<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report -- September 25, 1996
YOUTH SERVICES INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Maryland 0-23284 52-1715690
- -------------- -------------- -------------------
(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
</TABLE>
2 Park Center Court, Suite 200, Owings Mills, Maryland 21117
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(410) 356-8600
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Address)
================================================================================
<PAGE> 2
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
Youth Services International, Inc. ("YSI"), exercised its option,
pursuant to an Option Agreement dated as of June 30, 1995 and purchased all of
the outstanding capital stock of Introspect Healthcare, Corporation
("Introspect") from Diversification Association, Inc. for a purchase price of
$4,000,000 in cash. YSI consummated its exercise of the option pursant to an
Option Exercise Agreement dated September 11, 1996.
Concurrent with this acquisition YSI retired $9,693,000 of
Introspect's indebtedness. This indebtedness was retired utilizing funds drawn
against YSI's existing credit facilities which carry a lower rate of interest
than those of Introspect. In addition, unamortized costs related to the
purchase of the Option, notes and other receivables due to the Company from
Introspect and costs related to the exercise of the Option, in the aggregate
amount of approximately $3,000,000 million will be considered as part of the
purchase price.
On June 30, 1995, in conjunction with the Company's acquisition of
Desert Hills New Mexico from Introspect, the Company acquired the Option and
concurrently entered into a management agreement to manage Introspect for
a period of five years. As a result of the "early" exercise of the Option (the
Option was exercisable at any time during the five year period) and the
significant degree of Introspect's financial dependence on the Company,
accounting principles require that the operating results of Introspect be
consolidated with the Company's statement of income for the fiscal year 1996.
Upon consolidation of Introspect's operations, and after eliminating certain
intercompany transactions, the Company recorded additional revenues of
$16,131,000, expenses of $16,427,000 and a loss of $296,000 for the fiscal year
1996. This transaction will be recorded using the purchase method of
accounting with effect as of September 1996. As a result, the Company's
balance sheet for the fiscal year 1996 does not reflect the acquisition of
Introspect pursuant to the exercise of the Option.
Introspect is a provider of services to children and adolescents with
two campuses in Tucson, Arizona. Introspect operates a residential treatment
center for boys at the north campus, and a residential treatment center for
girls at the south campus, which is approximately five miles from the north
campus. These facilities have 90 beds in the aggregate and there is an
accredited school at each location. In addition, Introspect operates a
psychiatric hospital, a co-educational pediatric residential treatment center
(10 beds), a pediatric medical clinic (4 beds), a group home (6 beds) and
a partial hospitalization program. Introspect also operates Juvenile Justice
Programs, which include a 12-bed locked and transition female unit, a 10-bed
parole violator unit and a 14-bed male transition unit.
As a result of the exercise of the Option, the Management Agreement,
pursuant to which YSI had managed the Introspect operation since July 1, 1995
has been terminated.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a)&(b) Financial Statements of Businesses Acquired and Pro
Forma Financial Information
Audited financial statements for the year ended June
30, 1996, and the pro forma financial statements required by Item 7(b) will be
filed no later than November 25, 1996 in accordance with Item 7(a)(4) and
7(b)(2) of this Form.
(c) Exhibits
Exhibit No. Description of Exhibits
- ----------- -----------------------
2.1 Option Agreement, dated as of June 30, 1995,
by and among Youth Services International,
Inc., Diversification Association, Inc.,
<PAGE> 3
Introspect HealthCare Corporation, Desert
Hills Center for Youth and Families of
Nevada, Inc., Ocotillo Pediatric Services,
Inc., Desert Hills Center for Youth and
Families, Inc., Desert Hills Center for Youth
and Families of Hawaii, Inc., Anna Ash,
William Ash, Manuel G. Bracamonte, Tamatha
Bracamonte, Donald V. Campbell, Mary K.
Campbell, Donna Heidinger, Guy W. Heidinger,
Daniel R. Lopez, Nancy Lopez, Elizabeth
McCusker, Fletcher J. McCusker, Judy McKee,
and Michael McKee.*
2.2 Option Exercise Agreement, dated as of
September 11, 1996, by and among Youth
Services International, Inc., Diversification
Association, Inc., Introspect HealthCare
Corporation, Desert Hills Center for Youth
and Families of Nevada, Inc., Ocotillo
Pediatric Services, Inc., Desert Hills Center
for Youth and Families, Inc., Desert Hills
Center for Youth and Families of Hawaii,
Inc., Anna Ash, William Ash, Manuel G.
