the
outcome of matters requiring stockholder approval, including matters involving
a change in control of the Company.

VOLATILITY OF STOCK PRICE

The market price of the Company's Common Stock has been volatile. There
also have been periods of extreme fluctuation in the stock market that, in many
cases, were unrelated to the operating performance of, or announcements
concerning, the issuers of the affected securities. Securities of issuers
having relatively limited capitalization or securities recently issued in a
public offering are particularly susceptible to change based on the short-term
trading strategies of certain investors. The trading price of the Common Stock
could be subject to wide fluctuation resulting from quarter-to-quarter
variations in operating results, new announcements, legislative developments,
trading volume, general market trends and other factors. There can be no
assurance that the price of the Commpany's Common Stock will be maintained at
its current level.

6
<PAGE> 9

SHARES ELIGIBLE FOR FUTURE SALE

A sale of a substantial amount of the Company's Common Stock in the
public market, including "restricted" shares held by Company stockholders,
could adversely affect the market price of the Common Stock. Except for the
2,534,082 Conversion Shares, substantially all of the Company's issued and
outstanding shares as of October 18, 1996 are freely tradable, subject, in
certain circumstances, to Rule 144 under the Securities Act of 1933. Upon the
effectiveness of the Registration Statement of which this Prospectus is part,
the Conversion Shares will become issuable and tradable pursuant to this
Prospectus. No prediction can be made as to the effect, if any, that future
sales of additional shares of Common Stock (including Conversion Shares) or the
availability of such shares for sale will have on the market price of the
Common Stock prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the ability of the Company to raise capital through the sale of its equity
securities.

SUBORDINATION OF EXCHANGE OFFER DEBENTURES

The Exchange Offer Debentures are subordinated in right of payment to
all existing and future Senior Indebtedness (as defined in the Indenture) of
the Company and its subsidiaries. The Company estimates that as of September
30, 1996, the Senior Indebtedness was approximately $16.6 million. The ability
of the Company and its subsidiaries to incur additional indebtedness and
liabilities is not limited by the terms of the Indenture or the Exchange Offer
Debentures. See "Description of Exchange Offer Debentures--Subordination."
The Exchange Offer Debentures rank pari passu with the Original Debentures and
with the Company's 12% Subordinated Debentures Due 2002.

DEPENDANT UPON CASH FLOW FROM SUBSIDIARIES

The Exchange Offer Debentures are obligations exclusively of the
Company and not of its subsidiaries. Because the operations of the Company are
currently conducted through subsidiaries, the cash flow and the consequent
ability to service debt of the Company, including the Exchange Offer
Debentures, are dependant, in part, upon the earnings of its subsidiaries and
distribution of those earnings to the Company or upon loans or other payments
of funds by those subsidiaries to the Company. The subsidiaries are separate
and distinct legal entities that have no obligation, contingent or otherwise,
to pay any amounts due under the Exchange Offer Debentures or to make any funds
available therefor, whether by dividends, loans or other payments. In
addition, the payment of dividends and the making of loans and advances to the
Company by its subsidiaries may be subject to statutory or contractual
restrictions, are contingent upon the earnings of those subsidiaries and are
subject to various business considerations. See "Description of Exchange Offer
Debentures--Subordination."

LACK OF PUBLIC MARKET FOR EXCHANGE OFFER DEBENTURES

The Exchange Offer Debentures have been issued in reliance on certain
exemptions from registration under the Securities Act, including Section
3(a)(9), Rule 144A and Regulation D. Accordingly, the Exchange Offer
Debentures may only be resold pursuant to an effective registration statement
under the Securities Act or in reliance on an exemption therefrom. Neither
the Exchange Offer Debentures nor the Restricted Debentures obligates the
Company to keep the Registration Statement of which this Prospectus is a part
effective after January 29, 1999. In addition, the use of this Prospectus may
be suspended from time to time in certain circumstances relating to pending
corporate developments and public filings with the Commission and similar
events. The Company does not intend to apply for listing of the Exchange
Offer Debentures on any securities exchange or to seek approval for quotations
through any automated system. Accordingly, there can be no assurance that a
liquid or active market for the Exchange Offer Debentures will develop or that
the holders of the Exchange Offer Debentures will be able to sell such
Debentures. If any such market were to develop, the Exchange Offer Debentures
could trade at prices that may be substantially lower than the principal
amount thereof.

USE OF PROCEEDS

7
<PAGE> 10
The Selling Holders will receive all of the net proceeds from the
resales of the Exchange Offer Debentures and the Conversion Shares, and the
Company will not receive any of the proceeds from such sales.

RATIO OF EARNINGS TO FIXED CHARGES

For the fiscal years ended June 30, 1992 and 1993, the Company's
earnings were insufficient to cover fixed charges by approximately $792,000 and
$1,671,000, respectively. For the fiscal years ended June 30, 1994, 1995 and
1996 the ratios of earnings to fixed charges were 5.78, 13.81 and 2.20,
respectively.

THE COMPANY

Youth Services International, Inc. (the "Company" or "YSI") is a
leading national provider of private educational, developmental and
rehabilitative programs which are designed to impact dramatically the thinking
and behavior of troubled youth. The Company's programs focus on troubled
youths who either have been adjudicated as delinquents or suffer from
behavioral problems with the objective of effectively preparing them to become
responsible self-sufficient taxpayers. The Company develops and operates a wide
range of programs designed to promote accountability, respect and discipline
through highly structured, physically demanding, intensely scheduled and
intellectually challenging activities. In conjunction with these programs, the
Company offers troubled youth a broad range of residential programs including
juvenile justice academies, residential treatment centers, boot camps, group
homes and foster homes, as well as non-residential services including
aftercare, tracking, counseling, partial care and day treatment services.

Initially, the Company was established to capitalize on emerging
opportunities in the privatization of juvenile justice programs by state and
local governments. Management believes that increasing cost containment
pressures at all levels of government coupled with the inability of many
government agencies to deliver economic and effective programs to a rapidly
increasing number of juvenile offenders will continue to accelerate the
privatization of juvenile justice services within the youth care industry. In
response to increasing demand for additional youth care services from both
state and local governments as well as managed care and insurance companies,
the Company has expanded and diversified its range of service offerings to
include behavioral health programs thereby further broadening its continuum of
care.

8
<PAGE> 11
DESCRIPTION OF EXCHANGE OFFER DEBENTURES

The Exchange Offer Debentures are issued under and entitled to the
benefits of the Indenture (the "Indenture") dated as of October 15, 1996, by
and between the Company and The Chase Manhattan Bank, as trustee (the
"Trustee"). The following statements under this heading are summaries of the
detailed provisions of the Indenture and the Exchange Offer Debentures, copies
of which are available for inspection at the office of the Trustee in New York
City. Such statements do not purport to be complete and are qualified in their
entirety by reference to the Indenture and the Exchange Offer Debentures. The
definition of certain terms used in the following summary are set forth below
under "-- Certain Definitions."

The Indenture and the Exchange Offer Debentures do not limit the
amount of other indebtedness that may be incurred or securities that may be
issued by the Company or its subsidiaries and contain no financial covenants or
similar restrictions with respect to the Company or its subsidiaries and,
therefore, holders of the Exchange Offer Debentures will have no protection
(other than their rights upon an Event of Default as described in "--Events of
Default" below) from adverse changes in the Company's financial condition.

PRINCIPAL, MATURITY AND INTEREST

The Exchange Offer Debentures are limited in the aggregate principal
amount to $31,600,000, will mature on February 1, 2006 and bear interest at a
rate of 7.0% per annum, payable semi-annually in arrears on each February 1 and
August 1. Interest on the Exchange Offer Debentures accrues from the
most recent date to which interest has been paid on the Exchange Offer
Debenture or, if no interest has been paid on the Exchange Offer Debenture,
from the most recent date on which interest had been paid on the Restricted
Debenture surrendered in exchange for the Exchange Offer Debenture. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months. The interest payable on each February 1 and August 1 will amount to
$35.00 per $1,000 aggregate principal amount of the Exchange Offer Debentures.

Interest is payable to all holders of record as of the close of
business on the January 15 or July 15 immediately preceding the interest
payment date (the "Record Date"). Except as set forth in the next sentence, no
interest is payable after the date an Exchange Offer Debenture is converted.
In the event an Exchange Offer Debenture is surrendered for conversion after a
Record Date and prior to or on the next interest payment date, interest will be
payable to the record holder on such Record Date notwithstanding such
conversion, unless the Exchange Offer Debenture is called for redemption prior
to such interest payment date, in which case no interest is payable upon such
converted Exchange Offer Debenture. Notwithstanding the last clause of the
preceding sentence, in the event the Company were to call the Exchange Offer
Debentures for redemption on February 1, 1999, the Company will make a full six
month interest payment on February 1, 1999 with respect to all Exchange Offer
Debentures outstanding on January 15, 1999, without regard to whether such
Debentures are converted into Common Stock between January 15, 1999 and January
29, 1999 (the last business day prior to February 1, 1999).

SUBORDINATION

The Exchange Offer Debentures are subordinate in right of payment to
the prior payment in full of all Senior Indebtedness of the Company and its
subsidiaries. The Company estimates that as of September 30, 1996, the Senior
Indebtedness was approximately $16.6 million. The Exchange Offer Debentures do
not limit the ability of the Company or its subsidiaries to incur secured
indebtedness or other Senior Indebtedness or to contribute assets to its
subsidiaries. The Company's rights as a stockholder and the rights of its
creditors, including holders of the Exchange Offer Debentures, to participate
in the assets of any of the Company's subsidiaries upon a subsidiary's
liquidation or recapitalization would be subject to the prior claims of such
subsidiary's creditors.

9
<PAGE> 12
service debt of the Company, including the Exchange Offer Debentures, are
dependent, in part, upon the earnings of its subsidiaries and the distribution
of those earnings to the Company or upon loans or other payments of funds by
those subsidiaries to the Company. The subsidiaries are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay any
amounts due pursuant to the Exchange Offer Debentures or to make any funds
available therefor, whether by dividends, loans or other payments. In
addition, the payment of dividends and the making of loans and advances to the
Company by its subsidiaries may be subject to statutory or contractual
restrictions, are contingent upon the earnings of those subsidiaries and are
subject to various business considerations.

The Exchange Offer Debentures are effectively subordinate to all
indebtedness and other liabilities, including current liabilities and
commitments under leases, if any, of the Company's subsidiaries. Any right of
the Company to receive assets of any of its subsidiaries upon liquidation or
reorganization of the subsidiary (and the consequent right of the holders of
the Exchange Offer Debentures to participate in those assets) are effectively
subordinate to the claims of that subsidiary's creditors, except to the extent
that the Company is itself recognized as a creditor of such subsidiary, in
which case the claims of the Company would still be subject to any security
interests in the assets of such subsidiary and subordinated to any indebtedness
of such subsidiary senior to that held by the Company.

CONVERSION RIGHTS

The Exchange Offer Debentures may be converted at any time, in whole or
in part, on or after the effective date with the Commission of the Registration
Statement of which this Prospectus is a part. The price at which Conversion
Shares shall be delivered upon conversion (herein called the "Conversion
Price") is $12.47 per Conversion Share as of the date of this Prospectus. The
Conversion Price will be adjusted in certain instances as described below. The
right to convert the Exchange Offer Debentures called for redemption will
terminate at the close of business on the business day immediately preceding
the date fixed for redemption, and will be lost if not exercised prior to that
time, even if such redemption occurs at a time when conversion of the Exchange
Offer Debentures is in the best interests of the holders. See "--Principal,
Maturity and Interest" for the effect of conversion on the right to receive
interest.

The right of conversion attaching to any Exchange Offer Debenture may
be exercised by the holder by delivering the Exchange Offer Debenture at the
specified office of the Trustee, with the notice of conversion duly signed and
completed. The conversion date shall be the date on which the Exchange Offer
Debenture (with the duly signed and completed notice of conversion) shall have
been delivered to such office. Fractional shares of Common Stock will not be
issued or delivered upon conversion, but, in lieu thereof, cash will be paid
based upon the then current market price of Common Stock (as determined in
accordance with the Indenture). Subject to the foregoing, no payments or
adjustments will be made upon conversion on account of accrued interest on the
Exchange Offer Debentures or for any dividends or distributions on any shares
of Common Stock delivered upon such conversion.

The Conversion Price is subject to adjustment in certain events as set
forth in the Indenture, including (a) stock dividends, (b) the issuance to all
holders of Common Stock of rights or warrants to purchase Common Stock at less
than the then current market price of the Common Stock (as determined in
accordance with the Indenture) unless holders of Exchange Offer Debentures are
entitled to receive the same upon conversion, (c) stock splits, and (d)
distributions to all holders of Common Stock of evidences of indebtedness of
the Company or assets (other than cash). In addition, the Company is
permitted to make such downward adjustments in the Conversion Price as it
considers to be advisable in order that any event treated for United States
Federal income tax purposes as a dividend of stock or stock rights will not be
taxable to the holders of Common Stock. Adjustments in the conversion price of
less than $.25 will not be required, but will be taken into account in the
computation of any subsequent adjustment.

10
<PAGE> 13

Notice of any adjustment of the conversion price will be given in the manner
set forth herein under "--Notices."

If at any time the Company makes a distribution of property to its
stockholders that would be taxable to such stockholders as a dividend for
United States Federal income tax purposes and, pursuant to the Indenture, the
conversion price of the Exchange Offer Debentures is reduced, such reduction
may be deemed to be the payment of a taxable dividend to holders of Exchange
Offer Debentures.

In the event that the Company should merge with another company,
become a party to a consolidation or transfer all or substantially all of its
assets to another company, each Exchange Offer Debenture then outstanding
would, without the consent of any holder, become convertible only into
the kind and amount of securities, cash and other property receivable upon the
merger, consolidation or transfer by a holder of the number of shares of Common
Stock into which such Exchange Offer Debenture might have been converted
immediately prior to such merger, consolidation or transfer.

REDEMPTION

The Exchange Offer Debentures may be redeemed, at the option of the
Company, in whole or in part at any time on or after February 1, 1999 at a
redemption price equal to that percentage of their principal amount set forth
below, together with accrued and unpaid interest to the date fixed for
redemption (see "--Principal, Maturity and Interest" for the effect of
conversion on the right to receive interest):

<TABLE>
<CAPTION>
ON OR AFTER
FEBRUARY 1 PREMIUM
---------- -------
<S> <C>
1999 103%
2000 102%
2001 101%
2002 and thereafter 100%
</TABLE>

In the event of a partial redemption, the Exchange Offer Debentures to be
redeemed will be selected by the Trustee not more than 75 days before the date
fixed for redemption, by such method as the Trustee shall deem fair and
appropriate.

In addition, the Exchange Offer Debentures may be redeemed at the
option of the Company if the Company shall determine that as a result of any
change to the laws, regulations or rulings of the United States or any taxing
authority thereof, the Company has or will become obligated to pay Additional
Amounts on the Exchange Offer Debentures, as described below under "--Payment
of Additional Amounts". In case of any such redemption, the redemption price
will be 100% of the principal amount of the Exchange Offer Debentures, together
in each case with accrued and unpaid interest to the date fixed for redemption.

11
<PAGE> 14

Except in the event of a "Change of Control" as described below, the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Exchange Offer Debentures.

Notice of intention to redeem the Exchange Offer Debentures will be
given as described under "--Notices" below. In the case of redemption of all
Exchange Offer Debentures, notice will be given once not more than 60 nor less
than 30 days prior to the date fixed for redemption. In the case of a partial
redemption, notice will be given twice, the first such notice to be given not
more than 60 nor less than 45 days prior to the date fixed for redemption and
the second such notice to be given not more than 45 nor less than 30 days prior
to the date fixed for redemption.

Notices of redemption will specify the date fixed for redemption, the
applicable redemption price, the date the conversion privilege expires and, in
the case of a partial redemption, the aggregate principal amount of the
Exchange Offer Debentures to be redeemed and the aggregate principal amount of
the Exchange Offer Debentures that will be outstanding after such partial
redemption. In addition, in the case of a partial redemption, the first notice
will specify the last date on which exchanges or transfers of the Exchange
Offer Debentures may be made and the second notice will specify the serial
numbers of the Exchange Offer Debentures and the portions thereof called for
redemption.

The Company may at any time and from time to time repurchase the
Exchange Offer Debentures in the open market or in private transactions at
prices it considers attractive. The Exchange Offer Debentures repurchased by
the Company will be cancelled.

Each holder of an Exchange Offer Debenture will have the right, subject
to the terms of any Senior Indebtedness, to cause the Company to redeem such
Debenture in whole but not in part for a cash amount equal to 100% of the
principal amount plus accrued interest, upon the occurrence of a Designated
Event (as defined below). Notice with respect to the occurrence of a
Designated Event will be given by the Company not later than 30 days after the
date of the occurrence of such Designated Event and will include, among other
things, the redemption price, the date fixed for redemption and the place of
payment. The date fixed for such purchase will be a date not less than 30
nor more than 60 days after notice of occurrence of a Designated Event is
given (except as otherwise required by law). Holders who have surrendered
debentures for redemption upon a Designated Event will be entitled to revoke
their election by delivering a written notice of such revocation to the Trustee
on or prior to the date fixed for redemption. In addition, holders of the
Exchange Offer Debentures will retain the right to convert such Exchange Offer
Debentures prior to the date fixed for redemption.

12
<PAGE> 15

A "Designated Event" will be deemed to have occurred, subject to the
provisions of the Indenture, upon the consummation of a purchase, merger,
acquisition, transfer or transaction or series of transactions involving a
"Change of Control" as defined below.

The Company, could, in the future, enter into certain transactions,
including certain recapitalizations of the Company, that would not constitute a
Change of Control under the Indenture, but that would increase the amount of
Senior Indebtedness (or any other indebtedness) outstanding at such time. There
are no restrictions in the Indenture on the creation of additional Senior
Indebtedness (or any other indebtedness), and, under certain circumstances, the
incurrence of significant amounts of additional indebtedness could have an
adverse effect on the Company's ability to service its indebtedness, including
the Exchange Offer Debentures.

If a Designated Event were to occur, there can be no assurance that
the Company would have sufficient funds at the time of such event to redeem all
Exchange Offer Debentures tendered by the holders thereof. A default by the
Company on its obligation to so redeem could, pursuant to cross-default
provisions, result in acceleration of the payment of other indebtedness of the
Company outstanding at that time.

Certain of the Company's existing and future agreements relating to
its indebtedness could prohibit the redemption by the Company of the Exchange
Offer Debentures pursuant to the exercise by a holder of the foregoing
option, depending on the financial circumstances of the Company at the time,
because such redemption could cause a breach of certain covenants contained in
such agreements. Such a breach may constitute an event of default under such
indebtedness and thereby restrict the Company's ability to purchase the
Exchange Offer Debentures. See "--Subordination."

PAYMENTS, PAYING AGENTS AND CONVERSION AGENTS

The Exchange Offer Debentures may be surrendered for conversion or
exchange at the corporate trust office of the Trustee in New York City (or at
the office of any of the conversion agents, if any).

The Company has initially appointed the Trustee as paying agent and
conversion agent. This appointment may be terminated at any time and
additional or other paying and conversion agents may be appointed. Notice of
any such termination or appointment and of any change in the office through
which any paying, conversion or transfer agent will act will be given in
accordance with "--Notices" below.

13
<PAGE> 16

All monies paid by the Company to the Trustee for the payment of
principal of and premium, if any, or interest on any Debenture that remain
unclaimed at the end of two years after such principal or interest shall have
become due and payable will be repaid to the Company, and the holder of such
Debenture may thereafter recover payment thereof only from the Company.

PAYMENT OF ADDITIONAL AMOUNTS

Subject to the limitations and restrictions set forth in the Indenture,
the Company will pay to the holder of any Exchange Offer Debenture who is a
United States Alien (as defined below) such additional amounts ("Additional
Amounts") as may be necessary in order that every net payment of the principal
of and premium, if any, of and interest on such Exchange Offer Debenture, and
any cash payments made in lieu of issuing shares of Common Stock upon
conversion of an Exchange Offer Debenture, after withholding on account of any
tax, assessment or governmental charge imposed upon such payment by the United
States or any political subdivision or taxing authority therein, will not be
less than the amount provided for in such Exchange Offer Debenture to be then
due and payable;

14
<PAGE> 17

EVENTS OF DEFAULT

An Event of Default is: (a) default in any payment when due of the
principal of any Exchange Offer Debenture, (b) default for 30 days in the
payment of any installment of interest or any Additional Amounts on any
Exchange Offer Debenture, (c) default for 60 days after appropriate notice in
the performance of any other covenant of the Company in the Exchange Offer
Debentures or the Indenture, (d) certain events of bankruptcy, insolvency or
reorganization or (e) acceleration of, or failure to pay when due upon
maturity, any indebtedness for money borrowed by the Company as to which the
Company has at least $10,000,000 in aggregate principal amount outstanding,
which acceleration is not rescinded or annulled or which failure is not cured
within 30 days after notice of acceleration or after such failure, as
the case may be. If an Event of Default shall occur and be continuing, any
holder of any such Exchange Offer Debenture may, at its option, declare the
principal of and accrued interest on such Exchange Offer Debenture to be
immediately due and payable.

CONSOLIDATION, MERGER AND SALE OF ASSETS

The Company may consolidate with, merge into or sell or convey all or
substantially all of its property to, another corporation without the consent
of holders of the Exchange Offer Debentures provided that, among other things,
the successor corporation assumes all obligations of the Company under the
Indenture and the Exchange Offer Debentures and, if such successor corporation
is not organized under the laws of the United States or any political
subdivision therein, such successor corporation agrees to make payments on the
Exchange Offer Debentures without deduction or withholding for any withholding
taxes or charges whatsoever imposed by the jurisdiction where such successor
corporation is generally subject to taxation or any political subdivision or
taxing authority therein, subject to certain exceptions. Upon compliance with
these provisions by a successor corporation, the Company would be relieved of
its obligations under the Indenture and the Exchange Offer Debentures. Under
certain circumstances described above involving a Change of Control, each
holder of Exchange Offer Debentures may have the right to require the Company
to purchase such Exchange Offer Debentures. See "--Change of Control."

MEETINGS, MODIFICATION AND WAIVER

The Indenture contains provisions for convening meetings of the
holders of Exchange Offer Debentures to consider matters affecting their
interests.

The Indenture and the Exchange Offer Debentures may be modified
by the Company and the Trustee, without the consent of the holder of any
Exchange Offer Debenture, for the purposes of (a) adding to the covenants of
the Company for the benefit of the holders or surrendering any right or power
conferred upon the Company, (b) providing for the conversion and redemption
rights of holders of Exchange Offer Debentures in the event of a
consolidation, merger or sale of substantially all of the assets of the
Company, (c) curing any ambiguity or correcting or supplementing any defective
provision contained in the Indenture, (d) making any other provisions that the
Company and the Trustee may deem necessary or desirable, and that will not
adversely affect the interests of the holders of Exchange Offer Debentures, or
(e) evidencing the succession of another corporation to the Company and the
assumption by any successor of the covenants of the Company in the Indenture or
the Exchange Offer Debentures.

Modifications and amendments to the Indenture or to the Exchange Offer
Debentures may also be made and any past default by the Company may be waived,
either with the written consent of the holders of not less than a majority in
aggregate principal amount of the Exchange Offer Debentures at the time
outstanding or by the adoption of a resolution at a meeting of holders of the
Exchange Offer Debentures at which a

15
<PAGE> 18

quorum (as defined below) is present, by not less than a majority in aggregate
principal amount of the Exchange Offer Debentures present at such meeting. No
such modification or amendment to the Indenture or the Exchange Offer
Debentures may, without the consent or the affirmative vote of the holder of
each Debenture affected thereby (a) waive a default in the payment of principal
or any premium or installment of interest on any such Debenture; (b) change the
stated maturity of any such Debenture; (c) reduce the principal amount or any
premium or interest payable on any such Debenture; (d) change the obligation of
the Company to pay Additional Amounts; (e) adversely affect the right to
convert or redeem any such Debenture; (f) modify the subordination provisions
of the Exchange Offer Debentures in a manner adverse to the holders
thereof; or (g) reduce the percentage in principal amount of outstanding
Exchange Offer Debentures the consent of whose holders is required for any
amendment or modification of the Indenture or the Exchange Offer Debentures or
for any waiver. The quorum at any meeting called to adopt a resolution is a
majority in aggregate principal amount of the Exchange Offer Debentures at the
time outstanding and the quorum at any adjourned meeting is 25% in aggregate
principal amount of the Exchange Offer Debentures at the time outstanding. Any
consent to any modification, amendment or waiver will be irrevocable once given
and will be conclusive and binding on all subsequent holders of such Exchange
Offer Debenture. Any modifications, amendments or waivers to the Indenture or
the Exchange Offer Debentures will be conclusive and binding on all holders of
Exchange Offer Debentures, whether or not they have given such consent or were
present at any meeting, and whether or not notation of such modifications,
amendments or waivers is made upon the Exchange Offer Debentures.

NOTICES

Notices to holders of the Exchange Offer Debentures will be given by
publication in a leading daily newspaper of general circulation in New York
City. Such publication is expected to be made in The Wall Street Journal
(Eastern Edition). Such notices will be deemed to have been given on the
date of such publication.

GOVERNING LAW

16
<PAGE> 19

The Indenture and the Exchange Offer Debentures are governed by
and construed in accordance with the laws of the State of New York, without
giving effect to its choice of law principles.

CERTAIN DEFINITIONS

Set forth below are certain terms defined in the Indenture.
Reference is made to the Indenture for a full definition of such terms, as
well as any other capitalized terms used herein for which no definition is
provided.

A "Change of Control" will be deemed to have occurred at such time as
(a) any person including any "group" within the meaning of Rule 13d-5(b)(1)
under the Exchange Act), becomes obligated to file a Schedule 13D or 14D-1
pursuant to the Exchange Act disclosing that such person has become the
beneficial owner of either (A) 50% or more of the shares of Common Stock then
outstanding or (B) 50% or more of the total voting power of all shares of
capital stock of the Company then outstanding; (b) there is consummated any
sale, transfer, lease or conveyance of all or substantially all of the
properties and assets of the Company to any other corporation or person (other
than a subsidiary of the Company); or (c) there shall be consummated any
consolidation or merger of the Company with or into any other entity (whether
or not affiliated with the Company) in which the Company is not the sole
surviving corporation or pursuant to which the shares of Common Stock are
converted into cash, securities or other property, other than a consolidation
or merger in which the holders of shares of Common Stock receive, (A) 75% or
more of the common stock of the sole surviving corporation outstanding
immediately following such transaction and (B) securities representing 75% or
more of the combined voting power of the voting stock of the sole surviving
corporation outstanding immediately following the transaction.

"Senior Indebtedness" of the Company is defined as the principal of
and premium, if any, and interest and other monetary obligations on (a) any
indebtedness of the Company (excluding the Exchange Offer Debentures and
indebtedness ranking pari passu with the Exchange Offer Debentures but
including guarantees given by the Company), whether now outstanding or
subsequently created or incurred, for money borrowed, whether or not
evidenced by debentures, notes or similar instruments, issued, incurred or
assumed by the Company, (b) the Company's existing indebtedness (other than
existing subordinated indebtedness), including indebtedness under the Company's
principal revolving bank credit facilities, (c) secured indebtedness and (d)
renewals, extensions, refinancings, refundings, amendments and modifications of
any such indebtedness or obligations, unless it is provided in any of
the foregoing that such indebtedness is not senior to the Debentures.

17
<PAGE> 20

"United States Alien" means any person who, for United States Federal
income tax purposes, is a foreign corporation, a nonresident alien individual,
an estate or trust the income of which is not subject to United States Federal
income taxation regardless of its source or a foreign partnership one or more
of the members of which is, for United States Federal income tax purposes, a
foreign corporation.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital consists of 20,000,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"). As of June 30,
1996, there were issued and outstanding 9,164,722 shares of Common Stock that
were held of record by 462 persons.

SELLING SECURITY HOLDERS

The following table sets forth, as of September 30, 1996, (i) each
record holder of Restricted Debentures (including each record holder of an
interest in the Global Rule 144A Security issued to DTC Corporation), (ii) the
respective principal amounts of the Restricted Debentures owned of record by
each such record holder (which may be exchanged for Exchange Offer Debentures)
and (iii) the number of Conversion Shares that are issuable upon conversion of
the Restricted Debentures (or the Exchange Offer Debentures) held by such
record holder. The information referenced in clauses (i) and (ii) of the
previous sentence has been obtained from The Chase Manhattan Bank (as Fiscal
Agent under the Fiscal Agency Agreement) and from The Depository Trust Company
as holder of the Global Rule 144A Security. The number of Conversion Shares
issuable upon conversion is estimated based upon the current Conversion Price
and assumes the debentures held by such holder are converted in full. The
holders will receive cash in lieu of any fractional share of Common Stock.
Because the holders may offer all or some of the Exchange Offer Debentures or
some or all of the Conversion Shares pursuant to this Prospectus, no estimate
can be given as to the amount of the Exchange Offer Debentures or the
Conversion Shares that will be held by the Selling Holders upon the termination
of any such sales. In addition, the holders identified below may have sold,
transferred or otherwise disposed of all or a portion of their Restricted
Debentures since September 30, 1996 in transactions exempt from the
registration requirements of the Securities Act. The debentures held by the
record holders listed below may be beneficially owned by other persons not
listed or noted below. None of the holders listed below has, or within the
past three years had, any position, office or other material relationship with
the Company or any of its predecessors or affiliates, except as noted below.
The Selling Holders, which term includes their transferees, pledgees, donees or
their successors, may from time to time offer and sell pursuant to this
Prospectus any or all of the Exchange Offer Debentures or the Conversion
Shares.

<TABLE>
<CAPTION>
Principal Amount of Conversion
Debenture Holder Restricted Debentures Shares
---------------- ---------- -------------
<S> <C> <C>
Atwell & Co. . . . . . . . . . . . . . $ 60,000 4,811
Bank of New York . . . . . . . . . . . 6,950,000 557,337

Bankers Trust Company(1). . . . . . . . 7,705,000 617,882
Bear Stearns Securities Corp.(2) . . . 2,635,000 211,307
Boston Safe Deposit & Trust Co. . . . . 2,375,000 190,457
Brown Brothers Harriman & Co. . . . . . 65,000 5,212
</TABLE>

18
<PAGE> 21

<TABLE>
<S> <C> <C>
Roland T. Bryan, IRA . . . . . . . . . 40,000 3,207
Campbell Advisors Inc. . . . . . . . . 100,000 8,019
Campbell Advisors in Money Purchase
Plan Trust . . . . . . . . . . . . . . 5,000 400
Chemical Bank . . . . . . . . . . . . . 35,000 2,806

Chase Manhattan Bank Trust (3) . . . . 225,000 18,043
Citibank, N.A. . . . . . . . . . . . . 550,000 44,105
Corestates Bank N.A. 40,000 3,207
Ell & Co. . . . . . . . . . . . . . . . 30,000 2,405
Hare & Co. . . . . . . . . . . . . . . 120,000 9,623
Lazard Freres & Co LLC (4). . . . . . . 270,000 21,651

Investors Fiduciary Trust Company/
State Street Bank . . . . . . . . . . 1,250,000 100,240
Lehman Brothers, Inc. . . . . . . . . . 100,000 8,019
Mercantile Safe Deposit and Trust
Company . . . . . . . . . . . . . . . 320,000 25,661
Merrill Lynch -Debt Securities . . . . 1,500,000 120,288
Morgan Stanley & Co., Incorporated . . 750,000 60,144
Morgan Stanley & Co., Inc./Prime
Dealer Services Corp. (5) . . . . . . 325,000 26,062

NatWest Securities Limited (6). . . . . 30,000 2,405
NBD Bank, N.A. . . . . . . . . . . . . 270,000 21,651
Neuberger & Berman . . . . . . . . . . 100,000 8,019
Northern Trust Co. - Trust . . . . . . 325,000 26,062
Polly & Co. . . . . . . . . . . . . . . 125,000 10,024

Republic New York Securities Corp. . . 380,000 30,473
Smith Barney, Inc. . . . . . . . . . . 2,950,000 236,567
State Street Bank - Custodian . . . . . 1,170,000 93,825
Wachovia Bank North Carolina . . . . . 200,000 16,038
Way & Co. . . . . . . . . . . . . . . . 220,000 17,642

Weiss, Peck & Greer . . . . . . . . . . 200,000 16,038
Wells Fargo Bank, N.A. . . . . . . . . 80,000 6,415
Wilmington Trust Co. . . . . . . . . . 100,000 8,019
---------------- ------------
Total: $31,600,000 2,534,064
=========== =========
</TABLE>

_______________

(1) As of September 30, 1996, based upon information provided by the
recordholder, Bankers Trust Company held $6,505,000 aggregate
principal amount of Restricted Debentures on behalf of NatWest
Securities Limited and, based upon information provided by the
beneficial holder, Bankers Trust Company held $1,200,000 aggregate
principal amount of Restricted Debentures on behalf of Putnam Capital
Appreciation Fund. See footnote 6 below for certain information
regarding NatWest Securities Limited.

(2) As of September 30, 1996, based upon information provided by the
beneficial holders, of the total aggregate principal amount of
Restricted Debentures held by Bear Stearns Securities Corp., $20,000
were held on behalf of HBK Securities Ltd., $80,000 were held on behalf
of HBK Main Street Investments LP, $250,000 were held on behalf of
Wechsler and Co., Inc., $900,000 were held on behalf of JMG Convertible
Investment C.E.P., $650,000 were held on behalf of Forest Fulcrum Fd.
Ltd. and $950,000 were held on behalf of Forest Fulcrum Fd. LP.

(3) As of September 30, 1996 based upon information provided by the
beneficial holders, Chase Manhattan Bank held $125,000 principal amount
of Restricted Debentures on behalf Fleet Bank, as custodian on behalf
of the Max W. Jacobs Trusts. The Chase Manhattan Bank serves as the
Fiscal Agent, Conversion Agent, Transfer Agent and Registrar of the
Company with respect to the Original Debentures pursuant to the Fiscal
Agency Agreement and as the Trustee with respect to the Exchange Offer
Debentures pursuant to the Indenture.

(4) As of September 30, 1996, based upon information provided by the
record holder, Lazard Freres & Co., LLC held these Restricted
Debentures on behalf of Betsy S. Michel.

(5) As of September 30, 1996, based upon information provided by the
beneficial holder, Morgan Stanley & Co. Inc./Prime Dealer Services
Corp. held $250,000 aggregate principal amount of Restricted
Debentures on behalf of HBK Finance LP and $75,000 aggregate principal
amount of Restricted Debentures on behalf of HBK Securities Ltd.

(6) NatWest Securities Limited served as the Manager for the Company,
pursuant to a Subscription Agreement with the Company dated January
23, 1996, in connection with the offer and issuance of the Original
Debentures. In addition, NatWest Securities Limited provides the
Company with investment banking services from time to time.

PLAN OF DISTRIBUTION

The Exchange Offer Debentures and the Conversion Shares may be sold
from time to time to purchasers directly by the Selling Holders.
Alternatively, the Selling Holders may from time to time offer the Exchange
Offer Debentures and the Conversion Shares to or through underwriters,
broker-dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders or
the purchasers of the Exchange Offer

19
<PAGE> 22
Debentures or the Conversion Shares for whom they may act as agents. The
Selling Holders and any underwriters, broker-dealers or agents that participate
in the distribution of the Exchange Offer Debentures or the Conversion Shares
may be deemed to be "underwriters," as such term is defined in Section 2(11) of
the Securities Act and any profit on the sale of the Exchange Offer Debentures
or the Conversion Shares by them and any discounts, commissions, concessions or
other compensation received by any such underwriter, broker-dealer or agent may
be deemed to be underwriting discounts and commissions under the Securities
Act.

The Exchange Offer Debentures and the Conversion Shares may be sold by
the Selling Holders from time to time, in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale or at negotiated prices. Such prices will be
determined by the Selling Holders. The sale of the Exchange Offer Debentures
and the Conversion Shares may be effected in transactions (i) on any national
securities exchange or quotation service on which the Exchange Offer Debentures
or the Conversion Shares may be listed or quoted at the time of sale, (ii) in
the over-the-counter market, (iii) in transactions otherwise than on such
exchanges or in the over-the-counter market or (iv) through the writing of
options. At the time a particular offering of the Exchange Offer Debentures or
the Conversion Shares is made, if required, a prospectus supplement will be
distributed that will set forth the names of the Selling Holders, the aggregate
amount and type of the Exchange Offer Debentures and the Conversion Shares, the
number of such securities owned prior to and after the completion of any such
offering, and, to the extent required, the terms of the offering, including the
name or names of any underwriters, broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the Selling Holders
and any discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.

To comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Offer Debentures and the Conversion Shares will be
offered or sold in such jurisdictions only through registered or licensed
broker-dealers. In addition, in certain jurisdictions, the Exchange Offer
Debentures and the Conversion Shares may not be offered or sold unless they
have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied
therewith.

Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Exchange Offer Debentures and the
Conversion Shares may be limited in its ability to engage in market activities
with respect to such Exchange Offer Debentures and Conversion Shares. In
addition, without limitation on the foregoing, each Selling Holder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, which provisions may limit the timing of purchases and
sales by the Selling Holders of any of the Exchange Offer Debentures and the
Conversion Shares. All of the foregoing may affect the marketability of the
Exchange Offer Debentures and the Conversion Shares.

All expenses of the registration of the Exchange Offer Debentures and
the Conversion Shares will be paid by the Company, including, without
limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Selling
Holders will be indemnified by the Company against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company will be indemnified by the
Selling Holders against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.

LEGAL MATTERS

The validity of the Exchange Offer Debentures and the Conversion
Shares will be passed upon for the Company by Miles & Stockbridge, A
Professional Corporation, 10 Light Street, Baltimore, Maryland 21202.

EXPERTS

The consolidated financial statements of the Company incorporated by
reference herein from the Company's Annual Report on Form 10-K as of June 30,
1996 for each of the years ended June 30, 1994, 1995 and 1996 have been
audited by

20
<PAGE> 23

Arthur Andersen LLP, independent public accountants, as indicated in their
report thereon included therein and incorporated herein by reference. Such
financial statements have been incorporated herein by reference in reliance
upon the reports of such firm and upon the authority of such firm as experts in
accounting and auditing.

The financial statements of Introspect Healthcare, Corporation as of
and for the year ended June 30, 1996 incorporated by reference herein from the
Company's Current Report on Form 8-K/A dated October 17, 1996 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report thereon included therein and incorporated herein by reference.
Such financial statements have been incorporated herein by reference in
reliance upon the reports of such firm and upon the authority of such firm as
experts in accounting and auditing.

The financial statements of Tampa Bay Academy, Ltd. and the financial
statements of American Residential Centers, Inc. as of and for the years ended
December 31, 1993, 1994 and 1995 incorporated by reference herein from the
Company's Current Report on Form 8-K dated March 27, 1996 (as filed with the
SEC on April 10, 1996) have been audited by Bair, Rupp, Simpson & Zorger, Inc.,
independent public accountants, as indicated in their report thereon included
therein and incorporated herein by reference in reliance upon the reports of
such firm and upon the authority of such firm as experts in accounting and
auditing.

The financial statements of Desert Hills Center for Youth and Families
of New Mexico, Inc. as of and for the year ended June 30, 1995 incorporated by
reference herein from the Company's Current Report on Form 8-K/A dated
September 25, 1995, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report thereon included therein and
incorporated herein by reference in reliance upon the reports of such firm and
upon the authority of such firm as experts in accounting and auditing. The
financial statements of Desert Hills Center for Youth and Families of New
Mexico, Inc. as of and for the years ended June 30, 1993 and 1994 incorporated
by reference herein from the Company's Current Report on Form 8-K/A dated
September 25, 1995, have been audited by Addison, Roberts and Ludwig, P.C.,
independent public accountants, as indicated in their report thereon included
therein and incorporated herein by reference in reliance upon the reports of
such firm and upon the authority of such firm as experts in accounting and
auditing.

21
<PAGE> 24
No dealer, salesperson or other individual has been authorized to give
any information or to make any representations other than those contained or
incorporated by reference in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any of its agents. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date as of which information is given in this Prospectus. This Prospectus
does not constitute an offer or solicitation by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to
whom it is unlawful to make such solicitation.

TABLE OF CONTENTS

<TABLE>
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . 2
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . 3
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . 7
RATIO OF EARNINGS TO FIXED CHARGES. . . . . . . . . . . . 8
THE COMPANY 8
DESCRIPTION OF EXCHANGE OFFER DEBENTURES . . . . . . . . 9
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . 18
SELLING SECURITY HOLDERS . . . . . . . . . . . . . . . . 18
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . 19
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . 20
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>

YOUTH SERVICES INTERNATIONAL, INC.

7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006

COMMON STOCK

-------------------

PROSPECTUS

------------------

DATED OCTOBER , 1996

<PAGE> 25
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses expected to be incurred in
connection with the offering described in this Registration Statement
(including the expenses incurred in connection with the exchange offer). There
are no underwriting discounts or commissions in connection with the offering
described in this Registration Statement. All amounts are estimated except the
Securities and Exchange Commission registration fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee . . . $ 11,104
Legal fees and expenses . . . . . . . . . . . . . . . . . 150,000
Accounting fees and expenses . . . . . . . . . . . . . . 10,000
Exchange Agent and Trustee fees and expenses . . . . . . 50,000
Printing and engraving fees and expenses . . . . . . . . 20,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 20,000
--------
$261,104
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Charter and Bylaws of the Company provide that, among other
matters, to the fullest extent permitted by the Maryland General Corporation
Law as it may be amended from time to time, current and former directors,
officers, employees and agents of the Company, and those persons who serve or
have served, at the Company's request, as a director, officer, partner,
trustee, employee or agent of another entity or enterprise shall be indemnified
against any and all liabilities and expenses incurred in connection with their
services in such capacities. Other provisions of the Charter and Bylaws
provide that the Company shall advance expenses to its officers and directors
and other persons to the same extent it shall indemnify such persons.

Furthermore, the Charter of the Company provides that, to the fullest
extent permitted by the Maryland General Corporation Law as it may be amended
from time to time, no director or officer of the Company shall be liable to the
Company or its stockholders for monetary damages arising out of events
occurring at the time such person is serving as a director or officer,
regardless of whether such person is a director or officer at the time of a
proceeding in which liability is asserted. Under current Maryland law, the
effect of this provision is to eliminate the rights of the Company and its
stockholders to recover monetary damages from a director or officer except (i)
to the extent that it is proved that the director or officer actually received
an improper personal benefit in money, property or services, or (ii) to the
extent that a judgment or other final adjudication adverse to the person is
entered in a proceeding based on a finding in the proceeding that the person's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding. In
situations to which the Charter provision applies, the remedies available to
the Company or a stockholder are limited to equitable remedies such as
injunction or rescission.

The Company currently maintains director and officer liability
insurance coverage for officers and directors.

ITEM 16. EXHIBITS.

4(a) Articles of Incorporation of the Company, as amended
(Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form SB-2 (Reg. No. 33-71958) filed
with the Commission on November 19, 1993, as amended.)

4(b) Bylaws of the Company, as amended and restated (Incorporated
by reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended June 30, 1996).

II-1
<PAGE> 26

4(c) Form of Exchange Offer Debentures.

4(d) Indenture, dated as of October 15, 1996, by and between the
Company and The Chase Manhattan Bank, as trustee (the "Trustee").

5 Opinion of Miles & Stockbridge, A Professional Corporation. *

12 Computation of Ratio of Earnings to Fixed Charges.

23(a)(1) Consent of Arthur Andersen LLP with respect to the
Consolidated Financial Statements of the Company.

23(a)(2) Consent of Arthur Andersen LLP with respect to the financial
statements of Desert Hills Center for Youth and Families, Inc. *

23(b) Consent of Addison, Roberts & Ludwig, P.C. with respect to the
financial statements of Desert Hills Center for Youth and
Families, Inc. *

23(c) Consent of Bair, Rupp, Simpson & Zorger, Inc. with respect to
the financial statements of Tampa Bay Academy, Ltd. and American
Residential Centers, Inc. *

23(d) Consent of Arthur Andersen LLP with respect to the financial
statements of Introspect Healthcare Corporation.

23(e) Consent of Miles & Stockbridge, A Professional Corporation. *

25 Form T-1, Statement of Eligibility Under the Trust Indenture
Act of 1939 of a Corporation to Act as Trustee.

- ---------------
* Previously filed.

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at the
termination of the offering.

(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities

II-2
<PAGE> 27
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

(i) The undersigned registrant hereby undertakes:

(1) For determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(j) The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to
act under subsection (a) of Section 310 of the Trust Indenture Act (the
"Indenture Act") in accordance with the rules and regulations prescribed by the
Commission under Section 305(b)(2) of the Indenture Act.

II-3
<PAGE> 28
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baltimore, State of
Maryland, as of the 21st day of October, 1996.

YOUTH SERVICES INTERNATIONAL, INC.

By: /s/ TIMOTHY P. COLE
---------------------------------
Timothy P. Cole
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<S> <C> <C>
/s/ W. JAMES HINDMAN Chairman of the Board October 21, 1996
-----------------------
W. James Hindman

/s/ TIMOTHY P. COLE Vice Chairman of the Board and Chief Executive October 21, 1996
--------------------------- Officer (Principal Executive Officer)
Timothy P. Cole

/s/ WILLIAM P. MOONEY Chief Financial Officer & Treasurer (Principal October 21, 1996
----------------------- Financial Officer and Principal Accounting
William P. Mooney Officer)

/s/ HENRY D. FELTON Chief Operating Officer and Director October 21, 1996
--------------------------
Henry D. Felton

/s/ J. DONALD BLACK Director October 21, 1996
--------------------------
J. Donald Black

/s/ MAYER KANTER Director October 21, 1996
---------------------------
Mayer Kanter

Director October , 1996
---------------------------
Cynthia K. Hindman, M.D.

/s/ MARTIN V. MARSHALL Director October 21, 1996
-----------------------
Martin V. Marshall

Director October , 1996
-----------------------------
Jacques T. Schlenger
</TABLE>

<PAGE> 29

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. ITEM NO.
------ ---- ---
<S> <C> <C>
4(c) Form of Exchange Offer Debentures.

4(d) Indenture, dated as of October 15, 1996, by and between the
Company and The Chase Manhattan Bank, as trustee (the "Trustee").

5 Opinion of Miles & Stockbridge, A Professional Corporation.*

12 Computation of Ratio of Earnings to Fixed Charges.

23(a)(1) Consent of Arthur Andersen LLP with respect to the
Consolidated Financial Statements of the Company.

23(a)(2) Consent of Arthur Andersen LLP with respect to the financial
statements of Desert Hills Center for Youth and Families,
Inc. *

23(b) Consent of Addison, Roberts & Ludwig, P.C with respect to the
financial statements of Desert Hills Center for Youth and
Families, Inc. *

23(c) Consent of Bair, Rupp, Simpson & Zorger, Inc with respect to
the financial statements of Tampa Bay Academy, Ltd. and
American Residential Centers, Inc. *

23(d) Consent of Arthur Andersen LLP with respect to the financial
statements of Introspect Healthcare Corporation.

23(e) Consent of Miles & Stockbridge, A Professional Corporation. *

25 Form T-1, Statement of Eligibility Under the Trust Indenture Act
of 1939 of a Corporation to Act as Trustee.
</TABLE>

_______________

* Previously filed

<PAGE> 1
(FORM OF FACE OF SECURITY)

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS AND NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED WITHIN THE
"UNITED STATES" OR TO "U.S. PERSONS" (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT) IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY,
BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES FOR THE BENEFIT
OF THE COMPANY THAT: (I) IT HAS ACQUIRED A "RESTRICTED" SECURITY WHICH HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT; (II) IT WILL NOT OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS AFTER
THE DATE OF ORIGINAL ISSUANCE HEREOF EXCEPT (A) TO YOUTH SERVICES
INTERNATIONAL, INC., (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (D) OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (E) IN A TRANSACTION
ARRANGED BY A BROKER OR DEALER REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, TO AN "ACCREDITED INVESTOR" (WITHIN THE MEANING OF RULE
501(a) UNDER THE SECURITIES ACT) THAT IS ACQUIRING THIS SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AS
CONFIRMED IN AN OPINION OF COUNSEL ACCEPTABLE IN FORM AND SUBSTANCE TO THE
ISSUER OF THIS SECURITY AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION; AND (III) IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER FROM IT OF THIS SECURITY OF THE RESALE RESTRICTIONS SET
FORTH IN (II) ABOVE. IF ANY RESALE OR OTHER TRANSFER OF THIS SECURITY IS
PROPOSED TO BE MADE PURSUANT TO CLAUSE II(E) ABOVE PRIOR TO THE DATE WHICH IS
THREE YEARS AFTER THE DATE OF ORIGINAL ISSUANCE HEREOF, THE TRANSFEROR SHALL
DELIVER A LETTER FROM THE TRANSFEREE CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY. ANY
OFFER, SALE OR OTHER DISPOSITION PURSUANT TO THE FOREGOING CLAUSE (II)(D), (E)
OR (F) IS SUBJECT TO THE RIGHT OF THE ISSUER OF THIS SECURITY AND THE TRUSTEE
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS OR OTHER
INFORMATION ACCEPTABLE TO THEM IN FORM AND SUBSTANCE.

A - 1
<PAGE> 2
Youth Services International, Inc.

(Incorporated in the State of Maryland)

7% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2006
CUSIP NO. 987816 AB 1

No. R[1][2][3]-_________________ U.S. $________________

Youth Services International, Inc., a corporation duly incorporated
and existing under the laws of the State of Maryland (the "Company"), for value
received, hereby promises to pay to _________________, or registered assigns,
the principal sum of __________ Dollars on February 1, 2006 upon presentation
and surrender hereof and to pay interest thereon, from the most recent interest
payment date to which interest has been paid or duly provided for under the
Original Debenture (as defined on the reverse hereof) surrendered in exchange
for this Security or from the most recent Interest Payment Date (as defined
below) to which interest has been paid or duly provided for hereunder,
semiannually in arrears on February 1 and August 1 in each year (each an
"Interest Payment Date"), at the rate of 7% per annum until the principal
hereof is paid or made available for payment.

Additional provisions of this Security are set forth on the reverse
hereof, which additional provisions shall for all purposes have the same effect
as if set forth at this place.

This Security shall not become valid or enforceable for any purpose
unless and until the certificate of authentication hereon shall have been
manually signed by a duly authorized signatory of the Trustee.

A - 2
<PAGE> 3
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed in its corporate name by the manual or facsimile signature of a duly
authorized signatory.

Dated:

YOUTH SERVICES INTERNATIONAL, INC.
[Corporate Seal]

By:
-------------------------------
Name:
Title:

Attest:

________________________

CERTIFICATE OF AUTHENTICATION

This is one of the Securities described in the
within-mentioned Indenture.

Authenticated by or on behalf of
THE CHASE MANHATTAN BANK,
as Trustee

By:
--------------------------------
Authorized Signatory

A - 3
<PAGE> 4
(FORM OF REVERSE OF SECURITIES)

1. General. This Security is one of a duly authorized issue of
securities of the Company designated as its 7% Convertible Subordinated
Debentures due 2006 (herein called the "Securities"), limited in aggregate
principal amount to U.S. $31,600,000. The Securities are issuable as
registered securities, without coupons, in denominations of U.S. $1,000 and
integral multiples thereof. The registered holder of a Security shall (to the
fullest extent permitted by applicable law) be treated at all times, by all
persons and for all purposes as the absolute owner of such Security, regardless
of any notice of ownership, theft or loss or of any writing thereon. The
Securities are direct and unsecured obligations of the Company, subordinated as
set forth in the Indenture and described in Section 7 hereof. There are no
restrictions herein or in the Indenture on other indebtedness or securities
which may be incurred or issued by the Company.

The Company has entered into an Indenture dated as of October 15, 1996
(the "Indenture") between the Company and The Chase Manhattan Bank, as Trustee.
The terms of the Securities include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 as
in effect on the date of the Indenture. Reference is hereby made to the
Indenture for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee, and the holders
of Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. The holders of the Securities will be entitled to
the benefits of, be bound by, and be deemed to have notice of, all of the
provisions of the Indenture. A copy of the Indenture is on file and may be
inspected at the offices of the Trustee. Capitalized terms used herein shall
have the meanings given them in the Indenture.