Bracamonte, Tamatha Bracamonte, Donald V.
Campbell, Mary K. Campbell, Donna Heidinger,
Guy W. Heidinger, Daniel R. Lopez, Nancy
Lopez, Elizabeth McCusker, Fletcher J.
McCusker, Judy McKee, and Michael McKee.
The Exhibits to the Option Exercise Agreement
have been omitted from this filing. The
Company hereby undertakes to furnish these
materials to the Securities and Exchange
Commission upon request.
- 2 -
- -------------------
* Incorporated by reference to the Company's Current Report on Form 8-K
dated July 19, 1995 (as filed with the Commission on August 3, 1995).
The Exhibits to the Option Agreement (which contain certain information
called for by the terms of the representations and warranties contained
in the Option Agreement) were omitted from such Form 8-K and this
filing. The Company hereby undertakes to furnish these materials to
the Securities and Exchange Commission upon request.
<PAGE> 4
YOUTH SERVICES INTERNATIONAL, INC.
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YOUTH SERVICES INTERNATIONAL, INC.
By: /s/ William P. Mooney
---------------------------------
William P. Mooney
Chief Financial Officer
Date: September 25, 1996
- 3 -
<PAGE> 1
EXHIBIT 2.2
OPTION EXERCISE AGREEMENT
THIS OPTION EXERCISE AGREEMENT (this "Agreement") is made as of the
11th day of September, 1996 by and among YOUTH SERVICES INTERNATIONAL, INC., a
Maryland corporation ("YSI"), SOUTHWESTERN CHILDREN'S HEALTH SERVICES, INC., an
Arizona corporation ("SWCHS"), DIVERSIFICATION ASSOCIATION, INC., an Arizona
corporation ("DAI"), INTROSPECT HEALTHCARE, CORPORATION, an Arizona corporation
("Introspect"), DESERT HILLS CENTER FOR YOUTH AND FAMILIES OF NEW MEXICO, INC.
("Desert Hills New Mexico"), DESERT HILLS CENTER FOR YOUTH AND FAMILIES OF
NEVADA, INC., a Nevada corporation ("Desert Hills Nevada"), OCOTILLO PEDIATRIC
SERVICES, INC., an Arizona corporation ("Ocotillo"), DESERT HILLS CENTER FOR
YOUTH AND FAMILIES, INC., an Arizona corporation ("Desert Hills Arizona"),
DESERT HILLS CENTER FOR YOUTH AND FAMILIES OF HAWAII, INC., a Hawaii
corporation ("Desert Hills Hawaii") and ANNA ASH, WILLIAM ASH, MANUEL G.
BRACAMONTE, TAMATHA BRACAMONTE, DONALD V. CAMPBELL, MARY K. CAMPBELL, DONNA
HEIDINGER, GUY W. HEIDINGER, DANIEL R. LOPEZ, NANCY LOPEZ, ELIZABETH MCCUSKER,
FLETCHER MCCUSKER, JUDY MCKEE and MICHAEL L. MCKEE (the natural persons listed
being referred to herein individually as a "Stockholder" and collectively as
the "Stockholders"). For purposes of this Agreement, Introspect, Desert Hills
New Mexico, Desert Hills Arizona, Desert Hills Nevada, Desert Hills Hawaii and
Ocotillo and referred to collectively as the "Introspect Companies."