The Securities are, or are to be, issued pursuant to an exchange offer
made by the Company pursuant to which holders of certain 7% Convertible
Subordinated Debentures due 2006 of the Company issued pursuant to a Fiscal
Agency Agreement may exchange such Debentures for a like principal amount of
Securities.

2. Interest. Interest hereon shall be calculated on the basis of a
360-day year comprised of twelve 30-day months. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the person in whose name this Security is
registered at the close of business on the Record Date for such interest
payment, which shall be the January 15 or July 15 (whether or not a Business
Day) next preceding such Interest Payment Date. Except as otherwise provided
in the Indenture, any such interest not so punctually paid or duly provided for
will forthwith cease to be payable to the holder on such Record Date and may be
paid at any time in any lawful manner, all as more fully provided in the

A - 4
<PAGE> 5
Indenture. Payment of interest on this Security shall be made by United States
dollar check drawn on a bank in the City of New York and mailed to the person
entitled thereto at his address as it shall appear in the Security Register, or
(if arrangements satisfactory to the Company and the Trustee are made) by wire
transfer to a United States dollar account maintained by the payee with a bank
in the City of New York; provided, however, that if such mailing is not
possible and no such application shall have been made, payment of interest
shall be made at the principal corporate trust office of the Trustee, or such
other office or agency of the Company as may be designated for such purpose in
the City of New York.

The Company will pay, as additional interest, to the holder of this
Security who is a United States Alien such amounts as may be necessary in order
that every net payment of the principal of and premium, if any, of and interest
on this Security and any cash payment made in lieu of issuing shares of Common
Stock upon conversion of this Security, after withholding for or on account of
any present or future tax, assessment or other governmental charge imposed upon
or as a result of such payment by the United States or any political
subdivision or taxing authority thereof or therein, will not be less than the
interest provided herein to be then due and payable; provided, however, that
the foregoing obligation to pay such additional interest is subject to the
restrictions set forth in the Indenture.

3. Redemption. The Company, at its option, may redeem the Securities, in
whole or in part, at any time or times on and after February 1, 1999, upon
notice as set forth in the Indenture, at the redemption prices equal to that
percentage of their principal amount set forth below, together with accrued and
unpaid interest to the date fixed for redemption, at any time from and after
February 1 of the respective years:

<TABLE>
<CAPTION>
Premium
-------
<S> <C>
1999 103%
2000 102%
2001 101%
2002 and thereafter 100%
</TABLE>

If fewer than all of the then outstanding Securities are to be redeemed, the
Securities to be redeemed will be selected by the Trustee not more than 75 days
prior to the date fixed for redemption, by such method as the Trustee shall
deem fair and appropriate. The Company may elect to redeem Securities held by
a United States Alien in the event of a change in tax law results in the
Company being required to pay additional interest on such Securities, as set
forth in the Indenture.

Upon the consummation of a purchase, merger, acquisition, or other
transaction involving a Change in Control with respect to the Company (a
"Designated Event"), then the holder of this Security shall have the right, at
such holder's option, exercised

A - 5
<PAGE> 6
in accordance with the Indenture, to require the Company to purchase this
Security, in whole but not in part, on the Holder Redemption Date (as defined
below) for a cash amount equal to 100% of the principal amount, together with
accrued interest to the Holder Redemption Date. Within 30 days following any
Designated Event, if the purchase by the Company of Securities would result in
a default under any Credit Agreement, the Company will (i) repay in full all
debt under such Credit Agreement or offer to repay in full all such debt and
repay such debt of each lender or other financial institution which has
accepted such offer or (ii) obtain the requisite consent under any such Credit
Agreement to permit the purchase of the Securities as provided for herein. The
Company shall first comply with the covenant in the preceding sentence before
it shall be required to purchase Securities upon the exercise by a holder of
its redemption right as described herein. Each holder of a Security desiring
to exercise the option for redemption upon the occurrence of a Designated Event
shall, as a condition to such redemption, on or before the close of business on
the fifth business day prior to the Holder Redemption Date, surrender the
Security to be redeemed, in whole but not in part, together with the Redemption
Notice hereon duly executed at the place or places specified in the notice of
redemption and otherwise comply with the provisions of the Indenture. A holder
of a Security who has tendered a Redemption Notice (i) will be entitled to
revoke its election by delivering a written notice of such revocation together
with the holder's non-transferable receipt for such Security to the office or
agency of the Company designated as the place for the payment of the Securities
to be so redeemed on or before the Holder Redemption Date and (ii) will retain
the right to convert its securities into shares of Common Stock of the Company
on or before the close of business on the Business Day immediately prior to the
Holder Redemption Date.

Notice of redemption will be given by the Company by publication in an
Authorized Newspaper on a Business Day in the City of New York. In the case of
a redemption in whole at the option of the Company, notice will be given once
not more than 60 nor less than 30 days prior to the date fixed for redemption.
In the case of a partial redemption at the option of the Company, notice will
be given twice, the first such notice to be given not more than 60 nor less
than 45 days prior to the date fixed for redemption and the second such notice
to be given not more than 45 nor less than 30 days prior to the date fixed for
redemption. Neither the failure to give notice nor any defect in any notice
given to any particular holder of a Security shall affect the sufficiency of
any notice with respect to other Securities.

If notice of redemption has been given in the manner set forth in this
Section 3, the Securities so to be redeemed shall be paid and redeemed by the
Company on the applicable redemption date specified in such notice and upon
presentation and surrender of the Securities at the place or places specified
in the notice and in the manner and currency specified in the Indenture and at
the redemption price together with accrued interest, if any, to the

A - 6
<PAGE> 7
redemption date. From and after the redemption date, if monies for the
redemption of Securities shall have been available at the principal corporate
trust office of the Trustee for redemption on the redemption date, the
Securities shall cease to bear interest and the only right of the holders of
such Securities shall be to receive payment of the redemption price together
with accrued interest to the redemption date.

Reference is made to the Indenture for a full description of the
rights and obligations, and the limitations thereon, of the Company to redeem
the Securities.

4. Conversion. Subject to and upon compliance with the provisions of the
Indenture, a holder of Securities is entitled, at such holder's option, at any
time on or after the Registration Date and prior to the close of business on
February 1, 2006, to convert such Security at the principal amount thereof (or
any portion of the principal amount thereof which is $1,000 or an integral
multiple thereof), into fully paid and nonassessable shares of Common Stock of
the Company (calculated as to each conversion to the nearest 1/1000 of a share)
at a Conversion Price equal to $12.47 aggregate principal amount of Securities
for each Conversion Share (or at the current adjusted Conversion Price if an
adjustment has been made as provided in the Indenture). The holder shall
affect such Conversion by surrender of the Security together with (a)
instruments of transfer in form satisfactory to the Company and the Trustee,
duly executed by the registered holder or by his duly authorized attorney, and
(b) the Conversion Notice hereon duly executed at the principal corporate trust
office of the Trustee, or at such other office or agency of the Company as may
be designated by it for such purpose in the City of New York. If any Security
or a portion thereof is called for redemption, the right to convert such
Security (or such portion thereof) shall expire at the close of business on the
Business Day immediately preceding the date fixed for redemption or the Holder
Redemption Date (provided that in the latter case the holder shall have revoked
his redemption in accordance with Section 3 hereof).

In the case of any Security which is converted after any Record Date
and on or prior to the next succeeding Interest Payment Date (except in the
case of Securities or portions thereof which are called for redemption on a
redemption date within such period), interest payable on such Interest Payment
Date shall be payable notwithstanding such conversion, and such interest shall
be paid to the person in whose name that Security is registered at the close of
business on such Record Date. Except as otherwise provided in the immediately
preceding sentence, no payment or adjustment shall be made upon any conversion
on account of any interest accrued on the Securities surrendered for conversion
or on account of any dividends or distributions on the Conversion Shares issued
upon conversion. No fractions of shares or scrip representing fractions of
shares will be issued or delivered on conversion, but instead of any fractional
interest the Company shall pay a cash adjustment as provided in the Indenture.
All

A - 7
<PAGE> 8
calculations regarding conversions will be made to the nearest cent or to the
nearest 1/1000 of a share, as the case may be.

In case of any consolidation with, or merger of the Company into, any
other corporation, or in case of any merger of another corporation into the
Company (other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company), or in case of any sale or transfer of all or substantially all of
the assets of the Company, upon consummation of such transaction this Security
shall, without consent of the holder, automatically become convertible only
into the kind and amount of securities, cash or other assets which the holder
of the Security would have owned immediately after the consolidation, merger,
sale or transfer if the holder had converted the Security at the conversion
price in effect immediately before the effective date of the transaction.

Reference is made to the Indenture for a full description of the
rights of holders and obligations of the Company, and the limitations thereon,
to convert this Security.

5. Events of Default. In the event that any Event of Default shall occur and
be continuing, then the holder of this Security may, at such holder's option,
declare the principal of this Security and the interest accrued hereon to be
due and payable immediately by written notice to the Company and the Trustee,
and if any such Event of Default shall continue at the time of receipt of such
written notice, the principal of this Security and the interest accrued hereon
shall become immediately due and payable, subject to the provisions of the
Indenture. Additionally, if an Event of Default occurs and is continuing,
then, and in each and every such case, unless the principal of all of the
Securities shall have already become due and payable, the Trustee or the
holders of not less than 25% in aggregate principal amount of the outstanding
Securities, by notice in writing to the Company (and to the Trustee if given by
the holders of Securities), may declare the entire principal of all of the
Securities and the interest accrued thereon, if any, to be due and payable
immediately, and upon any such declaration the same shall become immediately
due and payable, subject to the provisions of the Indenture. Any acceleration
of this Security this Section 5 shall not affect the subordination provisions
set forth in Section 7 hereof.

The rights of the Trustee and the holders, the obligations of the
Company and the restrictions on such rights and obligations upon the occurrence
of an Event of Default are as set forth in the Indenture.

A - 8
<PAGE> 9
6. Merger, Consolidation, Sale, Conveyance or Assumption. The Company
will not merge or consolidate with, or sell or convey all or substantially all
of its assets to, any other corporation (for purposes hereof "corporation"
shall include business trusts, limited partnerships, business corporations and
other business entities), unless (a) the Company shall be the surviving
corporation in the case of a merger or the surviving or transferee corporation
shall expressly assume the due and punctual payment of all the Securities and
the due and punctual performance of all of the covenants and obligations of the
Company under the Securities and the Indenture, by supplemental agreement, (b)
the surviving, resulting or transferee corporation, if not organized and
validly existing under the laws of the United States, shall expressly agree to
make payments under the Securities free of any deduction or withholding for or
on account of taxes, levies, imposts and charges whatsoever imposed by or for
the account of the jurisdiction where such successor corporation is generally
subject to taxation, and (c) the Company or such successor corporation, as the
case may be, shall not, immediately after such event, be in default in the
performance of any covenants or obligations of the Company under the Securities
or the Indenture.

Upon any merger, consolidation, sale, conveyance or assumption as
provided in this Section 6, the successor or assuming corporation shall succeed
to and be substituted for, and may exercise every right and power of and be
subject to all the obligations of, the Company under the Securities and the
Indenture, with the same effect as if such successor or assuming corporation
had been named as the Company therein and herein and the Company shall be
released from its liability as obligor under the Securities and the Indenture.

7. Agreement of Subordination of Securities. The payment of the
principal of and interest on each and all of the Securities is subordinated and
subject in right of payment, to the extent and in the manner set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness of the
Company and this Security is issued subject to such provisions.

Each Holder of this Security, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on
such Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination so provided and (c) appoints the Trustee such
Holder's attorney-in-fact for any and all such purposes.

8. Replacement, Transfer and Exchange of Securities. In case any
Security shall at any time become mutilated, destroyed, stolen or lost and such
Security or evidence of the loss, theft or destruction thereof (together with
the indemnity hereinafter referred to and such other documents or proof as may
be required) shall be delivered to the Trustee, a new Security of like tenor
and date, will be issued by the Company in exchange for the Security so
mutilated, or in lieu of the Security so destroyed,

A - 9
<PAGE> 10
stolen or lost, but, in the case of a destroyed, stolen or lost Security only
upon receipt of evidence satisfactory to the Trustee and the Company that such
Security was destroyed, stolen or lost, and if required by the Trustee or the
Company, upon receipt also of indemnity satisfactory to the Trustee and the
Company. All expenses and reasonable charges associated with procuring such
indemnity and with the preparation, authentication and delivery of a new
Security shall be borne by the owner of the Security so mutilated, destroyed,
stolen or lost.

As provided in the Indenture and subject to certain limitations
therein set forth, Securities are exchangeable at the principal corporate trust
office of the Trustee in the City of New York or the offices of the paying
agencies as designated by the Company for such purpose pursuant to the
Indenture, for an equal aggregate principal amount of Securities of authorized
denominations as requested by the holder surrendering the same and the transfer
of Securities is registrable on the Security Register upon surrender of a
Security for registration of transfer at the office or agency of the Trustee in
the City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the duly executed by, the
holder thereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.

The costs and expenses of effecting any exchange or registration of
transfer pursuant to the foregoing provisions, except for the expenses of
delivery by other than regular mail (if any) and except, if the Company shall
so require, the payment of a sum sufficient to cover any tax or other
governmental charge or insurance charges that may be imposed in relation
thereto, will be borne by the Company.

9. Modifications and Amendments. Without the consent of any holders of
Securities, modifications of or amendments to the Indenture may be made: (a)
to evidence the succession of another corporation to the Company and the
assumption by any such successor of the covenants of the Company in the
Indenture or the Securities; (b) to add to the covenants of the Company for the
benefit of the holders of Securities, or to surrender any right or power herein
conferred upon the Company; (c) to make provision with respect to the
conversion rights of holders of Securities; (d) to cure any ambiguity, to
correct or supplement any provision herein which may be inconsistent with any
other provision herein; and (e) to make any other provisions with respect to
matters or questions arising under this Security or the Indenture, provided
such action shall not adversely affect the interests of the holders of
Securities.

A - 10
<PAGE> 11
10. Meetings and Votes of Holders. The holders of Securities have certain
rights regarding the calling of meetings of holders of Securities and the
voting thereat as set forth in the Indenture.

11. Non-Business Days. In any case where the date of maturity of the
principal of or interest on the Securities or the date fixed for redemption of
any Security shall be at any place of payment a day other than a Business Day,
then payment of principal or interest need not be made on such date at such
place but may be made on the next succeeding Business Day at such place of
payment, with the same force and effect as if made on the date of maturity or
the date fixed for redemption, and no interest shall accrue for the period
after such date.

12. Trustee. The Company has initially appointed Chase Manhattan Bank
(the "Trustee") as Trustee and as registrar, transfer agent, paying agent and
conversion agent acting through the Trustee's principal corporate trust office
in the City of New York. The Company may at any time terminate the appointment
of the registrar and such agents and appoint additional or other registrars and
agents or approve any change in an office through which the registrar or any
agent acts; provided that until all of the Securities have been delivered to
the Trustee for cancellation, or monies sufficient to pay the Securities have
been made available for payment and either paid or returned to the Company as
provided in the Securities and the Indenture, the Company will maintain a
paying agent and a conversion agent in the City of New York in the United
States for the payment of the principal and interest on Securities and for the
surrender of Securities for conversion or redemption.

For a description of the duties and the immunities and rights of the
Trustee, reference is made to the Indenture, and the obligations of the Trustee
to the holder hereof are subject to such immunities and rights.

13. Notices. All notices to the holders of Securities will be published
on a Business Day in an Authorized Newspaper in the City of New York. It is
expected that publication in the City of New York will be made in The Wall
Street Journal (Eastern edition). Notices shall be deemed to have been given
on the date of publication as aforesaid or, if published on different dates, on
the date of the first such publication. A copy of each notice will be mailed
by the Trustee, on behalf of and at the expense of the Company, by first-class
mail to each holder of a Security at the registered address of such holder as
the same shall appear in the Security Register on the day fifteen days prior to
such mailing.

14. Governing Law. The Indenture and this Security shall be governed by
and construed in accordance with the laws of the State of New York, United
States of America, without regard to principles of conflicts of laws. The
Company has appointed CT

A - 11
<PAGE> 12
Corporation System as its agent upon whom process may be served in any suit,
action or proceeding relating to or arising out of this Security or the
Indenture, with a copy to the Company at 2 Park Center Court, Suite 200, Owings
Mills, Maryland 21117.

15. Authentication. This Security shall not become valid or obligatory
for any purpose until the certificate of authentication hereon shall have been
duly signed by or on behalf of the Trustee acting under the Indenture.

The Company will furnish a copy of the Indenture upon written request
and without charge. Requests may be made to Youth Services International,
Inc., 2 Park Center Court, Owings Mills, Maryland 21117, Attention: Secretary.

A - 12
<PAGE> 13
TRANSFER NOTICE

FOR VALUE RECEIVED, the undersigned Holder hereby sell(s), assign(s) and
transfer(s) unto: __________________________________ whose taxpayer
identification number is ________________ and whose address including
postal/zip code is______________________________ ____________________________
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing ___________________ attorney-in-fact to transfer said Security
on the books of the Company with full power of substitution in the premises.

In connection with the transfer of this Security, the undersigned
certifies that (check one):

/ / (a) This Security is being transferred pursuant to an effective
registration statement under the Securities Act of 1933, as
amended (the "Securities Act") in compliance with the
Securities Act.

/ / (b) This Security is being transferred pursuant to Rule 144 under
the Securities Act (an opinion of counsel reasonably
acceptable to the Company addressed to the Company and the
Trustee and in form and scope satisfactory to the Company to
the effect that the proposed transfer of such Security is to
be made in compliance with Rule 144 is attached hereto).

/ / (c) This Security is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the
Securities Act) in compliance with the exemption from
registration under the Securities Act provided by Rule 144A.

/ / (d) This Security is being transferred in an Offshore Transaction
(as defined in Regulation S under the Securities Act) in
compliance with the exemption from registration under the
Securities Act provided by Regulation S.

/ / (e) This Security is being transferred to an "accredited investor"
(within the meaning of Rule 501(a) under the Securities Act)
in a transaction not involving any general solicitation or
general advertising and in connection with which transfer the
Company has received, if it has so requested, an opinion of
counsel (satisfactory to it in form and substance) to the
effect that the transfer is being made pursuant to an
exemption from the registration requirements of the Securities
Act.

A - 13
<PAGE> 14
/ / (f) This Security is being transferred to Youth Services
International, Inc.

/ / (g) Transfer other than those above in connection with which the
Company has received an opinion of counsel (satisfactory to it
in form and substance) to the effect that the transfer is
being made pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the
Securities Act.

Dated:_____________ Name:
------------------------------

By:
--------------------------------

Title:
-----------------------------

NOTICE: The signature of the Holder to this assignment must correspond with
the name as written upon the face of the within instrument in every particular,
without enlargement or any change whatsoever.

SIGNATURE GUARANTEED

-----------------------------------

TO BE COMPLETED BY A BROKER OR DEALER IF (d) ABOVE IS CHECKED:

The undersigned represents and warrants that (i) it is a broker or
dealer registered under Section 15 of the Securities Exchange Act of 1934, (ii)
each person which will become a beneficial owner of this Security upon transfer
is an investor which is an "accredited investor" (within the meaning of Rule
501(a) under the Securities Act); (iii) no general solicitation or general
advertising was made or used by it in connection with the offer and sale of
this Security to such person(s); and (iv) each such person has been notified
that this Security has not been registered under the Securities Act and is
subject to the restrictions on transfer of the Security set forth herein and in
the Indenture.

Dated:
------------------ -----------------------------------

By:
--------------------------------

IF NONE OF THE FOREGOING BOXES IS CHECKED, THE TRUSTEE SHALL NOT BE
OBLIGATED TO REGISTER THE TRANSFER OF THIS SECURITY UNLESS AND UNTIL THE
CONDITIONS TO ANY SUCH TRANSFER OF REGISTRATION SET FORTH HEREIN, ON THE FACE
HEREOF AND IN THE INDENTURE SHALL HAVE BEEN SATISFIED.

A - 14
<PAGE> 15
CONVERSION NOTICE

The undersigned holder of this Security hereby irrevocably exercises
the option to convert this Security, or portion hereof (which is U.S. $1,000 or
an integral multiple thereof) below designated, into shares of Common Stock of
Youth Services International, Inc. in accordance with the terms of this
Security, and directs that such shares, together with a check in payment for
any fractional share and any Securities representing any unconverted principal
amount hereof, be delivered to and be registered in the name of the undersigned
unless a different name has been indicated below. If shares or Securities are
to be registered in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto.

Dated:
----------------------- -----------------------------------
Signature
MUST BE GUARANTEED IF THE STOCK IS TO
BE ISSUED IN A NAME OTHER THAN THE
REGISTERED HOLDER OF THE SECURITY

If shares or Securities are to If only a portion of the
registered in the name of a Securities is to be converted
Person other than the holder, please indicate:
please print such person's name
and address and, if this is a 1. Principal Amount to be
Restricted Security, complete converted: U.S.$_________
Transfer Notice:

2. Denomination of Securities
- ---------------------------- representing unconverted
Name of Transferee principal amount to be
converted: U.S. $__________

- -----------------------------
Denominations: U.S.$______
(U.S. $1,000 or an integral
multiple thereof)
- -----------------------------
Address of Transferee

A - 15
<PAGE> 16

REDEMPTION NOTICE UNDER SECTION 3

The undersigned holder of this Security hereby requests and instructs
the Company to redeem this Security in accordance with the terms of Section 3
of this Security and directs that a check in payment of the redemption amount
be delivered to the undersigned unless a different name has been indicated
below. The undersigned understands that this request can be revoked by
delivering written notice to the Trustee on or before the Holder Redemption
Date, together with the undersigned's non-transferable receipt for such
Security.

Dated:_______________

-----------------------------------
Signature
MUST BE GUARANTEED IF CHECK IS TO
BE MADE PAYABLE TO A NAME OTHER
THAN THE REGISTERED HOLDER OF THE
SECURITY

If a check in payment of the
redemption amount is to be
delivered to a person other
than the holder, please print
such person's name and address:

- -----------------------------

HOLDER

Please print name and address
of holder:

-----------------------------------

A - 16

<PAGE> 1

Exhibit 4(d)

INDENTURE

dated as of

October 15, 1996

between

YOUTH SERVICES INTERNATIONAL, INC.

and

THE CHASE MANHATTAN BANK,
as Trustee
<PAGE> 2
CROSS-REFERENCE TABLE

<TABLE>
<CAPTION>
Indenture
TIA Section Section
- ----------- ----------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(i)
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(i)
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(h)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(m)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(m)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(p)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14(l)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14(l)
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(o)
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(o)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(o)
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21; 22(c)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(o)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(a)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14(m)
(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12(d)
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14(a)(f)
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12(f)
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12(g)
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12(h)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2(b)
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>

i
<PAGE> 3
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. The Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Appointment of Trustee, Agents and Security Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Registration of Issuance, Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Execution and Authentication of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7. Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9. Surrendered Securities, Mutilated, Destroyed, Stolen or
Lost Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10. Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11. Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
13. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14. Meetings and Votes of Holders
Communications Among Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15. Merger, Consolidation or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
16. Incorporators, Stockholders, Officers and Directors of the
Company Exempt from Individual Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
18. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
19. Agent for Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
20. Officer's Certificates and Opinions of Counsel;
Statements to Be Contained Therein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
21. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
22. Trust Indenture Act Provisions; SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
23. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

EXHIBIT A-FORM OF DEBENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

EXHIBIT B-FORM OF TRANSFEREE LETTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>

ii
<PAGE> 4
INDENTURE dated as of October 15, 1996 between Youth Services
International, Inc., a corporation duly organized and validly existing under
the laws of the State of Maryland (the "Company"), and THE CHASE MANHATTAN
BANK, a New York banking corporation, as Trustee. This Indenture, including
the terms and conditions of the form of Security attached hereto, is referred
to herein as the "Indenture".

1. The Securities.

(a) Pursuant to an Exchange Offer Memorandum dated September 30,
1996, the Company has agreed to issue up to $31,600,000 aggregate principal
amount of 7% Convertible Subordinated Debentures Due 2006 (the "Securities") in
exchange (the "Exchange") for an equivalent aggregate principal amount of the
Company's 7% Convertible Subordinated Debentures due 2006 (the "Original
Debentures") originally issued by the Company on January 29, 1996 under the
Fiscal and Paying Agency Agreement dated January 29, 1996 by and among the
Company, The Chase Manhattan Bank, N.A., New York, as Fiscal Agent, Paying
Agent, Transfer Agent and Conversion Agent, The Case Manhattan Bank, N.A.,
London as Paying Agent, Conversion Agent and Transfer Agent and Chase Manhattan
Bank Luxembourg S.A. as Paying Agent, Conversion Agent and Transfer Agent (the
"Fiscal Agency Agreement"). The Original Debentures were issued and sold to
(i) persons who are not "U.S. Persons" (as such term is defined in Regulation S
promulgated by the United States Securities and Exchange Commission (the "SEC")
pursuant to the Securities Act of 1933, as amended (the "Securities Act")) in
transactions that met the requirements of Regulation S, (ii) "qualified
institutional buyers" (as such term is defined in Rule 144A promulgated by the
SEC pursuant to the Securities Act and hereinafter referred to as "QIBs") in
reliance on Rule 144A and (iii) "accredited investors" (within the meaning of
Rule 501(a) promulgated by the SEC pursuant to the Securities Act) (such
Original Debentures sold pursuant to Rule 144A and sold to "accredited
investors" being hereinafter referred to as the "Restricted Debentures").

(b) Pursuant to Section 7(p) of the Fiscal Agency Agreement, the
Company has offered (the "Exchange Offer") to issue an equal amount of
Securities under this Indenture in exchange for the Restricted Debentures.

(c) The Securities will be issued in fully registered form in
denominations of U.S. $1,000 and integral multiples thereof, which Securities
shall be in substantially the form of Exhibit A hereto.

(d) During the period beginning on the Closing Date and ending on
January 29, 1999, all Securities and all Securities issued upon registration of
transfer of or in exchange for such Securities, shall be subject to the
restrictions on transfer in Section 3 hereof; unless and until such
restrictions have been
<PAGE> 5
terminated in accordance with Section 3(c) hereof (until such termination of
restrictions, such Securities shall be referred to herein as "Restricted
Securities"). All Restricted Securities shall bear the legend required by
Section 3(f) hereof.