W I T N E S S E T H
WHEREAS, the parties to this Agreement are all parties to a certain
Option Agreement dated June 26, 1995 (the "Option Agreement") pursuant to which
DAI and the Stockholders granted to YSI and SWCHS an option (the "Option") to
purchase, directly or through any subsidiary of YSI, all of the outstanding
capital stock of Introspect (the "Optioned Shares") for the purchase price and
pursuant to the terms and conditions set forth in the Option Agreement;
WHEREAS, YSI and SWCHS desire to exercise the Option and to name SWCHS
as the purchaser of the Optioned Shares; and
WHEREAS, due to certain circumstances that have arisen since the date
of the Option Agreement, the parties desire to modify certain provisions of the
Option Agreement relating to the purchase of the Optioned Shares and to set
forth certain additional provisions which shall apply to the purchase of the
Optioned Shares.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements of the parties contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties, intending to be legally bound, agree as follows:
<PAGE> 2
1. EXERCISE OF OPTION; PURCHASE PRICE. YSI and SWCHS hereby
exercise the Option and give notice that SWCHS shall purchase the Optioned
Shares on the Closing Date (as defined in Section 6.1). The parties agree that
this Agreement shall constitute proper notice of exercise as required by
Section 4.1 of the Option Agreement. Notwithstanding the provisions of
Sections 4.2 and 4.3 of the Option Agreement to the contrary, and as adjusted
by the letter agreement dated July 25, 1996 between the parties, the purchase
price for the Optioned Shares shall be Four Million Dollars ($4,000,000). The
Purchase Price shall be payable at Closing (as defined in Section 6.1) by YSI's
or SWCHS's wire transfer of immediately available funds to the account
designated in writing by DAI.
2. REPRESENTATIONS AND WARRANTIES. In addition to the
representations and warranties of the parties set forth in the Option Agreement
(and made on the basis provided in the Option Agreement), the parties represent
and warrant as follows.
2.1. Representations and Warranties of the Introspect
Companies, DAI and the Stockholders.
(a) Execution and Effect of Agreement. The
execution and delivery of this Agreement and the consummation of the
transaction contemplated hereby have been duly and effectively authorized by
all necessary corporate action on the part of each of the Introspect Companies
and DAI. This Agreement has been duly executed and delivered by, and
constitutes a legal, valid and binding obligation of, each of the Introspect
Companies, DAI and each of the Stockholders, enforceable in accordance with its
terms.
(b) Indebtedness. Schedule 2.1(b) sets forth any
and all claims of each of the Stockholders, each affiliate of a Stockholder,
DAI and each affiliate of DAI, including any and all claims for repayment of
indebtedness for borrowed money, against Introspect and any subsidiary of
Introspect, and DAI and the Stockholders do not know of any set of facts which
may lead to any claim by them or any of their affiliates against Introspect or
any subsidiary of Introspect in the future.
(c) Desert Hills New Mexico Funds. Schedule
2.1(c) sets forth the bank accounts of Desert Hills New Mexico in which Desert
Hills New Mexico holds the amounts collected by it in respect of accounts
receivable retained by it in accordance with Sections 1.5(b) and 4.10 of the
Asset Purchase Agreement dated June 26, 1996 by and among YSI, Youth Services
International of New Mexico, Inc., DAI, Introspect, Desert Hills New Mexico and
the Stockholders (the "Asset Purchase Agreement"). Opposite the listing of
each such bank account is the true and correct balance of such bank account as
of the date of this Agreement. To the best of the knowledge of DAI and the
Stockholders, the sum of all liabilities of Desert Hills New Mexico as of the
date of this Agreement does not exceed the sum of the balances on each bank
account listed on Schedule 2.1(c) less $1,500,000.
- 2 -
<PAGE> 3
(d) Introspect Stock. The stock certificates,
copies of which are attached hereto as Exhibit A, represent all of the issued
and outstanding shares of capital stock of Introspect, and the transfer of such
stock certificates to SWCHS as contemplated by this Agreement shall be
effective to transfer to SWCHS 100% of the equity interests in Introspect.
2.2. Representations and Warranties of YSI and SWCHS.
(a) Execution and Effect of Agreement. The
execution and delivery of this Agreement and the consummation of the
transaction contemplated hereby have been duly and effectively authorized by
all necessary corporate action on the part of each of YSI and SWCHS. This
Agreement has been duly executed and delivered by, and constitutes a legal,
valid and binding obligation of, each of YSI and SWCHS, enforceable in
accordance with its terms.
(b) Desert Hills New Mexico Funds. To the
knowledge of YSI and SWCHS, the amounts set forth on Schedule 2.1(c) as the
balances of the bank accounts in which the funds referred to in Section 2.1(c)
are held are true and correct.
3. COVENANTS. In addition to the covenants of the parties set
forth in the Option Agreement, the parties covenant and agree as follows.
3.1. Covenant of the Introspect Companies, DAI and the
Stockholders.