(e) The Securities will be convertible as provided in Section 4 of
the Securities and Section 7 hereof. The Securities may be redeemed by the
Company as provided in Section 3 of the Securities and Section 6 hereof. The
Securities will be subordinated as provided in Section 7 of the Securities.

2. Appointment of Trustee, Agents and Security Registrar.

(a) Trustee. The Company hereby appoints The Chase Manhattan
Bank, at present having its principal corporate trust office at 450 West 33rd
Street, 15th Floor, New York, New York 10001, as trustee in respect of the
Securities upon the terms and subject to the conditions herein set forth. (The
Chase Manhattan Bank and its successor or successors as such trustee qualified
and appointed in accordance with Section 11 hereof are herein called the
"Trustee.") The Trustee shall have the powers and authority granted to and
conferred upon it herein and in the Securities, and such further powers and
authority, acceptable to it, to act on behalf of the Company as the Company may
hereafter grant to or confer upon it in writing.

(b) Paying Agent. The Company hereby appoints the Trustee as
paying agent in respect of the Securities upon the terms and subject to the
conditions herein set forth. (The Trustee and its successors as such paying
agent qualified and appointed in accordance with Section 11 hereof and the
paying agencies, if any, maintained by the Company as provided in Section 2(e)
hereof are herein called the "Paying Agent.") The Paying Agent shall have the
powers and authority granted to and conferred upon it herein and in the
Securities, and such further powers and authority, acceptable to it, to act on
behalf of the Company as the Company may hereafter grant to or confer upon it
in writing. Each Paying Agent shall hold in trust for the benefit of the
holders or the Trustee all sums held by such Paying Agent for the payment of
the principal of or interest (and Additional Amounts, if any) on the
Securities, and shall give to the Trustee notice of any default by the Company
upon the Securities in the making of any such payment.

(c) Conversion Agent. The Company hereby appoints the Trustee as
conversion agent in respect of the Securities upon the terms and subject to the
conditions herein set forth. (The Trustee and its successors as such
conversion agent qualified and appointed in accordance with Section 11 hereof
and the conversion agencies maintained by the Company, if any, as provided in
Section 2(e) hereof are herein called the "Conversion Agent"). The Conversion
Agent shall have the powers and authority granted to

2
<PAGE> 6
and conferred upon it herein and in the Securities, and such further powers and
authority, acceptable to it, to act on behalf of the Company as the Company may
hereafter grant to or confer upon it in writing.

(d) Security Register. The Company shall cause to be kept at the
principal corporate trust office of the Trustee a register (the registers
maintained in such office and in any other office or agency designated for such
purpose being herein sometimes collectively referred to as the "Security
Register") in which, subject to such reasonable regulations as the Trustee may
prescribe, the Company shall provide for the registration of Securities and of
transfers of Securities. The Trustee is hereby appointed "Security Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.

(e) Agencies. The Company may maintain agencies (i) where Securities
may be presented for surrender and payment and (ii) where Securities may be
surrendered for conversion. Unless the Company shall otherwise notify the
Trustee in writing, the sole such paying agencies and conversion agencies shall
be the Trustee. The Company shall enter into an appropriate agency agreement
with any Paying Agent or Conversion Agent that is not the Trustee that
implements the provisions of this Indenture that relate to such agent.

3. Registration of Issuance, Transfer and Exchange.

(a) Issuance. The Company shall issue and execute and the Trustee
shall authenticate, register and deliver, in the name of the holder of the
Restricted Debenture surrendered for exchange, or any designated transferee or
transferees, one or more Securities of any authorized denominations of a like
aggregate principal amount and bearing such restrictive legends as may be
required by this Indenture in exchange for Original Debentures tendered to The
Chase Manhattan Bank as exchange agent for the Company in accordance with the
Exchange, provided that, with respect to a Security issued to a designated
transferee of the holder of the surrendered Restricted Debenture, the
provisions of Section 3(c) or 3(e) hereof shall have been satisfied.

(b) Transfer. Upon surrender for registration of transfer of any
Security at the office of the Trustee, the Company shall execute, and the
Trustee shall authenticate, register and deliver, in the name of the designated
transferee or transferees, one or more new Securities of any authorized
denominations and of a like aggregate principal amount and bearing such
restrictive legends as may be required by this Indenture; provided, however,
that, with respect to any Security that is a Restricted Security, the Trustee
shall not register the transfer of such Security unless the conditions in
Section 3(c) hereof shall have been satisfied. The

3
<PAGE> 7
holder of each Restricted Security, by such holder's acceptance thereof, agrees
to be bound by the transfer restrictions set forth herein and in the legend on
such Restricted Security.

(c) Restrictions on Transfer. Whenever any Security is presented
or surrendered for registration of transfer or exchange for a Security
registered in a name other than that of the holder, no registration of transfer
or exchange shall be made unless:

(i) The registered holder presenting the Security for transfer
shall have certified to the Trustee in writing that the registered
holder is transferring such Restricted Security pursuant to an
effective registration statement under the Securities Act and in
compliance with Rule 174 thereunder, or pursuant to Rule 144 under the
Securities Act, provided that, if such transfer is pursuant to Rule
144, such writing shall be accompanied by an opinion of counsel
reasonably acceptable to the Company addressed to the Company and the
Trustee and in form and scope satisfactory to the Company to the
effect that the proposed transfer of such Security is to be made in
compliance with Rule 144;

(ii) The registered holder presenting such Restricted Security
for transfer shall have certified to the Trustee in writing that such
registered holder is transferring such Restricted Security to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in compliance with the exemption from registration
under the Securities Act provided by Rule 144A thereunder (or a
successor provision);

(iii) The registered holder presenting such Restricted
Security for transfer shall have certified to the Trustee in writing
that the registered holder is transferring such Restricted Security
outside the United States in a transaction meeting the requirements of
Rule 904 of Regulation S under the Securities Act;

(iv) (A) The registered holder presenting such Restricted
Security for transfer shall have certified to the Trustee in writing
that such registered holder is transferring such Restricted Security
to an "accredited investor" (within the meaning of Rule 501(a) under
the Securities Act) in a transaction not involving any general
solicitation or general advertising; and (B) a broker or dealer
registered under Section 15 of the Securities Exchange Act of 1934
(the "Exchange Act") shall have certified to the Trustee in writing
that: (x) each person who will become a beneficial owner of the
Restricted Security upon transfer is an "accredited investor" (as such
term is defined in Rule 501(a) under the Securities Act); (y) no
general solicitation or general advertising was made or used by such
broker or dealer in connection with the offer and sale of such

4
<PAGE> 8
Restricted Security to such person(s); and (z) such accredited
investor has been informed that the Securities have not been
registered under the Securities Act and are subject to the
restrictions on transfer set forth in the Securities and this
Indenture;

(v) The registered holder presenting such Restricted Security
for transfer shall have certified to the Trustee in writing that the
registered holder is transferring the Registered Security to the
Company; or

(vi) The Trustee has received transfer documentation
indicating, and a written opinion of counsel acceptable in form and
substance to the Company and the Trustee, that the transfer is being
made pursuant to another available exemption from, or a transaction
not otherwise subject to, the registration requirements of the
Securities Act.

For purposes of this Section 3(c), any such certification to the
Trustee in writing shall be in the form of the Transfer Notice set forth on the
reverse of such Security. In the case of a transfer pursuant to the foregoing
clause (iii), (iv) or (vi) above, the Company and the Trustee may require that
the registered holder deliver an opinion of counsel, certifications or other
information acceptable to them in form and substance. In addition, in the case
of a transfer pursuant to the foregoing clause (iv) above, the transferor shall
be required to deliver a letter from the transferee substantially in the form
of Exhibit B hereto.

(d) Legend. Each certificate evidencing Securities shall bear a
legend in substantially the following form, except Securities issued upon
transfer pursuant to Section 3(c)(i) or upon exchange pursuant to Section 3(e):

"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED WITHIN THE "UNITED STATES" OR TO "U.S. PERSONS" (AS
DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS
SECURITY, BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES AND
AGREES FOR THE BENEFIT OF THE COMPANY THAT: (I) IT HAS ACQUIRED A
"RESTRICTED" SECURITY WHICH HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT; (II) IT WILL NOT OFFER, SELL

5
<PAGE> 9
OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE WHICH IS THREE
YEARS AFTER THE DATE OF ORIGINAL ISSUANCE HEREOF EXCEPT (A) TO YOUTH
SERVICES INTERNATIONAL, INC., (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO
A PERSON WHO THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (D)
OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT, (E) IN A TRANSACTION ARRANGED BY A
BROKER OR DEALER REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, TO AN "ACCREDITED INVESTOR" (WITHIN THE MEANING OF RULE
501(a) UNDER THE SECURITIES ACT) THAT IS ACQUIRING THIS SECURITY FOR
ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN "ACCREDITED INVESTOR,"
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE
IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AS CONFIRMED IN AN
OPINION OF COUNSEL ACCEPTABLE IN FORM AND SUBSTANCE TO THE ISSUER OF
THIS SECURITY AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION; AND (III) IT WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS SECURITY OF THE
RESALE RESTRICTIONS SET FORTH IN (II) ABOVE. IF ANY RESALE OR OTHER
TRANSFER OF THIS SECURITY IS PROPOSED TO BE MADE PURSUANT TO CLAUSE
II(E) ABOVE PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE DATE OF
ORIGINAL ISSUANCE HEREOF, THE TRANSFEROR SHALL DELIVER A LETTER FROM
THE TRANSFEREE CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY. ANY OFFER,
SALE OR OTHER DISPOSITION PURSUANT TO THE FOREGOING CLAUSE (II)(D),
(E) OR (F) IS SUBJECT TO THE RIGHT OF THE ISSUER OF THIS SECURITY AND
THE TRUSTEE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS OR OTHER INFORMATION ACCEPTABLE TO THEM IN FORM AND
SUBSTANCE."

(e) Removal of Transfer Restrictions. The restrictions imposed by
Section 3(c) upon the transferability of any particular Restricted Security
shall cease and terminate when such Restricted Security has been sold pursuant
to an effective registration statement under the Securities Act or transferred
pursuant to Rule 144 under the Securities Act, or any successor provisions
thereto ("Rule 144"), unless the holder is an affiliate of the Company within
the meaning of said Rule 144 (or such successor provision). Any Restricted
Security as to which such restrictions on transfer

6
<PAGE> 10
shall have expired in accordance with their terms or shall have terminated may,
upon surrender of such Security for exchange to the Trustee in accordance with
the provisions of this Section 3(e) (accompanied, in the event that such
restrictions on transfer have terminated by reason of a transfer pursuant to
Rule 144 by an opinion of counsel reasonably acceptable to the Company,
addressed to the Company and the Trustee and in form and scope satisfactory to
the Company, to the effect that the transfer of such Security has been made in
compliance with Rule 144), be exchanged for a new Security, of like tenor and
aggregate principal amount, which shall not bear the restrictive legend
required by Section 3(d) hereof. The Company shall promptly inform the Trustee
in writing of the effective date of any registration statement registering the
Securities under the Securities Act.

(f) Presentation and Issuance Upon Transfer or Exchange. All
Securities issued upon any registration of transfer or exchange of Securities
shall be the valid obligations of the Company, evidencing the same obligations,
and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.

Every Security presented for registration of transfer or surrendered
for exchange shall be duly endorsed, or be accompanied by a written instrument
of transfer in form satisfactory to the Company, the Trustee and the Transfer
Agent to which such Security is presented or surrendered and the Security
Registrar, duly executed by the holder thereof or his attorney duly authorized
in writing. All such instruments shall comply with the applicable provisions
of this Section 3. The registration of the transfer of a Security by the
Security Registrar shall be deemed to be the written acknowledgement of such
transfer on behalf of the Company.

No service charge shall be made for any registration of transfer or
exchange, but the Company or the Transfer Agent may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges not involving any registration of transfer.

4. Execution and Authentication of Securities.

At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company in
accordance with this Indenture to such office specified by the Trustee for
authentication together with an officer's certificate of the Company directing
such authentication, and the Trustee shall thereupon authenticate or cause to
be authenticated and make such Securities available for delivery upon and in
accordance with the written order of the Company. No Security shall be valid
or enforceable for any

7
<PAGE> 11
purpose unless and until the certificate of authentication thereon shall have
been manually signed by a duly authorized signatory of the Trustee and such
duly executed certificate of authentication on any Security shall be conclusive
evidence that the Security has been duly authenticated and delivered hereunder.
The Securities will be issued upon the receipt by the Trustee of Restricted
Debentures surrendered for exchange pursuant to the Exchange Offer Memorandum
during the period of the Exchange Offer.

5. Payment.

(a) General. The Company will pay or cause to be paid to the
Paying Agent the amounts, at the times and for the purposes set forth herein
and in the text of the Securities, and the Company hereby authorizes and
directs the Paying Agent to make payment of the principal of and interest on
and Additional Amounts (as defined below), if any, on the Securities from such
payments.

(b) Additional Amounts. The Company will pay, as additional
interest ("Additional Amounts"), to any holder of a Security who is a United
States Alien (as defined below) such amounts as may be necessary in order that
every net payment of the principal of and premium, if any, of and interest on
such Security and any cash payment made in lieu of issuing shares of Common
Stock upon conversion of a Security, after withholding for or on account of any
present or future tax, assessment or other governmental charge imposed upon or
as a result of such payment by the United States or any political subdivision
or taxing authority thereof or therein, will not be less than the interest
provided in the Security to be then due and payable; provided, however, that
the foregoing obligation to pay Additional Amounts shall not apply to:

(i) any tax, assessment or other governmental charge which
would not have been so imposed but for (A) the existence of any present or
former connection between such holder (or between a fiduciary, settlor,
beneficiary, member or stockholder of, or a person holding a power over, such
holder, if such holder is an estate, trust, partnership or corporation) and the
United States, including, without limitation, such holder (or such fiduciary,
settlor, beneficiary, member, stockholder or person holding a power) being or
having been a citizen or resident or treated as a resident thereof or being or
having been engaged in a trade or business therein or being or having been
present therein or having or having had a permanent establishment therein, (B)
such holder's present or former status as a personal holding company, foreign
personal holding company, passive foreign investment company, foreign private
foundation or other foreign tax-exempt entity or controlled foreign corporation
for United States tax purposes or a corporation which accumulates earnings to
avoid United States Federal income tax, or (C) such holder's status as a bank

8
<PAGE> 12
extending credit pursuant to a loan agreement entered into in the ordinary
course of business;

(ii) any tax, assessment or other governmental charge which
would not have been so imposed but for the presentation by the holder of such
Security for payment on a date more than 10 days after the date on which such
payment became due and payable or on the date on which payment thereof is duly
provided, whichever occurs later;

(iii) any estate, inheritance, gift, sales, transfer or
personal or intangible property tax or any similar tax, assessment or other
governmental charge;

(iv) any tax, assessment or other governmental charge which
would not have been imposed but for the failure to comply with certification,
information, documentation or other reporting requirements concerning the
nationality, residence, identity or present or former connection with the
United States of the holder or beneficial owner of such Security if such
compliance is required by statute, regulation or ruling of the United States or
any political subdivision or taxing authority thereof or therein as a
precondition to relief or exemption from such tax, assessment or other
governmental charge;

(v) any tax, assessment or other governmental charge which is
payable otherwise than by deduction or withholding from payments of principal
of and premium, if any, or interest on such Security;

(vi) any tax, assessment or other governmental charge imposed
on interest received by a person holding, actually or constructively, 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote; or

(vii) any tax, assessment or other governmental charge
required to be withheld by any paying agent from any payment of principal of,
or premium, if any, or interest on any Security if such payment can be made
without such withholding by any other paying agent;

nor shall Additional Amounts be paid with respect to any payment of the
principal of, or premium, if any, or interest on a Security (or cash in lieu of
issuance of shares of Common Stock upon conversion) to a person other than the
sole beneficial owner of such payment, or that is a partnership or fiduciary to
the extent such beneficial owner, member of such partnership or beneficiary or
settlor with respect to such fiduciary would not have been entitled to the
payment of Additional Amounts had such beneficial owner, member, beneficiary or
settlor been the holder of the Security.

9
<PAGE> 13
The term "United States Alien" means any person who, for United States
Federal income tax purposes, is a foreign corporation, a non-resident alien
individual, an estate or trust the income of which is not subject to United
States federal income taxation regardless of its source, or a foreign
partnership to the extent one or more of the members of which is, for United
States Federal income tax purposes, a foreign corporation, and the term "United
States" means the United States of America (including the several States and
the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.

Except as specifically provided herein and in the Indenture, the
Company shall not be required to make any payment with respect to any tax,
assessment or other governmental charge imposed by any government or any
political subdivision or taxing authority thereof or therein.

Whenever any Additional Amounts are to be paid on the Securities, the
Company will give notice to the Trustee and any paying agency of the Company,
all as provided herein.

At least 15 days prior to the date on which any payment of Additional
Amounts shall be required to be made pursuant to this Section 5(b), the Company
will furnish the Paying Agent and the Trustee with a certificate of one of its
duly authorized officers instructing the Paying Agent as to the amounts
required (i) to be deducted or withheld for or on account of any taxes
described in Section 5(b) from a payment to be made on that date and (ii) to be
paid to each holder of Securities as Additional Amounts pursuant to Section
5(b). If the foregoing amounts are not uniform for all holders, then the
Company's certificate shall specify by country of residence or other factor the
amounts required to be deducted or withheld and to be paid as Additional
Amounts for each holder or class of holders of the Securities. In the absence
of its receipt of any such certificate from the Company, the Paying Agent may
make payment without deduction or withholding. The Company hereby agrees to
indemnify the Paying Agent and the Trustee for, and to hold them harmless
against, any loss, liability or expense reasonably incurred without gross
negligence or bad faith on their part, arising out of or in connection with
actions taken or omitted by any of them in reliance on any certificate
furnished pursuant to this Section.

(c) Record Date. Interest on any Security that is payable, and is
punctually paid or duly provided for, on any interest payment date shall be
paid to the person in whose name that Security is registered at the close of
business on the January 15 or July 15 immediately preceding such interest
payment date (each a "Record Date").

(d) Interest on Converted Security. In the case of any Security
which is converted after any Record Date and on or prior

10
<PAGE> 14
to the next succeeding interest payment date (other than any Security called
for redemption prior to such interest payment date), interest that is payable
on such interest payment date shall be payable on such interest payment date
notwithstanding such conversion, and such interest shall be paid to the person
in whose name that Security is registered at the close of business on such
Record Date. Except as otherwise expressly provided in the immediately
preceding sentence, in the case of any Security which is converted, interest
that is payable after the date of conversion on such Security shall not be
payable.

(e) Defaulted Interest. Any interest on any Security that is
payable, but is not punctually paid or duly provided for, on any interest
payment date shall forthwith cease to be payable to the registered holder
thereof on the relevant Record Date by virtue of having been such holder, and
such defaulted interest may be paid by the Company to the registered holder of
such Security on a subsequent record date established by the Company in any
lawful manner if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this Section 5(e), such manner of payment shall be
deemed practicable by the Trustee.

(f) Exchanged or Transferred Securities. Subject to the foregoing
provisions of this Section 5, (i) each Security issued under the Indenture in
exchange for a Restricted Debenture shall carry all the rights to interest
accrued and unpaid, and to accrue, which were carried by the Restricted
Debenture, as the case may be, surrendered in such exchange and (ii) each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry all the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.

(g) Payment by the Company. In order to provide for the payment
of the principal of and interest on the Securities as the same shall become due
and payable, the Company shall pay to the Trustee, in such coin or currency of
the United States of America as at the time of payment is legal tender for the
payment of public and private debts therein, and in same day funds, the
following amounts (the Company will cause the bank through which any payment on
the Securities is made to deliver to the Trustee by 10:00 a.m. New York time,
two business days prior to the due date for such interest, an irrevocable
confirmation (by tested telex or authenticated Swift MT 100 Message) of its
intention to make such payment), to be held and applied by the Paying Agent as
hereinafter set forth:

(i) The Company shall pay to the Trustee on the Business
Day immediately prior to each interest payment date in same day funds
an amount sufficient to pay the interest due on (and Additional
Amounts, if any, on) (A) all the Securities outstanding on such
interest payment date, and (B)

11
<PAGE> 15
all the Securities outstanding on the Record Date immediately
preceding such interest payment date but no longer outstanding on such
interest payment date because of conversion into Common Stock (as
defined in Section 7(a) hereof), and the Trustee shall apply the
amounts so paid to it to the payment of such interest (and Additional
Amounts, if any) on such interest payment date.

(ii) If the Company shall elect, or shall be required, to
redeem the Securities in accordance with Section 6 hereof, the Company
will pay to the Trustee on the Business Day immediately prior to the
date fixed for redemption thereof in same day funds an amount
sufficient (with any amount then held by the Trustee and available for
the purpose) to pay the redemption price of the Securities called for
redemption on the redemption date or entitled to be redeemed, together
with accrued interest thereon (and Additional Amounts, if any,
thereon) to the date fixed for redemption if such redemption date
occurs on an interest payment date, and the Trustee shall apply such
amount to the payment of the redemption price and accrued interest
(and Additional Amounts, if any) in accordance with the terms of the
Securities.

(iii) On the Business Day immediately prior to the maturity
date of the Securities, the Company shall pay to the Trustee in same
day funds an amount which, together with any amounts then held by the
Trustee, and available for payment thereof, shall be equal to the
entire amount of principal and interest (and Additional Amounts, if
any) to be due on such maturity date on all the Securities then
outstanding, and the Trustee shall apply such amount to the payment of
the principal of and interest on (and Additional Amounts, if any, on)
the Securities in accordance with the terms of the Securities.

(h) Business Day. Notwithstanding anything in this Section to the
contrary, if any payment of interest or principal (or Additional Amounts, if
any) is due on a day that is not a Business Day, payment shall be made on the
next succeeding Business Day, with the same effect as if made on the day such
payment was due. A "Business Day" is defined, with respect to any act to be
performed pursuant hereto or to the Securities, as any day which is not a
Saturday, Sunday or a day on which banking institutions in the place where such
act is to occur are authorized or obligated by applicable law, regulation or
executive order to close.

(i) Reimbursement of Paying Agent. If the Paying Agent pays out
any amount due under the terms of the Securities on or after the due date
therefor on the assumption that the corresponding payment for such amount has
been or will be made by the Company and such payment has in fact not been so
made by the Company prior

12
<PAGE> 16
to the time that the Paying Agent makes such payment, then the Company shall on
demand reimburse the Paying Agent for the relevant amount, and pay interest to
the Paying Agent on such amount from the date on which it is paid out to the
date of reimbursement at a rate per annum equal to the cost to the Paying Agent
of funding the amount paid out, as certified by the Paying Agent and expressed
as a rate per annum. For the avoidance of doubt, the provisions of this
Agreement and the conditions as to subordination shall not apply to the
Company's obligations under this Section 5(i).

6. Redemption.

(a) Optional Redemption By Company. The Company, at its option,
may redeem the Securities, in whole or in part (but if in part, in aggregate
principal amounts of no less than $10,000 and multiples of $1,000 in excess
thereof), at any time or times on and after February 1, 1999, upon notice as
hereinafter prescribed, at the redemption prices equal to that percentage of
their principal amount set forth below, together with accrued and unpaid
interest to the date fixed for redemption, at any time from and after February
1 of the respective years:

<TABLE>
<CAPTION>
Year Premium
---- -------
<S> <C>
1999 103%
2000 102%
2001 101%
2002 and thereafter 100%
</TABLE>

If fewer than all of the then outstanding Securities are to be
redeemed, the Securities to be redeemed will be selected by the Trustee not
more than 75 days prior to the date fixed for redemption, by such method as the
Trustee shall deem fair and appropriate. Provisions of this Indenture that
apply to Securities called for redemption also apply to portions of Securities
called for redemption. The Trustee shall notify the Company promptly of the
Securities or portions of Securities to be called for redemption.

(b) Redemption By Company Upon Tax Law Change. If, at any time,
the Company shall determine that as a result of any change in or amendment to
the laws (or any regulations or rulings promulgated thereunder) of the United
States or any political subdivision or taxing authority thereof or therein
affecting taxation, or any amendment to or change in an official application or
interpretation of such laws, regulations or rulings, which change or amendment
becomes effective on or after January 23, 1996, the Company has or will become
obligated to pay to the holder of any Security Additional Amounts and such
obligation cannot be avoided by the Company taking reasonable measures

13
<PAGE> 17
available to it, then the Company may, at its election exercised at any time
when such conditions continue to exist, redeem such Securities as a whole, upon
notice as hereinafter prescribed, at a redemption price equal to 100% of the
principal amount, together in each case with accrued and unpaid interest, if
any, to the date fixed for redemption; provided that no such notice of
redemption shall be given earlier than 90 days prior to the earliest date on
which the Company would be obliged to pay such Additional Amounts were a
payment in respect of such Securities then due; and provided further, that at
the time such notice is given, such obligation to pay such Additional Amounts
remains in effect.

Prior to any redemption of the Securities pursuant to the preceding
paragraph, the Company shall provide the Trustee with one or more certificates
(signed by the President or any Vice President and the Treasurer or the
Secretary) of the Company on which the Trustee may conclusively rely to the
effect that the Company is entitled to redeem such Securities pursuant to such
paragraph and that the conditions precedent to the right of the Company to
redeem such Securities pursuant to such paragraph have occurred and a written
opinion of counsel (who may be an employee of the Company) stating that all
legal conditions precedent to the right of the Company to redeem such
Securities pursuant to such paragraph have occurred.

(c) Redemption By Holders Upon Designated Event. If there shall
occur a Designated Event (as defined below) with respect to the Company, then
each holder of Securities shall have the right, at each such holder's option,
exercised in accordance with this Section 6(c), to require the Company to
purchase the Security held by such holder, in whole but not in part, on the
Holder Redemption Date (as defined below) for a cash amount equal to 100% of
the principal amount, together with accrued interest to the Holder Redemption
Date. Prior to the mailing of the notice to holders provided for in this
Section 6 with respect to the occurrence of a Designated Event but in any event
within 30 days following any Designated Event, the Company hereby covenants
that, if the purchase by the Company of Securities pursuant to this Section
6(c) would result in a default under any Credit Agreement (as defined below),
it will (i) repay in full all debt under such Credit Agreement and permanently
reduce the commitments of the lenders or other financial institutions
thereunder or offer to repay in full all such debt and permanently reduce such
commitments and repay such debt and permanently reduce the commitment of each
lender or other financial institution which has accepted such offer or (ii)
obtain the requisite consent under any such Credit Agreement to permit the
purchase of the Securities as provided for herein. The Company shall first
comply with the covenant in the preceding sentence before it shall be required
to purchase Securities pursuant to this Section 6(c). For purposes of this
Section 6(c), the term "Credit Agreement" shall mean any one or more agreements
among the Company or its subsidiaries and

14
<PAGE> 18
the banks or other financial institutions and the agent or agents listed
therein in an original aggregate amount of up to $50,000,000, together with the
related documents thereto, including, without limitation, any security
documents and all exhibits and schedules thereto and any agreement relating to
any extension, refunding, refinancing, successor or replacement facility,
whether or not with the same agent or agents and banks or other financial
institutions, and whether or not the principal amount outstanding thereunder or
the interest rate payable in respect thereof, shall be thereby increased.

For purposes of this Section 6(c):

(i) a "Designated Event" shall be deemed to have occurred
upon the consummation of a purchase, merger, acquisition, transfer or
other transaction or series of transactions involving a Change in
Control (as defined in paragraph (ii) below).

(ii) as used herein, a "Change in Control" will be deemed to
have occurred at such time as any of the following events occurs:

(A) Any person (for purposes of paragraph (a) of
this definition only, the term "person" shall mean a "person" as
defined in or for purposes of Section 13(d)(3) or Section 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or any successor provision to either of the foregoing, including any
"group" acting for the purposes of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange
Act), together with its Affiliates and Associates (as defined herein)
shall file or become obligated to file a report under or in response
to Schedule 13D or 14D-1 (or any successor schedule, form or report)
pursuant to the Exchange Act disclosing that such person has become
the beneficial owner (as the term "beneficial owner" is defined in
Rule 13(d)(3) under the Exchange Act, or any successor provision) of
either (A) 50% or more of the shares of Common Stock then outstanding
or (B) 50% or more of the total voting power of all shares of capital
stock of the Company then outstanding; provided, however, that for
purposes of paragraph (i) of this definition, a person shall not be
deemed the beneficial owner of (1) any securities tendered pursuant to
a tender offer or exchange offer made by or on behalf of such person,
or its Affiliates or Associates, until such tendered securities are
accepted for purchase or exchange thereunder, or (2) any securities in
respect of which beneficial ownership by such person arises solely as
a result of a revocable proxy delivered in response to a proxy or
consent solicitation that is made pursuant to, and in accordance with,
the Exchange Act and the applicable rules and regulations thereunder
and is

15
<PAGE> 19
not then reportable on Schedule 13D (or any successor schedule, form
or report) under the Exchange Act.

(B) There shall be consummated any sale, transfer,
lease or conveyance of all or substantially all of the properties and
assets of the Company to any other corporation or corporations or
other person or persons (other than a subsidiary of the Company).

(C) There shall be consummated any consolidation of
the Company with or merger of the Company with or into any other
corporation or corporations or entity or entities (whether or not
affiliated with the Company) in which the Company is not the sole
surviving or continuing corporation or pursuant to which the shares of
Common Stock outstanding immediately prior to the consummation of such
consolidation or merger are converted into cash, securities or other
property, other than a consolidation or merger in which the holders of
shares of Common Stock receive, directly or indirectly, (A) 75% or
more of the common stock of the sole surviving or continuing
corporation outstanding immediately following the consummation of such
consolidation or merger and (B) securities representing 75% or more of
the combined voting power of the voting stock of the sole surviving or
continuing corporation outstanding immediately following the
consummation thereof of such consolidation or merger.

(iii) as used herein the term "Holder Redemption Date" shall
be a date not less than 30 nor more than 60 days after the Change in
Control Notice Date (as defined in Section 6(d)(iii) hereof) (except
as otherwise required by law).

Notwithstanding the fact that a Security is called for redemption by
the Company, each holder of a Security desiring to exercise the option for
redemption set forth in this Section 6(c) shall, as a condition to such
redemption, on or before the close of business on the fifth business day prior
to the Holder Redemption Date, surrender the Security to be redeemed, in whole
but not in part, together with the Redemption Notice hereon duly executed at
the place or places specified in the notice required by Section 6(d) and
otherwise comply with the provisions of Section 6(e). A holder of a Security
who has tendered a Redemption Notice (i) will be entitled to revoke its
election by delivering a written notice of such revocation together with the
holder's non-transferable receipt for such Security to the office or agency of
the Company designated as the place for the payment of the Securities to be so
redeemed on or before the Holder Redemption Date and (ii) will retain the right
to convert its securities into shares of Common Stock of the Company on or
before the close of business on the Business Day (as defined in the Indenture)
immediately prior to the Holder Redemption Date.

16
<PAGE> 20
In connection with any repurchase of Securities pursuant to this
Section 6(c), the Company will comply with any applicable rules and regulations
promulgated by the U.S. Securities and Exchange Commission and nothing herein,
including the time periods in which redemption is to occur, shall require the
Company to take action which violates such applicable rules and regulations.

(d) Notice of Redemption.

(i) General. Notice of redemption will be given by the Company by
publication in an Authorized Newspaper (as defined in Section 21 hereof) on a
Business Day (as defined in Section 5(h) hereof) in the City of New York.
Notices relating to the redemption of Securities whether at the option of the
Company or the holder hereof shall specify: the date fixed for redemption or
the Holder Redemption Date, as the case may be; the redemption price; the place
or places of payment; that payment will be made upon presentation and surrender
of the Securities to be redeemed; that interest accrued to the date fixed for
redemption will be paid as specified in such notice; that on and after said
date interest thereon will cease to accrue; and such other information as the
Company may wish to include. Neither the failure to give notice nor any defect
in any notice given to any particular holder of a Security shall affect the
sufficiency of any notice with respect to other Securities. Such notices shall
also state that the conditions precedent, if any, to such redemption have
occurred.

(ii) Optional Redemption. In the case of a redemption in whole at
the option of the Company, notice will be given once not more than 60 nor less
than 30 days prior to the date fixed for redemption. In the case of a partial
redemption at the option of the Company, notice will be given twice, the first
such notice to be given not more than 60 nor less than 45 days prior to the
date fixed for redemption and the second such notice to be given not more than
45 nor less than 30 days prior to the date fixed for redemption. In the case
of such partial redemption, the notices shall specify the aggregate principal
amount of Securities to be redeemed and the aggregate principal amount of
Securities outstanding after such partial redemption. The first notice shall
specify the last date on which exchanges or transfers of Securities may be made
(in accordance with Section 3(m)), and the second notice shall specify the
serial numbers of the Securities and the portions thereof called for
redemption. In the case of any redemption by the Company, in whole or in part,
notice or notices shall specify the date the conversion privilege expires in
accordance with Section 4(a) hereof.

The Company shall, at least 75 days (or such shorter period as shall
be reasonably acceptable to the Trustee) before the date designated for any
such redemption, give written notice to the Trustee (and any Paying Agent and
Conversion Agent, if different

17
<PAGE> 21
from Trustee) of its election to redeem outstanding Securities on the
redemption date specified in such notice and state in such notice that the
conditions precedent to such redemption have occurred and describe them, and
shall request the Trustee to arrange for publication and mailing of the notice
specified herein and the Trustee shall cause to be published on behalf of and
at the expense of the Company a notice or notices of redemption in accordance
with the provisions of this Section 6(d). In the case of a partial redemption
by the Company, the Trustee shall send a copy of such notice of redemption to
the Company and the Paying Agent (if different from the Trustee). The Trustee
shall notify the Company promptly of the portions of outstanding Securities to
be called for redemption as determined pursuant to Section 6(a) hereof.

(iii) Holder Redemption. The Company shall give notice to the
Trustee (the "Company Notice") of the occurrence of a Designated Event
immediately upon the occurrence of such Designated Event or, if later,
immediately upon learning of the occurrence of such Designated Event (provided,
that the Company shall be deemed to have knowledge of any information contained
in any Statement on Schedule 13D or 13G filed with the U.S. Securities and
Exchange Commission). The Company Notice shall state: (A) the Holder
Redemption Date in respect of such Designated Event; (B) the redemption price
as set forth in Section 6(c) hereof; (C) the place or places of payment of the
Securities; and (D) such other information as the Company shall deem advisable.

The Trustee, assuming it has received the Company Notice set forth in
the preceding paragraph, shall, on behalf and at the expense of the Company,
not later than 30 days after the later of the occurrence of a Designated Event
or the date the Company learns of the occurrence of the Designated Event (the
date on which such notice is published by the Trustee shall be the "Change in
Control Notice Date") (A) cause to be published a notice of entitlement to
redeem setting forth the information set forth in the Company Notice and the
last day for surrender of the Securities being redeemed and also specifying
that a holder electing redemption will be entitled to revoke its election by
delivering a written notice of such revocation, together with the holder's
non-transferable receipt for such Security, to the agency designated by the
Company as the place for the payment of the Securities to be so redeemed not
later than the Holder Redemption Date; (B) mail by first-class mail a copy of
such notice to each holder of a Security at the address of such holder as it
shall appear in the Security Register; and (C) send a copy of such notice of
entitlement to redeem to the Company and any Paying Agent (if different from
the Trustee). The Trustee shall notify the Company on each of the five
Business Days prior to the Holder Redemption Date of the amount required to
redeem such Securities.

18
<PAGE> 22
(e) Payment of Redemption. If notice of redemption has been given in
the manner set forth in Section 6(d) hereof, the Securities so to be redeemed
shall become due and payable on the applicable redemption date specified in
such notice and upon presentation and surrender of the Securities at the place
or places specified in the notice given by the Company with respect to such
redemption, the Securities shall be paid and redeemed by the Company, at the
places and in the manner and currency herein specified and at the redemption
price together with accrued interest, if any, to the redemption date. From and
after the redemption date, if monies for the redemption of Securities shall
have been made available at the principal corporate trust office of the Trustee
for redemption on the redemption date, the Securities shall cease to bear
interest and the only right of the holders of such Securities shall be to
receive payment of the redemption price together with accrued interest to the
redemption date. If monies for the redemption of the Securities are not made
available by the Company for payment until after the redemption date, the
Securities shall not cease to bear interest until such monies have been so made
available.

7. Conversion of Securities.

(a) General. Subject to and upon compliance with the provisions of
this Section 7, at the option of the holder thereof, any outstanding Security
or any portion of the principal amount thereof which is $1,000 or an integral
multiple of $1,000, may be converted at any time on or after the date which is
the Registration Date (as defined below) and prior to the close of business on
February 1, 2006, at the principal amount thereof, or of such portion thereof,
into fully paid and nonassessable shares ("Conversion Shares") of the Company's
common stock, par value $.01 per share ("Common Stock") at a conversion price
equal to $12.47 aggregate principal amount of Securities for each Conversion
Share (as such price may be adjusted prior to conversion pursuant to Section
7(g) hereof) (the "Conversion Price"). The term "Registration Date" shall mean
the date of the effectiveness of the Registration Statement (as defined in
Section 7(q) hereof).

(b) Exercise. In order to exercise the conversion privilege, the
holder of any Security to be converted shall surrender such Security, or, if
less than the entire principal amount of a Security is to be converted, the
portion thereof to be converted, at the office of the Conversion Agent,
accompanied by (i) instruments of transfer (if so required by the Company or
the Trustee) in form satisfactory to the Company and the Trustee, duly executed
by the registered holder or by his duly authorized attorney, and (ii) a duly
signed and completed Conversion Notice, in substantially the form set forth in
the Security, at the principal corporate trust office of the Trustee, or at
such other

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<PAGE> 23
office or agency of the Company as may be designated by it for such purpose in
the City of New York or at such other offices or agencies as the Company may
designate. Securities surrendered for conversion during the period after the
close of business on any Record Date next preceding any interest payment date
to the close of business on such interest payment date shall (except in the
case of Securities or portions thereof which have been called for redemption on
a redemption date within such period) be accompanied by payment of an amount
equal to interest payable on such interest payment date on the principal amount
being surrendered for conversion. Except as otherwise provided in the
immediately preceding sentence and subject to Section 5(d) hereof, no payment
or adjustment shall be made upon any conversion on account of any interest
accrued on the Securities surrendered for conversion or on account of any
dividends or distributions on the Conversion Shares issued upon conversion.

(c) Conversion Shares. Securities shall be deemed to have been
converted immediately prior to the close of business on the day of surrender of
such Securities for conversion in accordance with the foregoing provisions, and
at such time the rights of the holders of such Securities as holders shall
cease, and the person or persons entitled to receive the Conversion Shares
issuable upon conversion shall be treated for all purposes as the record holder
or holders of such Conversion Shares at such time. As promptly as practicable
on or after the conversion date, the Company shall cause to be issued or
delivered at such office or agency a certificate or certificates for the number
of full shares of Common Stock issuable or deliverable upon conversion,
together with payment, in lieu of any fraction of a share, as provided below.

(d) Partial Conversion. In the case of any Security which is
converted in part only, upon such conversion the Company shall execute and the
Trustee shall authenticate and deliver to the holder thereof, at the expense of
the Company, a new Security or Securities in aggregate principal amount equal
to the unconverted portion of the principal amount of such Security.

(e) No Fractional Shares; Computation of Shares. No fractional
Conversion Shares shall be issued or delivered upon conversion of Securities.
If more than one Security shall be surrendered for conversion at one time by
the same holder, the number of full Conversion Shares which shall be issuable
or deliverable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional Conversion Share which would otherwise
be issuable or deliverable upon conversion of any Security or Securities (or
specified portions thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the Closing Price
(as defined in Section 7(f)(v) hereof) for a

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<PAGE> 24
share of Common Stock at the close of business on the day preceding the day of
conversion.

(f) Securities Called for Redemption. If any Security or a portion
thereof is called for redemption by the Company, or the holder thereof elects
to have such Security redeemed in whole by the Company pursuant to Section 6(c)
hereof, then in respect of such Security (or, in the case of partial redemption
by the Company, such portion thereof) the right to convert such Security (or,
in the case of partial redemption by the Company, such portion thereof) shall
expire (unless the Company defaults in making the payment due upon redemption)
at the close of business on the Business Day immediately preceding the date
fixed for redemption or the Holder Redemption Date (provided that in the latter
case the holder shall have first revoked his redemption election in accordance
with Section 6(c) hereof).

(g) Adjustment to Conversion Price.

(i) Dividends; Distributions. In case at any time the Company
shall pay or make a stock dividend or other distribution on any class of equity
securities of the Company in shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced so that the same shall equal the price determined
by multiplying such Conversion Price by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding at the close of business on
the date fixed for such determination and the denominator shall be the sum of
such number of shares and the total number of shares of Common Stock
constituting such dividend or other distribution, such adjustment to become
effective immediately after the opening of business on the day following the
date fixed for such determination; and in the event that such dividend or other
distribution is not so made, or is made in part, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect (i)
if such record date has not been fixed or (ii) based on the actual number of
shares actually issued, as the case may be.

(ii) Stock Splits, etc. In case at any time the Company
shall (A) subdivide its outstanding shares of Common Stock into a greater
number of shares, (B) combine its outstanding shares of Common Stock into a
smaller number of shares, or (C) issue by reclassification of its shares of
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation) any
shares of capital stock, the Conversion Price in effect at the effective date
of such subdivision, combination or reclassification shall be proportionately
adjusted so that the holder of any Security surrendered for conversion after
such time

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<PAGE> 25
shall be entitled to receive the aggregate number and kind of shares which, if
such Security had been converted immediately prior to such time, he would have
owned upon such conversion and been entitled to receive upon such subdivision,
combination or reclassification. Such adjustment shall become effective
immediately after the effective date of such subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any
event listed above shall occur.

(iii) Warrants; Other Rights. In case at any time the
Company shall fix a record date for the issuance of rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase Common
Stock at a price per share less than the current market price per share of
Common Stock (determined as provided in paragraph (v) of this Section 7(g)) on
such record date, the Conversion Price in effect at the opening of business on
the day following such record date, shall be reduced so that the same shall
equal the price determined by multiplying such Conversion Price by a fraction
of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on such record date plus the number of
shares of Common Stock which the aggregate of the offering price of the total
number of shares so offered for subscription or purchase would purchase at such
current market price per share of Common Stock and the denominator shall be the
number of shares of Common Stock outstanding at the close of business on such
record date plus the number of shares so offered for subscription or purchase,
such reduction to become effective immediately after the opening of business on
the day following such record date; provided, however, that no adjustment to
the Conversion Price shall be made pursuant to this Section 7(g)(iii) if the
holders of Securities receive, or are entitled to receive upon conversion or
otherwise, the same rights or warrants as are issued to the holders of Common
Stock, on the same terms and conditions as such rights or warrants are so
issued to the holders of Common Stock. Such reduction shall be made
successively whenever such a record date is fixed; and in the event that such
rights or warrants are not so issued, or are issued in part, or are issued but
all or part of which expire unexercised, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect (i) if such
record date had not been fixed or (ii) based on the actual number of shares
actually issued, as the case may be.

(iv) Distributions of Property. In case at any time the
Company shall fix a record date for the making of a distribution, by dividend
or otherwise, to all holders of its shares of Common Stock, of evidences of its
indebtedness or assets (including securities, but excluding (x) any dividend or
distribution referred to in paragraph (i) of this subsection (c) or any rights
or warrants referred to in paragraph (iii) of this Section 7(g), (y) any
dividend, return of capital or distribution paid in cash out of the retained
earnings of the Company and (z)

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<PAGE> 26
any regular quarterly dividend consistent with past practice), then in each
such case the Conversion Price in effect after such record date shall be
determined by multiplying the Conversion Price in effect immediately prior to
such record date by a fraction, of which the numerator shall be the total
number of outstanding shares of Common Stock multiplied by the current market
price per share of Common Stock (determined as provided in paragraph (v) of
this Section (g)) on such record date, less the fair market value (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and described in a statement filed with the Trustee) of the
portion of the assets or evidences of indebtedness so to be distributed, and of
which the denominator shall be the total number of outstanding shares of Common
Stock multiplied by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record date is fixed and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive the distribution; and in the event that
such distribution is not so made, the Conversion Price shall again be adjusted
to be the Conversion Price which would then be in effect if such record date
has not been fixed.

(v) Current Market Price. For the purpose of any
computation under paragraphs (iii) and (iv) of this Section 7(g), the current
market price per share of Common Stock on any date shall be deemed to be the
average of the Closing Prices (as defined below) for the 15 consecutive trading
days upon which the principal trading market for the Common Stock is open
commencing 25 trading days before the day in question. The "Closing Price" for
any day shall be the last reported sales prices regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on such Exchange, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if not listed or admitted to trading on any national
securities exchange, the closing sale price quoted on the Nasdaq Stock Market's
National Market, or if not so quoted, as determined by the Company.

(vi) Other Adjustments. The Company may make such
adjustments in the Conversion Price, in addition to those required by
paragraphs (i), (ii), (iii) and (iv) of this Section 7(g), as it considers to
be advisable in order that any event treated for United States Federal income
tax purposes as a dividend of stock or stock rights shall not be taxable to the
recipients.

(vii) No Nominal Adjustment. No adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least U.S. $.25 in such Conversion Price; provided, however,
that any adjustment which by reason of this paragraph (vii) is not required to
be made shall be

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<PAGE> 27
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 7(g) shall be made to the nearest cent or to
the nearest 1/1000 of a share, as the case may be.

(h) Notice of Adjustment. Whenever the Conversion Price is adjusted
as provided in Section 7(g):

(i) the Company shall compute the adjusted Conversion Price
in accordance with the terms of Section 7(g) and shall prepare a
certificate signed by the President, any Vice President or the
Treasurer of the Company setting forth the adjusted Conversion Price
and showing in reasonable detail the facts upon which such adjustment
is based, and such certificate shall forthwith be filed with the
Conversion Agent; and

(ii) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall
forthwith be prepared, and, as soon as practicable after it is
prepared, the Company shall promptly cause a notice setting forth the
adjusted Conversion Price to be given to the holders of the
Securities. Such notice shall be published on behalf and at the
expense of the Company in an Authorized Newspaper on a Business Day in
the City of New York as set forth in Section 21 of this Indenture.

(i) Notice of Action Causing Adjustment. In case the Company shall
take any action which would result in an adjustment to the Conversion Price
pursuant to Section 7(g), then the Company shall cause to be filed with the
Conversion Agent a notice setting forth the anticipated Conversion Price after
giving effect to such adjustment to the Conversion Price and a brief statement
of the facts requiring such adjustment to the Conversion Price and shall cause
notice to be given as provided in Sections 7(h)(ii) and 21 hereof except that
notice need be given once at least 20 days (or 10 days in any case of an
adjustment arising under Section 7(g)(i) or 7(g)(iii) of the Securities) prior
to the applicable record date for the event giving rise to such adjustment,
stating (x) the date on which a record is to be established in connection with
the event giving rise to such adjustment or, if a record is not to be
established, the date as of which the holders of record of Common Stock to be
entitled to the dividend, distribution, rights or warrants giving rise to such
adjustment is to be determined, or (y) the date on which a reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up
or other action is expected to become effective, and the date as of which it is
expected that holders of record of Common Stock shall be entitled to exchange
their shares for the securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up or other action. The failure to give notice required

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<PAGE> 28
by this Section 7(i) or any defect therein shall not affect the legality or
validity of any dividend, distribution, rights, warrants, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up,
or other action, or the vote on any such action.

(j) Reserved Shares of Common Stock. The Company shall, at all times,
have reserved and available, free from preemptive rights, out of its authorized
but unissued shares of Common Stock, for the purpose of effecting the
conversion of Securities, the full number of Conversion Shares then issuable
upon the conversion of all Securities (based on the aggregate principal amount
of Securities outstanding).

(k) Registrations and Approvals Under Law. The Company shall in good
faith use its best efforts (i) to cause all registrations with, and to obtain
any approvals by, any governmental authority under any Federal or state law of
the United States that may be required before the Conversion Shares (or other
securities issuable upon conversion of the Securities) may be lawfully issued
or transferred and delivered pursuant to this Section 7 and (ii) subject to
Section 7(q), to list on the Nasdaq Stock Market's National Market (or such
other principal exchange on which the Common stock shall be listed from time to
time) the Conversion Shares (or other securities issuable upon conversion of
the Securities) prior to the issue or delivery thereof upon conversion of
Securities provided, however, that nothing contained in this Section 7(k) shall
be construed to require the Company to file a registration statement under the
Securities Act with respect to such Conversion Shares, it being intended that
the Company's only obligations in this respect are set forth in Section 7(q)
hereof.

(l) Nonassessable Shares. The Company covenants that all Conversion
Shares (or other securities issuable upon conversion of the Securities) will
upon issuance be fully paid and nonassessable and, except as provided in
Section 13 hereof, the Company will pay all stamp, excise or similar taxes or
duties, liens and charges with respect to the issue thereof.

(m) Converted Securities. All converted Securities shall be delivered
to the Trustee for cancellation, which shall hold or dispose of the same in
accordance with its policy for disposal of canceled securities or as otherwise
directed by the Company. Converted Securities shall not be transferred. If
the Trustee is not also the Conversion Agent, the Company will promptly give,
or cause to be given, written notice to the Trustee of the serial numbers of
all Securities which have been converted.

(n) Merger or Consolidation. In case of any consolidation with, or
merger of the Company into, any other corporation, or in case of any merger of
another corporation into the Company (other than a merger which does not result
in any reclassification,

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<PAGE> 29
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company), or in case of any sale or transfer of all or substantially all of
the assets of the Company, upon consummation of such transaction the Securities
then outstanding shall, without the consent of any holder, automatically become
convertible only into the kind and amount of securities, cash or other assets
which the holder of a Security would have owned immediately after the
consolidation, merger, sale or transfer if the holder had converted the
Security at the conversion price in effect immediately before the effective
date of such transaction. Concurrently with the consummation of such
transaction, the person obligated to issue securities or deliver cash or other
assets upon conversion of the Securities shall execute and deliver to the
Trustee an amendment to this Indenture so providing and further providing for
(i) adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section 7 and (ii) the assumption of the
Company's registration obligation in Section 7(q) hereof. The above provisions
of this Section shall similarly apply to successive consolidations, mergers,
sales or transfers.

(o) Trustee Not Obligated. Subject to Section 11(a) hereof, neither
the Trustee nor the Conversion Agent shall at any time be under any duty or
responsibility to any holder of Securities to determine whether any facts exist
which may require any adjustment of the Conversion Price, or with respect to
the nature or extent of any such adjustment when made, or with respect to the
method employed, or herein or in the Securities provided to be employed, in
making the same. Neither the Trustee nor the Conversion Agent shall be
accountable with respect to the validity or value (or the kind or amount) of
any Conversion Shares or of any securities or property which may at any time be
issued or delivered upon the conversion of any Security; and neither the
Trustee nor the Conversion Agent makes any representation with respect thereto.
Neither the Trustee nor the Conversion Agent shall be responsible for any acts
or omissions of the Company including without limitation any failure of the
Company to issue, transfer or deliver any certificates representing Conversion
Shares or other securities or property or to make any cash payment upon the
delivery of any Security for the purpose of conversion or to comply with any of
the covenants contained in this Section 7.

(p) Restrictions on Conversion Shares. Any Common Stock issued upon
conversion of a Restricted Security ("Restricted Common Stock") at any time
prior to the date which is three years after the Closing Date and when a
registration statement in respect of such Common Stock is not effective under
the Securities Act shall be subject to the restrictions on transfer set forth
in Section 3 hereof to the same extent as such Restricted Securities which were
so converted. All shares of Restricted Common Stock shall bear the legend and
transfer requirements set forth in

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<PAGE> 30
Section 3(d) hereof, with such modifications thereto as the Company shall deem
appropriate.

(q) Registration Statement. The Company covenants (i) to prepare and
file promptly a registration statement on Form S-1, S-2 or S-3 under the
Securities Act (the "Registration Statement"), or any successor forms thereto,
(ii) to use its best efforts to cause the Registration Statement to be declared
effective by the SEC as promptly as practicable, and (iii) to use its best
efforts to keep the Registration Statement continuously effective during a
period ending January 29, 1999 or such shorter period that terminates on the
earlier of (A) the date on which all Securities (or Conversion Shares issued
upon conversion of Securities) have been sold pursuant to such Registration
Statement or (B) the date on which all Securities shall have been redeemed.
The Registration Statement shall register resales of the Securities and the
Conversion Shares such that the Securities and Conversion Shares may be
lawfully transferred and delivered pursuant to the Registration Statement. The
Company will bear all reasonable costs and expenses of such Registration
Statement. The Trustee shall have no responsibility for the preparation,
filing or continued effectiveness of the Registration Statement.

8. Subordination. (a) The Company, for itself, its successors and assigns,
covenants and agrees, and each holder of Securities by his acceptance thereof,
likewise covenants and agrees, that the payment of the principal of and
interest and Additional Amounts on each and all of the Securities is hereby
expressly subordinated and subject in right of payment, to the extent and in
the manner hereinafter set forth, to the prior payment in full of all Senior
Indebtedness of the Company (as defined below).

"Senior Indebtedness" of the Company shall mean the principal of (and
premium, if any) and interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to the
Company, whether or not a claim for post-filing interest is allowed in such
proceeding) and all other amounts due on or with respect to the following
whether outstanding at the date hereof or hereafter incurred or created:

(i) any indebtedness of the Company (excluding the Securities
and indebtedness ranking pari passu with the Securities, but including
guarantees given by the Company), whether now outstanding or
subsequently created or incurred, for money borrowed, whether or not
evidenced by debentures, notes or similar instruments, issued,
incurred or assumed by the Company;

(ii) the Company's existing indebtedness (other than existing
subordinated indebtedness), including indebtedness

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<PAGE> 31
under the Company's principal revolving bank credit facilities;

(iii) secured indebtedness; and

(iv) renewals, extensions, refinancing, refundings,
amendments and modifications of any such indebtedness or obligations
or of the instruments creating or evidencing such indebtedness or
obligations;

unless by the terms of the instrument creating or evidencing such indebtedness
or such renewal, extension, refinancing, refunding, amendment or modification,
it is provided that such indebtedness or indebtedness as so modified or
amended, or such renewals, extensions or refundings, are not superior in right
of payment to the Securities. The Securities shall rank pari passu with the
Company's existing 12% Subordinated Debentures due 2002 and the Company's
existing 7% Convertible Subordinated Debentures due 2006 issued under the
Fiscal Agency Agreement.

(b) (i) In the event of any insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to its creditors, in their
capacity as such creditors, or to its property, or in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy, or in the event of
any assignment for the benefit of creditors of the Company or any marshalling
of assets of the Company, then the holders of Senior Indebtedness of the
Company shall first be entitled to receive payment in full in cash of all
Senior Indebtedness of the Company before the holders of any of the Securities
shall be entitled to receive any payment on account of the principal of or
interest or Additional Amounts on the Securities, and to that end the holders
of Senior Indebtedness of the Company shall be entitled to receive for
application in payment thereof any payment or distribution of any kind or
character, whether in cash, property or securities, which may be payable or
deliverable in any such proceedings in respect of the Securities (other than
securities of the Company as reorganized or readjusted or securities of the
Company or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Section 8 with respect to the Securities), to the payment of
all Senior Indebtedness of the Company, provided that the rights of the holders
of Senior Indebtedness of the Company are not altered by such reorganization or
readjustment. For the purposes of this Section 8, no consolidation, merger,
conveyance or transfer made pursuant to the provisions of Section 15 shall be
deemed to be a liquidation, reorganization, dissolution or other winding up of
the Company.

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<PAGE> 32
(ii) If under the circumstances set forth in paragraph (i) of
this subsection, and notwithstanding the provisions thereof, any payment or
distribution of assets of the Company of any kind, whether in cash, property or
securities (other than securities of the Company as reorganized or readjusted
or securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinated, at least
to the extent provided in this Section 8 with respect to the Securities, to the
payment of all Senior Indebtedness of the Company, provided that the rights of
the holders of Senior Indebtedness of the Company are not altered by such
reorganization or readjustment), shall be received by the holders of the
Securities before all Senior Indebtedness of the Company is paid in full in
cash, such payment or distribution shall be paid over to the holders of Senior
Indebtedness of the Company ratably, for application to the payment of all
Senior Indebtedness of the Company remaining unpaid until all Senior
Indebtedness of the Company shall have been paid in full, after giving effect
to any concurrent payment or distribution to the holders of such Senior
Indebtedness of the Company.

(iii) Upon any distribution of assets of the Company referred
to in this Section, the holders of Securities shall be entitled to rely upon
any final order or decree of a court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
and the holders of Securities shall be entitled to rely upon a certificate of
the liquidating trustee or agent or other person making any distribution to the
holders of Securities for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Indebtedness of the
Company and other indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Section.

(c) (i) Upon the maturity of any Senior Indebtedness of the
Company by lapse of time, acceleration or otherwise, all Senior Indebtedness of
the Company shall first be paid in full in cash, or such payment duly provided
for in cash, before any payment, directly or indirectly, is made on account of
the principal of or interest or Additional Amounts on the Securities.

(ii) Upon the happening of an event of default with respect
to any Senior Indebtedness of the Company, as defined therein or in the
instrument under which it is outstanding constituting a default in payment or
any default permitting the holders to accelerate the maturity thereof, then,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist, no payment or redemption shall be made by the Company,
directly or indirectly, on account of the principal of or interest or
Additional Amounts on the Securities.

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<PAGE> 33
(d) In case cash, securities or other property otherwise payable
or deliverable to the holders of the Securities shall have been applied,
pursuant to Sections 8(b) or 8(c) hereof, to the payment of Senior Indebtedness
of the Company, then, upon the payment in full in cash of all Senior
Indebtedness of the Company, the holders of the Securities shall be subrogated
to any rights of any holders of Senior Indebtedness of the Company to receive
any further payment or distributions applicable to Senior Indebtedness of the
Company until the principal of and interest and Additional Amounts on the
Securities shall have been paid in full, and such payments or distributions
received by the holders of the Securities, by reason of such subrogation, of
cash, securities or other property which otherwise would be paid or distributed
to the holders of Senior Indebtedness of the Company shall, as between the
Company and its creditors other than the holders of Senior Indebtedness of the
Company, on the one hand, and the holders of the Securities, on the other hand,
be deemed to be a payment by the Company on account of Senior Indebtedness of
the Company and not on account of the Securities.

(e) No present or future holder of any Senior Indebtedness of the
Company shall be prejudiced in any way in the right to enforce the
subordination of the Securities by any act or failure to act on the part of the
Company. The provisions of this Section 8 are solely for the purpose of
defining the relative rights of the holders of Senior Indebtedness of the
Company, on the one hand, and the holders of the Securities, on the other hand,
against the Company and its assets, and nothing contained in this Section 8
shall impair, as between the Company and the holder of any Security, the
obligation of the Company, which is unconditional and absolute, to pay to the
holder thereof the principal thereof and interest and Additional Amounts
thereon as and when the same shall become due and payable in accordance with
the terms thereof, or prevent the holder of any Security, upon default
hereunder or under such Security, from exercising all rights, powers and
remedies otherwise provided herein or therein or by applicable law, all subject
to the rights of the holders of Senior Indebtedness of the Company under this
Section 8 to receive cash, property or securities otherwise payable or
deliverable to the holders of the Securities.

(f) Nothing contained in this Section 8 or in any of the
Securities shall prevent at any time, except under the conditions described in
Sections 7(b) and (c) hereof or during the pendency of any dissolution, winding
up, liquidation or reorganization proceedings therein referred to, the Company
from making payments at any time of principal of or interest or Additional
Amounts, if any, on the Securities. Nothing contained in this Section 8 shall
prevent conversions of Securities.

(g) Notwithstanding the provisions of this Section 8 or any other
provision of this Indenture, the Trustee shall not be

30
<PAGE> 34
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof at the address
specified in Section 21 hereof from the Company or a holder of Senior
Indebtedness or from any trustee or agent therefor at least two Business Days
prior to the making of any payment; and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of Section 11 hereof,
shall be entitled in all respects to assume that no such facts exist.

Subject to the provisions of Section 11 hereof, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a person
representing himself to be a holder of Senior Indebtedness of the Company (or a
trustee or agent on behalf of any such holder). In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any person as a holder of Senior Indebtedness of the Company to
participate in any payment or distribution pursuant to this Section 8, the
Trustee may request such person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness of the
Company held by such person, the extent to which such person is entitled to
participate in such payment or distribution and any other facts pertinent to
the rights of such person under this Section 8, and if such evidence is not
furnished, the Trustee may defer any payment which it may be required to make
for the benefit of such person pursuant to the terms of this Indenture pending
judicial determination as to the rights of such person to receive such payment.

(h) The Trustee shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness of the Company and shall not be liable to
any such holders if the Trustee shall in good faith mistakenly pay over or
distribute to holders of Securities or to the Company or to any other person
cash, property or securities to which any holders of Senior Indebtedness of the
Company shall be entitled by virtue of this Section 8 or otherwise. The
Trustee shall not be charged with knowledge of the existence of Senior
Indebtedness of the Company unless a trust officer (as defined in Section
11(a)(ii) hereof) of the Trustee shall have received notice to that effect at
the address of the Trustee set forth in Section 21 hereof. With respect to
holders of Senior Indebtedness of the Company, the Trustee undertakes to
perform or to observe only such of its covenants or obligations as are
specifically set forth in this Section 8.

(i) The Trustee shall be entitled to all the rights set forth in
this Section 8 with respect to any Senior Indebtedness which may at any time be
held by it, to the same extent as any other holder of Senior Indebtedness; and
nothing in the Security or this Indenture shall deprive the Trustee of any of
its rights as such holder.

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9. Surrendered Securities; Mutilated, Destroyed, Stolen or Lost
Securities.

(a) All Securities, surrendered for payment, redemption, retirement,
transfer or exchange shall be delivered to the Trustee. In any such case the
Trustee shall cancel all Securities not previously canceled and dispose of or
deliver all such Securities to the Company in accordance with the Trustee's
policy for disposal of canceled securities.

(b) The Trustee is hereby authorized, in accordance with the
provisions of the Securities and this Section, from time to time to
authenticate and deliver Securities in exchange for or in lieu of Securities
that become mutilated, destroyed, stolen or lost, upon receipt of such
indemnity and such other documents or proof as may be required in form and
substance satisfactory to the Trustee and the Company. Every Security
authenticated and delivered in exchange for or in lieu of any such Security
shall be considered the obligation of the Company and shall carry all the
rights to interest accrued and unpaid and to accrue which were carried by such
Security.

10. Signatures. Securities shall be executed on behalf of the Company by its
Chairman, its Chief Executive Officer, its President, its Secretary, any Vice
President, its Treasurer, any Assistant Treasurer or any Assistant Secretary,
any of whose signatures may be manual or in facsimile. Any signature in
facsimile may be imprinted or otherwise reproduced on the Securities. The
Company may adopt and use the signature or facsimile signature of any person
who shall be a Chairman, Chief Executive Officer, President, Secretary, Vice
President, Treasurer, Assistant Treasurer or Assistant Secretary at the time of
the execution of the Securities, notwithstanding the fact that at the time the
Securities shall be authenticated and delivered, or disposed of, such person
shall have ceased to have held such office by virtue of which such person so
executed such security.

11. Trustee.

(a) Duties and Responsibilities of the Trustee. With respect to the
holders of any Securities issued hereunder, the Trustee, prior to the
occurrence of an Event of Default and after the curing or waiving of all Events
of Default which may have occurred, undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture. In case an Event
of Default has occurred (which has not been cured or waived), the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in

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their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.

No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own wilful misconduct, except that:

(i) prior to the occurrence of an Event of Default and
after the curing or waiving of all such Events of Default which may
have occurred:

(A) the duties and obligations of the Trustee with
respect to the Securities shall be determined solely by the express
provisions of this Indenture, and the Trustee shall not be liable
except for the performance of such duties and obligations as are
specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and

(B) in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture; but in the case of any such
certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Indenture;

(ii) the Trustee shall not be liable for any error of
judgment made in good faith by its trust officers, which term for
purposes hereof means the Trustee's chairman or any vice-chairman of
the board of directors, the chairman or vice-chairman of the executive
committee of the board of directors, the chairman of the trust
committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust
officer, the controller or any assistant controller or any other
officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
and

(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith

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in accordance with the direction of the holders of any Securities
pursuant to this Indenture or the Securities relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture.

None of the provisions contained in this Indenture shall be construed
as requiring the Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if there shall be reasonable grounds
for believing that the repayment of such funds or adequate indemnity against
such liability is not reasonably assured to it.

(b) Reliance on Documents, Opinions, etc. Subject to Section 11(a):

(i) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, any certificate signed
by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, the Secretary any Assistant Secretary, any
Vice President or the Treasurer of the Company (an "Officer's
Certificate") or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, direction or other
paper or document believed by the Trustee to be genuine and have been
signed or presented by the proper party or parties;

(ii) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officer's
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
of the Company shall be sufficiently evidenced by a copy thereof
certified by the Secretary or an Assistant Secretary of the Company;

(iii) the Trustee may consult with one or more counsel
satisfactory to it (including counsel to the Company) and the written
opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be
taken by the Trustee hereunder in good faith and in accordance with
such opinion of counsel;

(iv) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request, order or direction of any of the holders of Securities
pursuant to the provisions of this Indenture, unless such holders
shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred
therein or thereby;

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(v) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or
within the discretion, rights or powers conferred upon it by this
Indenture;

(vi) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, direction, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion,
without any obligation so to do, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney; and

(vii) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or
attorney appointed with due care by it hereunder; provided that the
Trustee shall notify the Company of the appointment of any such
agents.

(c) No Responsibility for Recitals, Validity of Indenture, Exchange
Offer Memorandum, etc. Any recitals contained herein or in the Securities
(except the Trustee's certificates of authentication) shall be taken as the
statements of the Company, and neither the Trustee nor any Authenticating Agent
assumes any responsibility for the correctness of the same. The Trustee makes
no representation as to the validity or sufficiency of this Indenture or of the
Securities or the Exchange or the Exchange Offer Memorandum. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of any of the Securities or of the proceeds thereof.

(d) Trustee and Agents May Hold Securities. The Trustee or any agent
of the Company or the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Securities with the same rights it would have if
it were not the Trustee or such agent and, subject to Sections 11(h) and 11(m),
if operative, may otherwise deal with the Company and receive, collect, hold
and retain collections from the Company with the same rights it would have if
it were not the Trustee or such agent.

(e) Moneys to Be Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by mandatory provisions of law. Neither the Trustee nor any paying agent shall
be under any liability for interest on any moneys received by it hereunder.

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(f) Compensation and Expenses of Trustee. The Company covenants and
agrees to pay to the Trustee from time to time, and the Trustee shall be
entitled to, reasonable compensation for all services rendered by it hereunder
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) and, except as otherwise
expressly provided, the Company will pay or reimburse the Trustee upon its
request for all reasonable expenses, disbursements and advances incurred or
made by or on behalf of it in accordance with any of the provisions of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents, including any Authenticating Agent and counsel)
except any such expense, disbursement or advance as may arise from its
negligence or bad faith. The Company also covenants to indemnify the Trustee
for, and to hold it harmless against, any loss, liability, damage, claim or
expense incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of this Indenture or the
trusts hereunder and its duties hereunder, including the costs and expenses of
defending itself against any claim of liability in the premises. The
obligations of the Company under this Section to compensate and indemnify the
Trustee and to pay or reimburse the Trustee for expenses, disbursements and
advances shall constitute additional indebtedness hereunder and shall survive
the satisfaction and discharge of this Indenture. Such additional indebtedness
shall be secured by a lien prior to that of the Securities upon all property
and funds held or collected by the Trustee as such, except funds held in trust
for the benefit of the holders of particular Securities.

When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5(d) or 5(e) of the Securities,
the expenses (including the reasonable charges and expenses of its counsel) and
the compensation for services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
similar law.

The provisions of this Section shall survive the termination of this
Indenture.

(g) Right of Trustee to Rely on Officers' Certificate, etc. Subject
to Sections 11(a) and 11(b), whenever in the administration of the trusts of
this Indenture the Trustee shall deem it necessary or desirable that a matter
be proved or established prior to taking or suffering or omitting any action to
be taken hereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may, in the absence of negligence or bad faith
on the part of the Trustee, be deemed to be conclusively proved and established
by an Officer's Certificate delivered to the Trustee, and such certificate, in
the absence of negligence or bad faith on the part of the Trustee, shall be
full

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warrant to the Trustee for any action taken, suffered or omitted by it under
the provisions of this Indenture upon the faith thereof.

(h) Conflicting Interest of Trustee. If the Trustee has or shall
acquire a conflicting interest within the meaning of the TIA, it shall either
eliminate such conflicting interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the TIA and this Indenture.

(i) Eligibility of Trustee. The Trustee hereunder shall at all times
be a corporation organized and doing business under the laws of the United
States of America or of any State or the District of Columbia having a combined
capital and surplus of at least $100,000,000, and which is authorized under
such laws to exercise corporate trust powers and is subject to supervision or
examination by Federal, State or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation at any time shall be deemed to be its combined capital and surplus
as set forth in its most recent report of condition so published. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 11(i), the Trustee shall resign immediately in the
manner and with the effect specified in Section 11(j).

(j) Resignation or Removal of Trustee; Appointment of Successor
Trustee.

(i) The Trustee may at any time resign by giving written
notice of resignation to the Company. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee or
trustees by written instrument in duplicate, executed by authority of
the Board of Directors (the term "Board of Directors," when used
herein with reference to the Company, means either the board of
directors of the Company, or any duly authorized committee of such
board), one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee or trustees.
If no successor trustee shall have been so appointed and have accepted
appointment within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any holder
of Securities who has been a bona fide holder of a Security for at
least six months may, subject to the provisions of Section 14, on
behalf of itself and all others similarly situated, petition any such
court for the appointment of a successor trustee. Such court may
thereupon, after such notice, if

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any, as it may deem proper and prescribe, appoint a successor trustee.

(ii) In case at any time any of the following shall occur:

(A) the Trustee shall fail to comply with the
provisions of Section 11(h) after written request therefor by the
Company or by any holder of Securities who has been a bona fide holder
of a Security for at least six months; or

(B) the Trustee shall cease to be eligible in
accordance with the provisions of Section 11(i) and shall fail to
resign after written request therefor by the Company or by any such
holder of Securities ; or

(C) the Trustee shall become incapable of acting
with respect to the Securities, or shall be adjudged a bankrupt or
insolvent, or a receiver or liquidator of the Trustee or of its
property shall be appointed, or any public officer shall take charge
or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation;

then, in any such case, the Company may remove the Trustee and appoint
a successor trustee by written instrument, in duplicate, executed by
authority of the Board of Directors, one copy of which instrument
shall be delivered to the Trustee so removed and one copy to the
successor trustee, or, subject to the provisions of Section 14, any
holder of Securities who has been a bona fide holder of a Security for
at least six months may on behalf of itself and all others similarly
situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor trustee. Such court
may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.

(iii) The holders of a majority in aggregate principal amount
of the Securities at the time outstanding may at any time remove the
Trustee and appoint a successor trustee by delivering to the Trustee
so removed, to the successor trustee so appointed and to the Company
the evidence provided for in Section 14(k) of the action in that
regard taken by the holders of Securities.

(iv) Any resignation or removal of the Trustee and any
appointment of a successor trustee pursuant to any of the provisions
of this Section 11(j) shall become effective only upon acceptance of
appointment by the successor trustee as provided in Section 11(k).

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(v) The Company shall mail notice of each resignation and
each removal of the Trustee to all holders of Securities at each such
holder's last address as it shall appear in the Security Register.

(k) Acceptance of Appointment by Successor Trustee. Any successor
trustee appointed as provided in Section 11(j) shall execute, acknowledge and
deliver to the Company and to its predecessor Trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all rights,
powers, duties and obligations of its predecessor hereunder, with like effect
as if originally named as trustee hereunder; but, nevertheless, on the written
request of the Company or of the successor trustee, upon payment of any amounts
then due it pursuant to Section 11(f), the predecessor Trustee ceasing to act
shall pay over to the successor trustee all moneys at the time held by it
hereunder and shall execute and deliver an instrument transferring to such
successor trustee all such rights, powers, duties and obligations. Upon
request of any such successor trustee, the Company shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming
to such successor trustee all such rights and powers. Any trustee ceasing to
act shall, nevertheless, retain a lien upon all property or funds held or
collected by such trustee to secure any amounts then due it pursuant to the
provisions of Section 11(f).

No successor trustee shall accept appointment as provided in this
Section 11(k) unless at the time of such acceptance such successor trustee
shall be qualified under the provisions of Section 11(h) and eligible under the
provisions of Section 11(i).

Upon acceptance of appointment by any successor trustee as provided in
this Section 11(k), the Company shall mail notice thereof to the holders of
Securities at each such holder's last address as it shall appear in the
Register. If the acceptance of appointment is substantially contemporaneous
with the resignation, then the notice called for by the preceding sentence may
be combined with the notice called for by Section 11(j). If the Company fails
to mail such notice within ten days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed
at the expense of the Company.

(l) Merger, Conversion, Consolidation or Succession to Business of
Trustee. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate

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trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be qualified under the provisions of
Section 11(h) and eligible under the provisions of Section 11(i), without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.

In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee by merger,
conversion or consolidation may adopt the certificate of authentication of any
predecessor Trustee and deliver such Securities so authenticated; and, in case
at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
such successor to the Trustee or, if such successor to the Trustee is a
successor by merger, conversion or consolidation, in the name of any
predecessor hereunder; and in all such cases such certificate shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.

(m) Preferential Collection of Claims Against Company. If and when
the Trustee shall be or become a creditor of the Company (or any other obligor
upon the Securities), the Trustee shall be subject to the provisions of the TIA
regarding the collection of claims against the Company (or any such other
obligor).

(n) Authenticating Agent. The Trustee may appoint an authenticating
agent or agents reasonably acceptable to the Company with respect to the
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities issued upon exchange, registration of transfer, partial
redemption thereof or substitution pursuant to this Indenture and such
authenticating agent or agents shall enter into such agreements with the
Company as the Company may reasonably request. Securities so authenticated
shall be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder and
every reference herein to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication shall be deemed to
include authentication and delivery on behalf of the Trustee by an
authenticating agent. Each authenticating agent shall at all times be a bank
or trust company organized under the laws of the United States of America or of
any State or of the District of Columbia having a combined capital and surplus
of not less than U.S. $100,000,000 and which is authorized by law to act as an
authenticating agent, and is subject to supervision or examination by a duly
constituted Federal, State or District of Columbia banking authority. If such
authenticating agent publishes reports of condition at least annually, pursuant
to law

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or the requirements of said supervising or examining authority, then for the
purposes of this Section 11(n), the combined capital and surplus of such
authenticating agent at any time shall be deemed to be the combined capital and
surplus of such authenticating agent as set forth in its most recent report of
condition so published. In case at any time an authenticating agent shall
cease to be eligible in accordance with the provisions of this Section 11(n),
such authenticating agent shall resign immediately in the manner and with the
effect specified in this Section 11(n).

(o) Reports to Holders. Within 60 days after each November 1
beginning with November 1, 1997, the Trustee shall mail to each holder of
Securities a brief report dated as of November 1 that complies with TIA Section
313(a). The Trustee also shall comply with TIA Section 313(b). A copy of each
report at the time of its mailing to holders of Securities shall be filed with
the SEC and each stock exchange on which the Securities are listed, if any.
The Company agrees to notify the Trustee whenever the Securities become listed
on any stock exchange.

(p) Securities Holders List. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to
it of the names and addresses of holders of Securities. If the Trustee is not
the Registrar, the Corporation shall furnish to the Trustee on or before each
interest payment date and at such other times as the Trustee may request in
writing a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of holders of Securities.

12. Events of Default.

(a) Events of Default. In the event that any of the following
("Events of Default") shall occur and be continuing:

(i) the Company shall fail to pay when due the principal
amount of any of the Securities whether at maturity or upon redemption
or otherwise; or

(ii) the Company shall fail to pay any installment of
interest or Additional Amounts, if any, on any of the Securities for a
period of 30 days after the date when due; or

(iii) the Company shall fail duly to perform or observe any
other term, covenant or agreement contained in any of the Securities
or in this Indenture for a period of 60 days after the date on which
written notice of such failure, requiring the Company to remedy the
same, shall first have been given to the Company by the Trustee or to
the Company and the

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<PAGE> 45
Trustee by the holders of at least 25% in aggregate principal amount
of the Securities at the time outstanding; provided, however, that in
the event the Company shall within the aforesaid period of 60 days
commence legal action in a court of competent jurisdiction seeking a
determination that the Company had not failed duly to perform or
observe the term or terms, covenant or covenants or agreement or
agreements specified in the aforesaid notice, such failure shall not
be an Event of Default unless the same continues for a period of 10
days after the date of any final determination to the effect that the
Company had failed to duly perform or observe one or more of such
terms, covenants or agreements; or

(iv) a court having jurisdiction in the premises shall enter
a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or for any
substantial part of the property of it or ordering the winding-up or
liquidation of the affairs of it and such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or

(v) the Company shall commence a voluntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization
or other similar law now or hereafter in effect, or shall consent to
the entry of an order for relief in an involuntary case under any such
law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or
similar official) of the Company or for any substantial part of its
property, or shall make any general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as
they become due or shall take any corporate action in furtherance of
any of the foregoing; or

(vi) an event of default, as defined in any indenture or
instrument evidencing or under which the Company shall have
outstanding at least $10,000,000 (or its equivalent in another
currency), in aggregate principal amount of indebtedness for borrowed
money, shall happen and be continuing and such default shall involve
the failure to pay the principal of such indebtedness (or any part
thereof), when due and payable after the expiration of any applicable
grace period with respect thereto, or such default shall result in
such indebtedness being accelerated so that the same shall be or
become due and payable prior to the date on which the same would
otherwise have become due and payable, and failure to pay shall not
have been cured by the Company within 30 days after such failure or
such acceleration shall

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not be rescinded or annulled within 30 days after notice thereof shall
have first been given to the Company; provided that if such event of
default under such indenture or instrument shall be remedied or cured
by the Company or waived by the holders of such indebtedness, then the
Event of Default hereunder by reason thereof shall be deemed likewise
to have been thereupon remedied, cured or waived without further
action upon the part of any of the holders of Securities;

then any holder of a Security may, at such holder's option, declare the
principal of the Security and the interest accrued thereon (and Additional
Amounts, if any, thereon) to be due and payable immediately by written notice
to the Company and the Trustee, and if any such Event of Default shall continue
at the time of receipt of such written notice, the principal of the Security
and the interest accrued thereon (and Additional Amounts, if any, thereon)
shall become immediately due and payable, subject to the proviso of clause
(iii) of this Section 12(a). Upon payment of such amount of principal and
interest (and Additional Amounts, if any), all of the Company's obligations in
respect of payment of principal of and interest on (and Additional Amounts, if
any) such Security shall terminate. Interest on overdue principal and interest
(and Additional Amounts, if any) shall accrue from the date on which such
principal and interest (and Additional Amounts, if any) were due and payable to
the date such principal and interest (and Additional Amounts, if any) are paid
or duly provided for, at the rate borne by the Securities (to the extent
payment of such interest shall be legally enforceable). Additionally, if an
Event of Default occurs and is continuing, then, and in each and every such
case, unless the principal of all of the Securities shall have already become
due and payable, the Trustee or the holders of not less than 25% in aggregate
principal amount of the outstanding Securities, by notice in writing to the
Company (and to the Trustee if given by the holders of Securities), may declare
the entire principal of all of the Securities and the interest accrued thereon,
if any, to be due and payable immediately, and upon any such declaration the
same shall become immediately due and payable, subject to the proviso of clause
(iii) of this Section 12(a). Any acceleration of this Security pursuant to
this Section 12(a) shall not affect the subordination provisions of Section 7
hereof.

If an Event of Default, as defined in this Section 12, with respect to
the Securities, or an event which would, with the passing of time or the giving
of notice, or both, be an Event of Default, shall occur and be continuing, the
Company shall within two Business Days of becoming aware thereof notify the
Trustee in writing, of such Event of Default and the Trustee shall thereupon
promptly notify all of the holders of the Securities of such Event of Default,
except as provided below.

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If an Event of Default occurs and is continuing and if it is known to
the Trustee, the Trustee shall mail to each holder of Securities notice of the
default within 90 days after such Event of Default. Except in the case of a
default in payment on any Security, the Trustee may withhold the notice if and
so long as a committee of its trust officers in good faith determines that
withholding the notice does not materially adversely affect the interests of
the holders.

The Company shall provide to the Trustee within 90 days after the end
of each fiscal year of the Company, commencing with the fiscal year ending
December 31, 1996, a certificate to the effect that as of the last day of such
fiscal year there was then existing no default with respect to the Securities,
as defined in this Section. The Trustee shall make such certificate available
for inspection during normal business hours but shall have no duty to the
holders of the Securities in respect of such certificate.

(b) Other Remedies. If an Event of Default occurs and is continuing,
the Trustee may pursue any available remedy to collect the payment of principal
or interest on the Securities or to enforce the performance of any provision of
the Securities or the Indenture. The Trustee may maintain a proceeding even if
it does not possess any of the Securities or does not produce any of them in
the proceeding. A delay or omission by the Trustee or any holder of Securities
in exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.

(c) Waiver of Past Defaults. Subject to Section 14, the holders of a
majority in aggregate principal amount of the then outstanding Securities by
notice to the Trustee may on behalf of all the holders waive an existing Event
of Default and its consequences. When an Event of Default is waived, it is
cured and ceases; but no such waiver shall extend to any subsequent or other
Event of Default or impair any right consequent thereon.

(d) Control by Majority. The holders of a majority in principal
amount of the then outstanding Securities may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law or the Securities or the
Indenture, is unduly prejudicial to the rights of other holders of Securities,
or would involve the Trustee in personal liability.

(e) Limitation on Suits. A holder of Securities may pursue a remedy
with respect to the Indenture or the Securities only if:

(i) the holder of Securities gives to the Trustee notice of a
continuing Event of Default;

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<PAGE> 48
(ii) the holders of at lease 25% in principal amount of the
then outstanding Securities make a request to the Trustee to pursue
the remedy;

(iii) such holder or holders of Securities offer to the
Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;

(iv) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and

(v) during such 60-day period the holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee a direction inconsistent with the request.

Notwithstanding the foregoing, a holder of Securities may always exercise its
rights under Section 12(a).

(f) Rights of holders of Securities To Receive Payment.
Notwithstanding any other provision of the Indenture or the Securities, the
right of any holder of Securities to convert such holder's Securities and to
receive payment of principal and interest on such holder's Securities, on or
after the respective due dates expressed in such Securities, or to bring suit
for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of the holder of
Securities made pursuant to this Section.

(g) Collection Suit by Trustee. If an Event of Default specified in
Section 12(a) occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal and interest remaining unpaid on the Securities and
interest on overdue principal and interest and such further amount as shall be
sufficient to cover the costs and, to the extent lawful, expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.

(h) Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the holders of Securities
allowed in any judicial proceedings relative to the Company, its creditors or
its property. Nothing contained herein shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any holder
of Securities any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any holder thereof, or to
authorize the Trustee to vote in respect of the claim of any holder of
Securities in any such proceeding.

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<PAGE> 49
(i) Priorities. If the Trustee collects any money pursuant to this
Section 12, it shall pay out the money in the following order:

First: to the Trustee for amounts due under Section 11(f)
hereof;

Second: to the holders of Senior Indebtedness to the extent
required by Section 8 hereof;

Third: to holders of Securities for amounts due and unpaid on
the Securities for principal and interest ratably, without preference
or priority of any kind, according to the amounts due and payable on
the Securities for principal and interest respectively; and

Fourth: to the Company.

The Trustee may fix a record date and payment date for any
payment to holders of Securities made pursuant to this Section.

(j) Undertaking for Costs. In any suit for the enforcement of any
right or remedy under the Indenture or the Securities or in any suit against
the Trustee for any action taken or omitted by it as a Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees and expenses,
against any party litigant in the suit, having due regard to the merits and
good faith of the claims or defenses made by the party litigant. This Section
does not apply to a suit by the Trustee, a suit by a holder pursuant to Section
5(f) hereof, or a suit by holders of more than 25% in principal amount of the
then outstanding Securities.

13. Taxes. The Company will pay all stamp taxes and other similar duties,
if any, that may be imposed by the United States of America, or any state or
political subdivision thereof or taxing authority therein, with respect to the
execution or delivery of this Indenture, or the issuance of the Securities, or
with respect to the issuance or delivery of Conversion Shares (or other
securities that may become issuable on conversion of Securities); provided,
however, that the Company shall not be required to pay any tax or duty which
may be payable in respect of any transfer (i) involved in the issue or delivery
of Securities in a name other than that of the holder of the Restricted
Debenture surrendered in exchange for such Security; (ii) involved in the
issuance or delivery of Conversion Shares in a name other than that of the
holder of the Security or Securities to be converted, and no such issuance or
delivery shall be made unless

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<PAGE> 50
and until the person requesting such issue has paid to the Company the amount
of any such tax or duty or has established to the satisfaction of the Company
that such tax or duty has been paid or (iii) for which it is entitled pursuant
to Section 3(h) of this Agreement to require such tax or duty to be paid prior
to transfer or exchange.

14. Meetings and Votes of Holders; Communications Among Holders.

(a) Purposes of Meetings. A meeting of holders of Securities may be
called at any time and from time to time pursuant to this Section 14 for any of
the following purposes: (i) to give any notice to the Company or to the
Trustee, or to give any directions to the Trustee, or to consent to the waiving
of any default hereunder or under the Securities and its consequences, or to
take any other action authorized to be taken by holders of Securities pursuant
to Section 18 hereof; or (ii) to take any other action authorized to be taken
by or on behalf of the holders of any specified aggregate principal amount of
the Securities under any other provision of this Indenture, the Securities or
under applicable law.

(b) Place of Meetings. Meetings of holders of Securities may be held
at such place or places in the City of New York as the Company or the holders
calling the meeting shall from time to time determine.

(c) Calling of Meetings by Holders. The Company may at any time call
a meeting of holders of Securities to be held at such time and at such place in
the location designated in Section 14(b) hereof as the Company shall determine.
Notice of every meeting of holders shall be published on behalf and at the
expense of the Company in an Authorized Newspaper on a Business Day in the City
of New York as set forth in Section 21 of this Indenture with a copy to the
Trustee. Such notice shall set forth the time and the place of such meeting
and in general terms the action proposed to be taken at such meeting, and shall
be published at least twice, the first publication to be not less than 21 nor
more than 180 days prior to the date fixed for the meeting.

(d) Calling of Meetings By Holders. In case at any time the holders
of at least 25% in aggregate principal amount of the Securities shall have
requested the Company to call a meeting of the holders, by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Company shall not have given the first notice of such meeting
within 21 days after receipt of such request or shall not thereafter proceed to
cause the meeting to be held as provided herein, then the holders of Securities
in the amount above specified may determine the time and the place in the
location designated in Section 14(b) hereof for such meeting and may call such
meeting to take any

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<PAGE> 51
action authorized in Section 14(a) hereof by giving notice thereof as provided
in Section 14(c) hereof.

(e) Persons Entitled to Vote. To be entitled to vote at any meeting of
holders of Securities, a person shall be (i) a holder of one or more
Securities, or (ii) a person appointed by an instrument in writing as proxy for
a holder or holders of Securities by such holder or holders, which proxy need
not be a holder of Securities. The only persons who shall be entitled to be
present or to speak at any meeting of holders shall be the persons entitled to
vote at such meeting and their counsel and any representatives of the Trustee
and its counsel and any representatives of the Company and its counsel.

(f) Quorums. The persons entitled to vote a majority in principal
amount of the outstanding Securities shall constitute a quorum for the
transaction of all business specified in Section 14(a) hereof. No business
shall be transacted in the absence of a quorum unless a quorum is represented
when the meeting is called to order. In the absence of a quorum within 30
minutes of the time appointed for any such meeting, the meeting shall, if
convened at the request of the holders of Securities (as provided in Section
14(d) hereof), be dissolved. In any other case the meeting shall be adjourned
for a period of not less than 10 days as determined by the chairman of the
meeting prior to the adjournment of such adjourned meeting. Notice of the
reconvening of any adjourned meeting shall be given as provided in Section
14(c) hereof except that such notice need be published only once but must be
given not less than five days prior to the date on which the meeting is
scheduled to be reconvened. Subject to the foregoing, at the reconvening of
any meeting adjourned for a lack of a quorum the persons entitled to vote 25%
in principal amount of the Securities outstanding shall constitute a quorum for
the taking of any action set forth in the notice of the original meeting.
Notice of the reconvening of an adjourned meeting shall state expressly the
percentage of the aggregate principal amount of the Securities that shall
constitute a quorum. At a meeting or an adjourned meeting duly reconvened and
at which a quorum is present as aforesaid, any resolution and all matters
(except as limited by Section 9 of the Securities) shall be effectively passed
and decided if passed or decided by the persons entitled to vote a majority in
principal amount of the Securities represented and voting at such meeting,
provided that such amount shall be not less than 25% in principal amount of the
Securities outstanding. Any holder of a Security who has executed an
instrument in writing appointing a person as his proxy shall be deemed to be
present for the purposes of determining a quorum and be deemed to have voted;
provided, however, that such holder shall be considered as present or voting
only with respect to the matters covered by such instrument in writing. Any
resolution effectively passed or decision taken at any meeting of the holders
of Securities duly held in accordance with this Section 14 shall be binding on
all

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<PAGE> 52
the holders of Securities whether or not present or represented at the meeting
and whether or not notation of such decision is made upon the Securities.

(g) Regulations. Notwithstanding any other provision of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of holders of Securities in regard to proof of the
holding of Securities and of the appointment of proxies and in regard to the
appointment and duties of inspectors of votes, the submission and examination
of proxies, certificates and other evidence of the right to vote, and such
other matters concerning the conduct of the meeting as it shall deem
appropriate. Such regulations may provide that written instruments appointing
proxies, regular on their face, may be presumed valid and genuine without the
proof specified herein or other proof. The holding of Securities shall be
proved by the registry books maintained in accordance with Section 2(d) hereof
or by a certificate or certificates of the Security Registrar.

(h) Chairperson. The Trustee shall, by an instrument in writing,
appoint a temporary chairperson and secretary of the meeting, unless the
meeting shall have been called by the Company or by holders of Securities as
provided herein, in which case the Company or the holders of Securities calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairperson and secretary. A permanent chairperson and a permanent secretary
of the meeting shall be elected by vote of the holders of a majority in
principal amount of the Securities represented at the meeting and entitled to
vote.

(i) Voting. At any meeting each holder or proxy shall be entitled to
one vote for each $1,000 principal amount of Securities held or represented by
him; provided, however, that no vote shall be cast or counted at any meeting in
respect of any Securities challenged as not outstanding and ruled by the
chairperson of the meeting to be not outstanding. The chairperson of the
meeting shall have no right to vote, except as a holder or proxy.

(j) Adjournment. Any meeting of holders of Securities duly called
pursuant to Section 14(c) or 14(d) hereof at which a quorum is present may be
adjourned from time to time by vote of the holders (or proxies for the holders)
of a majority in principal amount of the Securities represented at the meeting
and entitled to vote; and the meeting may be held as so adjourned without
further notice.

(k) Ballots; Tabulation; Record of Proceedings. The vote upon any
resolution submitted to any meeting of holders of Securities shall be by
written ballots on which shall be subscribed the signatures of the holders of
Securities or of their representatives by proxy and the serial number or
numbers of the

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<PAGE> 53
Securities held or represented by them. The permanent chairperson of the
meeting shall appoint two inspectors of votes who shall count all votes cast at
the meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in triplicate of all
votes cast at the meeting. A record, at least in triplicate, of the
proceedings of each meeting of holders of Securities shall be prepared by the
secretary of the meeting and there shall be attached to said record the
original reports of the inspectors of votes on any vote by ballot taken thereat
and affidavits by one or more persons having knowledge of the facts setting
forth a copy of the notice of the meeting and showing that said notice was
published as provided in Section 14(c) or 14(d) hereof and, if applicable,
Section 14(f) hereof. Each copy shall be signed and verified by the affidavits
of the chairperson and secretary of the meeting, and one such copy shall be
delivered to the Company and another to the Trustee to be preserved by the
Trustee, the copy delivered to the Trustee to have attached thereto the ballots
voted at the meeting. Any record so signed and verified shall be conclusive
evidence of the matters therein stated.

(l) Communications Among Holders. Holders may communicate pursuant to
TIA Section 312(b) with other holders of Securities with respect to their
rights under this Indenture or the Securities. The Corporation, the Trustee,
the Registrar and anyone else shall have the protection of TIA Section 312(c).

(m) Securities Owned by Company. In determining whether the holders
of the required principal amount of Securities have concurred in any direction,
waiver or consent, or are present for purposes of a quorum, Securities owned by
the Company or by any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Company shall be
disregarded, except that for the purpose of determining whether the Trustee
shall be protected in relying on any direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.

15. Merger, Consolidation or Sale of Assets.

(a) Restrictions. The Company will not merge or consolidate with, or
sell or convey all or substantially all of its assets to, any other corporation
(for purposes hereof "corporation" shall include business trusts, limited
partnerships, business corporations and other business entities), unless (i)
either (A) the Company shall be the surviving corporation in the case of a
merger or (B) (I) the surviving, resulting or transferee corporation shall
expressly assume the due and punctual payment

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<PAGE> 54
(including Additional Amounts, if any) of all the Securities, according to
their tenor, and the due and punctual performance of all of the covenants and
obligations of the Company under the Securities, and the Indenture, by
supplemental agreement, and (II) the Trustee shall have received the
documentation required in the context by Section 15(b) hereof, (ii) the
surviving, resulting or transferee corporation, if not organized and validly
existing under the laws of the United States, shall expressly agree to make
payments under the Securities free of any deduction or withholding for or on
account of taxes, levies, imposts and charges whatsoever imposed by or for the
account of the jurisdiction where such successor corporation is generally
subject to taxation (or any political subdivision or taxing authority thereof
or therein) in a manner equivalent to that set forth herein, subject to the
exceptions contained in such forms of the Securities, and (iii) the Company or
such successor corporation, as the case may be, shall not, immediately after
such merger, consolidation, sale or conveyance, be in default in the
performance of any covenants or obligations of the Company under the Securities
or the Indenture.

(b) If at any time there shall be a merger, consolidation, sale or
conveyance of assets or assumption of obligations to which any of the covenants
contained in Section 15(a) hereof pertains, then in any such event the
successor or assuming corporation referred to therein will promptly deliver to
the Trustee:

(i) a certificate signed by an executive officer of such
successor or assuming corporation stating that as of the time
immediately after the effective date of any such transaction the
covenants of the Company contained in the Securities have been
complied with and the successor or assuming corporation is not in
default under the provisions of this Indenture or the Securities, as
applicable; and

(ii) a written opinion of legal counsel (who may be an
employee of or counsel to the successor or assuming corporation)
stating that in such counsel's opinion the covenants of the Company
contained in Section 15(a) hereof (other than those contained in
clause (iii) thereof) have been complied with and that any instrument
or instruments executed in the performance of such covenants comply
with the requirements thereof.

(c) In case of any such merger, consolidation, sale, conveyance or
assumption, such successor or assuming corporation shall succeed to and be
substituted for, and may exercise every right and power of and be subject to
all of the obligations of, the Company with the same effect, under this
Indenture and the Securities as if it had been named herein and in the
Securities as the Company; the Company shall thereupon be relieved of any
further obligation or liability hereunder or upon the Securities, and the
Company, as the predecessor corporation may thereupon or

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<PAGE> 55
at any time thereafter be dissolved, wound up or liquidated. Upon the order of
such successor or assuming corporation, instead of the Company, and subject to
all the terms, conditions and limitations in this Indenture prescribed, the
Trustee shall authenticate and shall deliver or cause such authentication and
delivery of any Securities which previously shall have been signed and
delivered by the officers of the Company to the Trustee for authentication, and
any Securities which such successor or assuming corporation thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All the
Securities so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Securities theretofore or thereafter issued in
accordance with the terms of this Indenture as though all of such Securities
had been issued at the date of the execution hereof.

In case of any merger, consolidation, sale, conveyance or assumption,
such changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.

In the event any merger, consolidation, sale, conveyance or assumption
results in a Change in Control, each holder of Securities may have the right to
require the Company to purchase such Securities in the manner provided in
Section 6(c) hereof.

(d) The Trustee may rely on the documents delivered to it pursuant to
this Agreement by any successor or assuming corporation pursuant to this
Section 15 as conclusive evidence that any such merger, consolidation, sale,
conveyance or assumption complies with the provisions of this Section.

16. Incorporators, Stockholders, Officers and Directors of the Company
Exempt from Individual Liability. No recourse under or upon any obligation,
covenant or agreement contained in this Indenture, or in any Security, or
because of any indebtedness evidenced thereby, shall be had against any
incorporator, as such, or against any past, present or future stockholder,
officer or director, as such, of the Company or of any successor, either
directly or through the Company or any successor, under any rule of law,
statute or constitutional provision or by the enforcement of any assessment or
by any legal or equitable proceeding or otherwise, all such liability being
expressly waived and released by the acceptance of the Securities by the
holders thereof and as part of the consideration for the issue of the
Securities.

17. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED
STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

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18. Amendments.

(a) Without Consent of Holders. Without the consent of any holders
of Securities, modifications of or amendments to this Indenture may be made for
any of the following purposes:

(i) to evidence the succession of another corporation to the
Company and the assumption by any such successor of the covenants of
the Company in this Indenture or the Securities;

(ii) to add to the covenants of the Company for the benefit of
the holders of Securities, or to surrender any right or power herein
conferred upon the Company;

(iii) to make provision with respect to the conversion rights
of holders of Securities pursuant to Section 7(n) hereof;

(iv) to cure any ambiguity, to correct or supplement any
provision herein or in the Securities which may be inconsistent with
any other provision herein; and

(v) to make any other provisions with respect to matters or
questions arising under this Security or the Indenture, provided such
action pursuant to this clause (v) shall not adversely affect the
interests of the holders of Securities.

(b) With Consent of Holders. Modifications and amendments to this
Indenture or to the Securities may be made, and future compliance with or past
default by the Company under any of the provisions hereof or thereof may be
waived, or any acceleration thereunder annulled, with the consent of the
holders of at least a majority in aggregate principal amount of the Securities
at the time outstanding, or of such lesser percentage as may act at a meeting
of holders of Securities held in accordance with the provisions set forth in
Section 14 hereof (excluding for purposes of any calculation in this Section
18(b) the aggregate principal amount of Securities held by the Company or any
of its subsidiaries); provided that no such modification, amendment or waiver
may, without the consent of the holder of each such Security affected thereby:

(i) waive a default in the payment of the principal of or
interest on any Security;

(ii) change the stated maturity of the principal of or any
installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or change the
obligation of the Company to pay Additional Amounts (except as
permitted by Section 18(a)), or change the coin or currency in which
any Security or the interest

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<PAGE> 57
thereon is payable, or adversely affect the right to cause the Company
to redeem (pursuant to Section 6(c) hereof) or the right to convert
any Securities as provided in Sections 6 and 7 respectively, or modify
the provisions of the Securities with respect to subordination of the
Securities in a manner adverse to the holders;

(iii) reduce the requirements of Section 14 hereof for quorum
or voting, or reduce the percentage in principal amount of the
outstanding Securities the consent of whose holders is required for
any amendment or modification of the Indenture or the Securities or
the consent of whose holders is required for any waiver (of compliance
with certain provisions of the Indenture or the Securities or certain
defaults hereunder and thereunder and their consequences) provided for
herein;

(iv) change the obligation of the Company to maintain an
office or agency in the City of New York; or

(v) modify any of the provisions of this Section 18 except
to increase any such percentage or to provide that certain other
provisions of this Indenture or the Securities cannot be modified or
waived without the consent of the holder of each outstanding Security
affected thereby.

(c) Senior Indebtedness. No amendment, modification or waiver under
this Section may make any change to Sections 6 or 7 hereof that adversely
affects the holders of any Senior Indebtedness of the Company then outstanding
unless the holders of such Senior Indebtedness of the Company (required to give
such consent pursuant to the terms of such Senior Indebtedness of the Company)
consent to such change.

(d) Binding Nature. It shall not be necessary for any act of holders
of Securities under this Section to approve the particular form of any proposed
amendment, modification or waiver, but it shall be sufficient if such act shall
approve the substance thereof. Any modifications, amendments or waivers to the
Indenture or to the Securities will be conclusive and binding on all holders of
the Securities, whether or not they have given such consent or were present at
such meeting, whether or not notation of such modifications, amendments or
waivers is made upon the Securities, and on all future holders of Securities.
Any instrument given by or on behalf of any holder of a Security in connection
with any consent to any such modification, amendment or waiver will be
irrevocable once given and will be conclusive and binding on all subsequent
holders of such Security.

19. Agent for Service of Process. As long as any of the Securities remain
outstanding, the Company will at all times have

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<PAGE> 58
an authorized agent in the City of New York, upon whom process may be served in
any legal action or proceeding arising out of or relating to this Indenture or
any Security. Service of process upon such agent and written notice of such
service mailed or delivered to the Company shall to the extent permitted by law
be deemed in every respect effective service of process upon the Company in any
such legal action or proceeding. The Company hereby appoints the CT
Corporation System as its agent for such purpose, and covenants and agrees that
service of process in any legal action or proceeding may be made upon it at the
office of such agent at 1633 Broadway, New York, New York 10019 (or such other
address in the City of New York, as may be the principal office of such agent
or such other address as may be the principal office of any successor agent for
service of process located in the City of New York), unless and until the
Company shall designate another agent for such purpose by written notice to the
Trustee.

20. Officer's Certificates and Opinions of Counsel; Statements to Be
Contained Therein. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, if
required by the provisions of this Indenture the Company shall furnish to the
Trustee, as appropriate, a certificate of an officer of the Company named in
Section 11(b)(i) hereof stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and a written opinion of counsel stating that in the opinion of such counsel
all such conditions precedent have been complied with, except that in the case
of any such application or demand as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or demand, no additional certificate or opinion need be
furnished.

Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or
covenant provided for in this Indenture shall include (a) a statement that the
person making such certificate or opinion has read such covenant or condition,
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based, (c) a statement that, in the opinion of such
person, he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant or
condition has been complied with, and (d) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.

Any certificate, statement or opinion of an officer of the Company may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of or representations by counsel, unless

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such officer knows that the certificate or opinion or representations with
respect to the matters upon which his certificate, statement or opinion may be
based as aforesaid are erroneous. Any certificate, statement or opinion of
counsel may be based, insofar as it relates to factual matters, information
with respect to which is in the possession of the Company, upon the
certificate, statement or opinion of or representations by an officer or
officers of the Company, unless such counsel knows that the certificate,
statement or opinion or representations with respect to the matters upon which
his certificate, statement or opinion may be based as aforesaid are erroneous.

Any certificate, statement or opinion of an officer of the Company or
of counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company, unless such officer or counsel, as
the case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous.

Any certificate, certification or opinion of any independent firm of
public accountants filed with the Trustee shall contain a statement that such
firm is independent.

21. Notices. All notices hereunder shall be deemed to have been given
when deposited in the mail as first class mail, registered or certified, return
receipt requested, postage prepaid, addressed to any party hereto as follows:

The Company:

Youth Services International, Inc.
2 Park Center Court, Suite 200
Owings Mills, Maryland 21117
Attn: Chief Financial Officer
Fax: (410) 356-8634

The Trustee:

The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001-2697
Attn: Corporate Trust Administration
Fax: (212) 946-8177/8178

or at any other address of which any of the foregoing shall have notified the
others in writing.

56
<PAGE> 60
Notices to holders of the Securities shall be given by publication in
an Authorized Newspaper. For purposes of this Agreement, the term "Authorized
Newspaper" means a leading newspaper customarily published on each Business Day
whether or not published on Saturdays, Sundays or holidays, and of general
circulation in New York City. If by reason of the temporary or permanent
suspension of publication of any newspaper or by reason of any other cause it
shall be impossible to make publication of such notice in an Authorized
Newspaper as herein provided, then such publication or other notice in lieu
thereof as shall be made by the Trustee shall constitute sufficient publication
of such notice, if such publication or other notice shall, so far as may be
possible, approximate the terms and conditions of the publication in lieu of
which it is given. A copy of each notice will be mailed by the Trustee, on
behalf of and at the expense of the Company, by first-class mail to each holder
of a Security at the registered address of such holder as the same shall appear
in the Security Register on the day fifteen days prior to such mailing. The
Trustee shall promptly furnish to the Company and to each other paying agency
of the Company a copy of each notice so published or mailed.

22. Trust Indenture Act Provisions; SEC Reports.

(a) If any provision of this Indenture limits, qualifies or conflicts
with another provision which is required to be included in this Indenture by
the Trust Indenture Act of 1939, as in effect on the date of this Indenture
(the "TIA"), the required provision shall control.

(b) Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.

(c) The Company shall file with the Trustee,within 15 days after it
files them with the SEC, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is
required to file with the SEC pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934. The Corporation also shall comply with the
other provisions of Section 314(a) of the TIA.

23. Counterparts. This Indenture may be executed in separate counterparts,
and by each party separately in a separate counterpart, each such counterpart,
when so executed and delivered, to be an original. Such counterparts shall
together constitute but one and the same instrument.

57
<PAGE> 61
IN WITNESS WHEREOF, the parties hereto have executed this Indenture as
of the date first above written.

YOUTH SERVICES INTERNATIONAL, INC.

By: /s/ TIMOTHY P. COLE
-------------------------------
Name: Timothy P. Cole
Title: Vice Chairman and Chief
Executive Officer

THE CHASE MANHATTAN BANK

By:
--------------------------------
Name:
Title:

<PAGE> 62

EXHIBIT A
<PAGE> 63
(FORM OF FACE OF SECURITY)

A - 1
<PAGE> 64
Youth Services International, Inc.

(Incorporated in the State of Maryland)

7% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2006
CUSIP NO. 987816 AB 1

No. R[1][2][3]-_________________ U.S. $________________

Additional provisions of this Security are set forth on the reverse
hereof, which additional provisions shall for all purposes have the same effect
as if set forth at this place.

A - 2
<PAGE> 65
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed in its corporate name by the manual or facsimile signature of a duly
authorized signatory.

Dated:

YOUTH SERVICES INTERNATIONAL, INC.
[Corporate Seal]

By:
-------------------------------
Name:
Title:

Attest:

________________________

CERTIFICATE OF AUTHENTICATION

This is one of the Securities described in the
within-mentioned Indenture.

Authenticated by or on behalf of
THE CHASE MANHATTAN BANK,
as Trustee

By:
--------------------------------
Authorized Signatory

A - 3
<PAGE> 66
(FORM OF REVERSE OF SECURITIES)

A - 4
<PAGE> 67
Indenture. Payment of interest on this Security shall be made by United States
dollar check drawn on a bank in the City of New York and mailed to the person
entitled thereto at his address as it shall appear in the Security Register, or
(if arrangements satisfactory to the Company and the Trustee are made) by wire
transfer to a United States dollar account maintained by the payee with a bank
in the City of New York; provided, however, that if such mailing is not
possible and no such application shall have been made, payment of interest
shall be made at the principal corporate trust office of the Trustee, or such
other office or agency of the Company as may be designated for such purpose in
the City of New York.

<TABLE>
<CAPTION>
Premium
-------
<S> <C>
1999 103%
2000 102%
2001 101%
2002 and thereafter 100%
</TABLE>

A - 5
<PAGE> 68
in accordance with the Indenture, to require the Company to purchase this
Security, in whole but not in part, on the Holder Redemption Date (as defined
below) for a cash amount equal to 100% of the principal amount, together with
accrued interest to the Holder Redemption Date. Within 30 days following any
Designated Event, if the purchase by the Company of Securities would result in
a default under any Credit Agreement, the Company will (i) repay in full all
debt under such Credit Agreement or offer to repay in full all such debt and
repay such debt of each lender or other financial institution which has
accepted such offer or (ii) obtain the requisite consent under any such Credit
Agreement to permit the purchase of the Securities as provided for herein. The
Company shall first comply with the covenant in the preceding sentence before
it shall be required to purchase Securities upon the exercise by a holder of
its redemption right as described herein. Each holder of a Security desiring
to exercise the option for redemption upon the occurrence of a Designated Event
shall, as a condition to such redemption, on or before the close of business on
the fifth business day prior to the Holder Redemption Date, surrender the
Security to be redeemed, in whole but not in part, together with the Redemption
Notice hereon duly executed at the place or places specified in the notice of
redemption and otherwise comply with the provisions of the Indenture. A holder
of a Security who has tendered a Redemption Notice (i) will be entitled to
revoke its election by delivering a written notice of such revocation together
with the holder's non-transferable receipt for such Security to the office or
agency of the Company designated as the place for the payment of the Securities
to be so redeemed on or before the Holder Redemption Date and (ii) will retain
the right to convert its securities into shares of Common Stock of the Company
on or before the close of business on the Business Day immediately prior to the
Holder Redemption Date.

A - 6
<PAGE> 69
redemption date. From and after the redemption date, if monies for the
redemption of Securities shall have been available at the principal corporate
trust office of the Trustee for redemption on the redemption date, the
Securities shall cease to bear interest and the only right of the holders of
such Securities shall be to receive payment of the redemption price together
with accrued interest to the redemption date.

Reference is made to the Indenture for a full description of the
rights and obligations, and the limitations thereon, of the Company to redeem
the Securities.

A - 7
<PAGE> 70
calculations regarding conversions will be made to the nearest cent or to the
nearest 1/1000 of a share, as the case may be.

Reference is made to the Indenture for a full description of the
rights of holders and obligations of the Company, and the limitations thereon,
to convert this Security.

A - 8
<PAGE> 71
6. Merger, Consolidation, Sale, Conveyance or Assumption. The Company
will not merge or consolidate with, or sell or convey all or substantially all
of its assets to, any other corporation (for purposes hereof "corporation"
shall include business trusts, limited partnerships, business corporations and
other business entities), unless (a) the Company shall be the surviving
corporation in the case of a merger or the surviving or transferee corporation
shall expressly assume the due and punctual payment of all the Securities and
the due and punctual performance of all of the covenants and obligations of the
Company under the Securities and the Indenture, by supplemental agreement, (b)
the surviving, resulting or transferee corporation, if not organized and
validly existing under the laws of the United States, shall expressly agree to
make payments under the Securities free of any deduction or withholding for or
on account of taxes, levies, imposts and charges whatsoever imposed by or for
the account of the jurisdiction where such successor corporation is generally
subject to taxation, and (c) the Company or such successor corporation, as the
case may be, shall not, immediately after such event, be in default in the
performance of any covenants or obligations of the Company under the Securities
or the Indenture.

A - 9
<PAGE> 72
stolen or lost, but, in the case of a destroyed, stolen or lost Security only
upon receipt of evidence satisfactory to the Trustee and the Company that such
Security was destroyed, stolen or lost, and if required by the Trustee or the
Company, upon receipt also of indemnity satisfactory to the Trustee and the
Company. All expenses and reasonable charges associated with procuring such
indemnity and with the preparation, authentication and delivery of a new
Security shall be borne by the owner of the Security so mutilated, destroyed,
stolen or lost.

A - 10
<PAGE> 73
10. Meetings and Votes of Holders. The holders of Securities have certain
rights regarding the calling of meetings of holders of Securities and the
voting thereat as set forth in the Indenture.

A - 11
<PAGE> 74
Corporation System as its agent upon whom process may be served in any suit,
action or proceeding relating to or arising out of this Security or the
Indenture, with a copy to the Company at 2 Park Center Court, Suite 200, Owings
Mills, Maryland 21117.

A - 12
<PAGE> 75
TRANSFER NOTICE

In connection with the transfer of this Security, the undersigned
certifies that (check one):

/ / (a) This Security is being transferred pursuant to an effective
registration statement under the Securities Act of 1933, as
amended (the "Securities Act") in compliance with the
Securities Act.

A - 13
<PAGE> 76
/ / (f) This Security is being transferred to Youth Services
International, Inc.

Dated:_____________ Name:
------------------------------

By:
--------------------------------

Title:
-----------------------------

SIGNATURE GUARANTEED

-----------------------------------

TO BE COMPLETED BY A BROKER OR DEALER IF (d) ABOVE IS CHECKED:

Dated:
------------------ -----------------------------------

By:
--------------------------------

A - 14
<PAGE> 77
CONVERSION NOTICE

Dated:
----------------------- -----------------------------------
Signature
MUST BE GUARANTEED IF THE STOCK IS TO
BE ISSUED IN A NAME OTHER THAN THE
REGISTERED HOLDER OF THE SECURITY

2. Denomination of Securities
- ---------------------------- representing unconverted
Name of Transferee principal amount to be
converted: U.S. $__________

- -----------------------------
Denominations: U.S.$______
(U.S. $1,000 or an integral
multiple thereof)
- -----------------------------
Address of Transferee

A - 15
<PAGE> 78

REDEMPTION NOTICE UNDER SECTION 3

Dated:_______________

-----------------------------------
Signature
MUST BE GUARANTEED IF CHECK IS TO
BE MADE PAYABLE TO A NAME OTHER
THAN THE REGISTERED HOLDER OF THE
SECURITY

If a check in payment of the
redemption amount is to be
delivered to a person other
than the holder, please print
such person's name and address:

- -----------------------------

HOLDER

Please print name and address
of holder:

-----------------------------------

A - 16
<PAGE> 79
EXHIBIT B

<PAGE> 80
FORM OF TRANSFEREE LETTER

Youth Services International, Inc.
2 Park Center Court, Suite 200
Owings Mills, Maryland 21117

Ladies and Gentlemen:

We are delivering this letter in connection with the purchase of 7%
Convertible Subordinated Debentures due 2006 (the "Debentures") of Youth
Services International, Inc., a Maryland corporation (the "Company"), which are
convertible into shares of Common Stock of the Company (the "Underlying Shares"
and together with the Debentures, the "Restricted Securities").

We represent, warrant and agree as follows:

1. We understand and hereby acknowledge that prior to
the effectiveness of a registration statement filed with the
Securities and Exchange Commission relating to the resale of the
Debentures and the Underlying Shares, the Debentures and the
Underlying Shares have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), and may not be sold except as
permitted in the following sentence. We agree on our own behalf and
on behalf of any investor account (as hereinafter defined) for which
we are purchasing the Debentures not to offer, sell or otherwise
transfer such Restricted Securities prior to the later of January 29,
1999 or the date which is three years after the last date on which the
Company or any affiliate of the Company was the owner of such
Restricted Securities (or any predecessor thereto) (the "Resale
Restriction Termination Date") except (a) to the Company, (b) pursuant
to a registration statement which has been declared effective under
the Securities Act, (c) for so long as the Debentures are eligible for
resale pursuant to Rule 144A under the Securities Act, to a person we
reasonably believe is a qualified institutional buyer under Rule 144A
(a "QIB") that purchases for its own account or for the account of a
QIB to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) outside the United States in a transaction
meeting the requirements of Rule 904 under the Securities Act, (e) in
a transaction arranged by a broker or dealer registered under the
Securities Exchange Act of 1934, as amended, to an "accredited
investor" within the meaning of Rule 501(a) under the Securities Act
that is purchasing for its own account or for the account of such an
"accredited investor," for investment purposes and not with a view to,
or for offer or sale in connection with, any

B - 1
<PAGE> 81
distribution in violation of the Securities Act or (f) pursuant to any
other available exemption from the registration requirements of the
Securities Act as confirmed in an opinion of counsel, acceptable in
form and substance to the Company, and, in each case, in accordance
with the applicable securities laws of any state of the United States
or any other applicable jurisdiction and subject to any requirement of
law that the disposition of our property or the property of such
investor account or accounts be at all times within our or their
control and in compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the
Resale Restriction Termination Date. If any resale or other transfer
of the Restricted Securities is proposed to be made pursuant to clause
(e) above prior to the Resale Restriction Termination Date, the
transferor shall deliver to the Company a letter from the transferee
containing certain representations and agreements relating to the
restrictions or transfer of such Restricted Securities. We
acknowledge that the Company and the Trustee reserve the right prior
to any offer, sale or other transfer prior to the Resale Restriction
Termination Date of the Debentures and Common Stock pursuant to clause
(d), (e) or (f) above to require the delivery of an opinion of
counsel, certifications or other information acceptable to the Company
and the Trustee in form and substance.

2. We are an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act (an "Accredited Investor").

3. Any purchase of Restricted Securities by us will be
for our own account or for the account of one or more other Accredited
Investors as to which we exercise sole investment discretion (an
"investor account").

4. We are not acquiring the Restricted Securities with a
view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act.

5. We have such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and
risks of purchasing the Restricted Securities, and we and any investor
account for which we are acting are each able to bear the economic
risk of our or its investment.

6. We have been afforded the opportunity to ask such
questions of representatives of the Company and receive answers
thereto, as we deem necessary in connection with our decision to
purchase Restricted Securities.

We understand that the registrar and transfer agent will not be
required to accept for registration of transfer any Restricted

B - 2
<PAGE> 82
Securities, except upon presentation of evidence satisfactory to the Company
and the Trustee that the foregoing restrictions on transfer have been complied
with. We further understand that the Restricted Securities will be in the form
of definitive physical certificates and that such certificates will bear a
legend reflecting the substance of paragraph 1 above.

We shall provide to any person purchasing any Restricted Securities
from us a notice advising such purchaser that transfers of the Debentures and
the Underlying Shares are restricted as set forth herein.

We understand that prior to any proposed transfer of Debentures
occurring before the Resale Restriction Termination Date, we must check the
appropriate box set forth on the reverse of the certificate evidencing such
Debentures relating to the manner of such transfer and submit the certificate
to the Trustee. In addition, we understand that prior to any proposed transfer
of Debentures or any proposed transfer of Underlying Shares acquired upon
conversion of Debentures when there is no effective registration statement
covering such Underlying Shares to an accredited investor occurring before the
Resale Restriction Termination Date, we may be required to furnish to the
Company and the Trustee such certifications, legal opinions or other
information as they may reasonably require to confirm that the proposed
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act, and that
transfers occurring before the Resale Restriction Termination Date to any other
person pursuant to another available exemption under the Securities Act will
require an opinion of counsel satisfactory to the Company.

We acknowledge that you and others will rely upon our confirmations,
acknowledgements and agreements set forth herein, and we agree to notify you
promptly in writing if any of our representations or warranties herein ceases
to be accurate and complete. You are irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.

B - 3
<PAGE> 83
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.

Very truly yours,

-----------------------------------
(Name of Purchaser)

By:
--------------------------------
Name:
Title:
Address:

Date:
------------------------------

B - 4

<PAGE> 1

Exhibit 12

Ratio of Earnings to Fixed Charges

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 03/31/96 03/31/95
--------- --------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings

Pretax income from continuing operations (558,000) (792,000) (1,671,000) 1,952,000 3,511,000 4,112,000 2,117,000
-----------------------------------------------------------------------------
Adjustments:
(+) fixed charges per S-K 503(d)(4) 0 1,000 174,000 408,000 274,000 1,398,000 167,000
(-) interest capitalized during period 0 0 0 0 0 0 0
(-) preferred stock dividend reqs. 0 0 0 0 0 0 0
-----------------------------------------------------------------------------
= adjusted fixed charges 0 1,000 174,000 408,000 274,000 1,398,000 167,000
(-) income from majority owned subs
attributable to minority ownership 0 0 0 0 0 0 0
(-) undistributed income of less than 50%
owned persons 0 0 0 0 0 0 0
(+) full amt of losses of majority owned subs 0 0 0 0 0 0 0
(+) previously capitalized interest amortized
during the period 0 0 0 0 0 0 0
-----------------------------------------------------------------------------
Total Adjustments 0 1,000 174,000 408,000 274,000 1,398,000 167,000
-----------------------------------------------------------------------------
Adjusted pretax income from continuing operations (558,000) (791,000) (1,497,000) 2,360,000 3,785,000 5,510,000 2,284,000
-----------------------------------------------------------------------------

Fixed Charges

Interest expense 0 1,000 173,000 403,000 268,000 1,335,000 162,000
Interest capitalized 0 0 0 0 0 0 0
Amortization of debt expense 0 0 1,000 5,000 6,000 63,000 5,000
(94-96 from
D. Bonin)
Amortization of debt discount/premium
Portion of rental expense representing interest
Preferred stock dividend requirements of majority 0 0 0 0 0 0 0
owned subs and 50% owned persons 0 0 0 0 0 0 0
(excluding items eliminated in consolidation)
Debt guarantee adjustments 0 0 0 0 0 0 0
-----------------------------------------------------------------------------
Total Fixed Charges 0 1,000 174,000 408,000 274,000 1,398,000 167,000
-----------------------------------------------------------------------------

Ratio of Earnings to Fixed Charges #DIV/0! (791.00) (8.60) 5.78 13.81 3.94 13.68
-----------------------------------------------------------------------------
Excess (Deficiency) (558,000) (792,000) (1,671,000) 1,952,000 3,511,000 4,112,000 2,117,000
-----------------------------------------------------------------------------
</TABLE>

There were no fixed charges incurred during the period January 17, 1991
(date of inception) through June 30, 1991. For the years ended June 30,
1992 and 1993, the Company's earnings were insufficient to cover fixed
charges by approximately $792,000 and $1,671,000, respectively. Fixed
charges consist of interest expense and the amortization of fees and
discounts related to debt financings.

Page 1
<PAGE> 2
Exhibit 12

Ratio of Earnings to Fixed Charges

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---------- --------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings

Pretax income from continuing operations ($558,000) ($792,000) ($1,671,000) $1,952,000 $3,511,000 $4,127,000
--------------------------------------------------------------------------
Adjustments:
(+) fixed charges per S-K 503(d)(4) 0 1,000 174,000 408,000 274,000 3,441,000
(-) interest capitalized during period 0 0 0 0 0 0
(-) preferred stock dividend reqs. 0 0 0 0 0 0
--------------------------------------------------------------------------
= adjusted fixed charges 0 1,000 174,000 408,000 274,000 3,441,000
(-) income from majority owned subs
attributable to minority ownership 0 0 0 0 0 0
(-) undistributed income of less than 50%
owned persons 0 0 0 0 0 0
(+) full amt of losses of majority owned subs 0 0 0 0 0 0
(+) previously capitalized interest amortized
during the period 0 0 0 0 0 0
--------------------------------------------------------------------------
Total Adjustments 0 1,000 174,000 408,000 274,000 3,441,000
--------------------------------------------------------------------------
Adjusted pretax income from continuing operations ($558,000) ($791,000) ($1,497,000) $2,360,000 $3,785,000 $7,568,000
--------------------------------------------------------------------------

Fixed Charges

Interest expense $0 $1,000 $173,000 $403,000 $268,000 $3,160,000
Interest capitalized 0 0 0 0 0 0
Amortization of debt expense 0 0 1,000 5,000 6,000 272,000
Amortization of debt discount/premium 9,000
Portion of rental expense representing interest 0
Preferred stock dividend requirements of majority 0 0 0 0 0 0
owned subs and 50% owned persons 0 0 0 0 0 0
(excluding items eliminated in consolidation)
Debt guarantee adjustments 0 0 0 0 0 0
--------------------------------------------------------------------------
Total Fixed Charges $0 $1,000 $174,000 $408,000 $274,000 $3,441,000
--------------------------------------------------------------------------

Ratio of Earnings to Fixed Charges #DIV/0! (791.00) (8.60) 5.78 13.81 2.20
--------------------------------------------------------------------------
Excess (Deficiency) ($558,000) ($792,000) ($1,671,000) $1,952,000 $3,511,000 $4,127,000
--------------------------------------------------------------------------
</TABLE>

<PAGE> 1

EXHIBIT 23(a)(1)

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
dated September 12, 1996 on the financial statements of Youth Services
International, Inc. and subsidiaries (and to all references to our Firm)
included in or made a part of this registration statement.

Baltimore, Maryland
October 17, 1996

<PAGE> 1
EXHIBIT 23D

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference of our report dated September 6, 1996 (except with respect to the
matter discussed in Note 11 to the consolidated financial statements, as to
which the date is September 11, 1996) on the consolidated financial statements
of Introspect HealthCare Corporation and Subsidiaries as of June 30, 1996 and
for the year then ended included in Youth Services International Inc.'s amended
Form 8-K (Commission File No. 0-23284) and to all references to our Firm
included in this Form S-3.

Tucson, Arizona,
October 15, 1996.

<PAGE> 1

Securities Act of 1933 File Number____

- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

--------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) / /

--------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)

13-4994650
(I.R.S. Employer Identification Number)
270 PARK AVENUE, NEW YORK, NEW YORK
(Address of principal executive offices)

10017
(Zip Code)

--------------

YOUTH SERVICES INTERNATIONAL INC.
(Exact name of obligor as specified in its charter)

MARYLAND 52-1715690
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2 PARK CENTER COURT, SUITE 200
OWINGS MILLS, MARYLAND 21117
(410) 356-8600
(Address, including zip code, and telephone number,
including area code of obligor's principal executive offices)

------------------------

CONVERTIBLE SUBORDINATED DEBENTURES
(Title of the securities)

- --------------------------------------------------------------------------------

<PAGE> 2
GENERAL

Item 1. General Information.

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising authority to
which it is subject.

New York State Banking Department, State House, Albany, New
York 12110.

Board of Governors of the Federal Reserve System, Washington,
D.C., 20551

Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.

Federal Deposit Insurance Corporation, Washington, D.C., 20429.

(b) Whether it is authorized to exercise corporate trust powers.

Yes.

Item 2. Affiliations with the Obligor.

If the obligor is an affiliate of the trustee, describe each such
affiliation.

None.

- 2 -

<PAGE> 3
Item 16. List of Exhibits

List below all exhibits filed as a part of this Statement of
Eligibility.

1. A copy of the Articles of Association of the Trustee as
now in effect, including the Organization Certificate and the Certificates of
Amendment dated February 17, 1969, August 31, 1977, December 31, 1980,
September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No.
333-06249, which is incorporated by reference).

2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank.)

3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.

4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which
is incorporated by reference).

5. Not applicable.

6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank.)

7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
(On July 14, 1996, in connection with the merger of Chemical Bank and The Chase
Manhattan Bank (National Association), Chemical Bank, the surviving
corporation, was renamed The Chase Manhattan Bank.)

8. Not applicable.

9. Not applicable.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York and State of New York, on the 24th day
of October, 1996.

THE CHASE MANHATTAN BANK

By Lucia Jaklitsch
----------------
Assistant Treasurer

- 3 -

<PAGE> 4
Exhibit 7 to Form T-1

Bank Call Notice

RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF

The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,

at the close of business June 30, 1996, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.

<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN MILLIONS
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin . . . . . . . . . . . . . . . . . . . . . $ 4,167
Interest-bearing balances . . . . . . . . . . . . . . . . . 5,094
Securities: . . . . . . . . . . . . . . . . . . . . . . . . . .
Held to maturity securities . . . . . . . . . . . . . . . . . . . 3,367
Available for sale securities . . . . . . . . . . . . . . . . . . 27,786
Federal Funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBF's:
Federal funds sold . . . . . . . . . . . . . . . . . . . . 7,204
Securities purchased under agreements to resell . . . . . . 136
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . $67,215
Less: Allowance for loan and lease losses . . . 1,768
Less: Allocated transfer risk reserve . . . . . 75
-------
Loans and leases, net of unearned income,
allowance, and reserve . . . . . . . . . . . . . . . . . . 65,372
Trading Assets . . . . . . . . . . . . . . . . . . . . . . . . . 28,610
Premises and fixed assets (including capitalized
leases) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,326
Other real estate owned . . . . . . . . . . . . . . . . . . . . 26
Investments in unconsolidated subsidiaries and
associated companies . . . . . . . . . . . . . . . . . . . . 68
Customer's liability to this bank on acceptances
outstanding . . . . . . . . . . . . . . . . . . . . . . . . 995
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . 309
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 6,993
---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $151,453
=========
</TABLE>

1
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits
In domestic offices . . . . . . . . . . . . . . . . . . . . $46,917
Noninterest-bearing . . . . . . . . . . . . . . $16,711
Interest-bearing . . . . . . . . . . . . . . . 30,206
-------
In foreign offices, Edge and Agreement subsidiaries,
and IBF's . . . . . . . . . . . . . . . . . . . . . . . . . 31,577
Noninterest-bearing . . . . . . . . . . . . . . $ 2,197
Interest-bearing . . . . . . . . . . . . . . . 29,380
---------

Federal funds purchased and securities sold under agree-
ments to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBF's
Federal funds purchased . . . . . . . . . . . . . . . . . . 12,155
Securities sold under agreements to repurchase . . . . . . 8,536
Demand notes issued to the U.S. Treasury . . . . . . . . . . . . 1,000
Trading liabilities . . . . . . . . . . . . . . . . . . . . . . 20,914
Other Borrowed money:
With a remaining maturity of one year or less . . . . . . . 10,018
With a remaining maturity of more than one year . . . . . . 192
Mortgage indebtedness and obligations under capitalized
leases . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Bank's liability on acceptances executed and outstanding . . . . 1,001
Subordinated notes and debentures . . . . . . . . . . . . . . . 3,411
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 8,091

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 143,824
---------

<CAPTION>
EQUITY CAPITAL
<S> <C>
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 620
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,664
Undivided profits and capital reserves . . . . . . . . . . . . . 2,970
Net unrealized holding gains (Losses)
on available-for-sale securities . . . . . . . . . . . . . . . . (633)
Cumulative foreign currency translation adjustments . . . . . . 8

TOTAL EQUITY CAPITAL . . . . . . . . . . . . . . . . . . . . . . 7,629
----------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED
STOCK AND EQUITY CAPITAL . . . . . . . . . . . . . . . . . $151,453
==========
</TABLE>

I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.

JOSEPH L. SCLAFANI

We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.

WALTER V. SHIPLEY )
EDWARD D. MILLER )DIRECTORS
THOMAS G. LABRECQUE )