(a) Discharge of Indebtedness; Release of Liens.
From and after the date hereof through and including the Closing Date, the
Introspect Companies, DAI and the Stockholders shall use their best efforts and
take all appropriate actions to cause each of Meditrust Mortgage Investments,
Inc. ("Meditrust"), Congress Financial Corporation ("Congress") and any other
third party holder of indebtedness of Introspect to reach an agreement
satisfactory to YSI whereby such third party indebtedness of Introspect shall
be paid off by YSI in its entirety and retired and all corresponding liens
shall be released, including without limitation Meditrust's liens on the
Optioned Shares, and DAI shall secure possession of the stock certificates
representing the Optioned Shares, or shall take such other action to ensure the
availability of such stock certificates, in either case in order that such
stock certificates will be transferred to SWCHS at Closing free and clear of
any and all liens, pledges and encumbrances.
3.2. Covenants of YSI and SWCHS.
(a) Discharge of Indebtedness. YSI and SWCHS
covenant and agree that YSI and/or SWCHS shall pay and discharge all
indebtedness of Introspect set forth on Schedule 3.2(a) in the manner set forth
on Schedule 3.2(a).
- 3 -
<PAGE> 4
(b) Release of Funds from Desert Hills New
Mexico. Notwithstanding the provisions of Section 4.10 of the Asset Purchase
Agreement, and in reliance upon the representation and warranty set forth in
Section 2(c) hereof, YSI hereby consents to the distribution of $1,500,000 from
the accounts of Desert Hills New Mexico. All sums of money remaining in such
accounts shall continue to be subject to the prohibition on distribution set
forth in Section 4.10 of the Asset Purchase Agreement. Notwithstanding the
release of funds permitted by YSI in this Section 3.2(b), in the event that the
liabilities of Desert Hills New Mexico exceed the amount of money remaining in
the accounts of Desert Hills New Mexico, and YSI suffers any loss as a result
thereof, DAI and the Stockholders shall jointly and severally indemnify YSI
against any such loss. YSI shall consent to the distribution of the funds
remaining in the accounts of Desert Hills New Mexico immediately following the
satisfaction of the conditions set forth in Section 4.10(b) of the Asset
Purchase Agreement.
(c) Century Healthcare Corporation Indebtedness.
YSI agrees to defend, indemnify and hold harmless the Stockholders from and
against any claim, action or damage resulting from the failure of YSI to
discharge and satisfy in full the indebtedness of Introspect to Century
Healthcare Corporation in respect of the loan made by it to Introspect in the
original principal amount of $525,000, and having a balance as of the date of
this Agreement of $465,566. The covenant set forth in this Section 3(c) shall
apply only to the balance specifically referred to in the preceding sentence
and interest which shall accrue subsequently thereon and shall not apply to any
other obligation, liability or indebtedness of Introspect or of any other
party, including without limitation, DAI.
(d) Congress Guaranties. YSI shall use its best
efforts to obtain the release by Congress of the Stockholders from any and all
liabilities arising out of the personal guaranties entered into by them in
favor of Congress with respect to the indebtedness of Introspect to Congress.
YSI agrees to defend, indemnify and hold harmless the Stockholders from and
against any claim, action or damage resulting from (i) the failure of YSI to
obtain such release or (ii) the failure of YSI to discharge and satisfy in full
the indebtedness of Introspect to Congress in respect of the working capital
line extended by Congress to Introspect (which has a balance of not more than
$435,529.50 outstanding on the date hereof). The covenant set forth in this
Section 3(d) shall apply only to the principle and any interest due on the
indebtedness specifically referred to in the preceding sentence and shall not
apply to any other obligation, liability or indebtedness of Introspect or of
any other party.
(e) Acceleration of Consulting Payments. YSI
covenants and agrees that all payments required to be made to Messrs. Ash,
Bracamonte, Heidinger and Ms. Lopez under and pursuant to the Consulting
Agreement dated June 26, 1995 by and among YSI, William Ash, Manuel Bracamonte,
Donald Campbell, Guy Heidinger,
- 4 -
<PAGE> 5
Daniel Lopez and Nancy Lopez (the "Consulting Agreement") shall be made at such
times as provided in, and subject to, the terms of the Consulting Agreement
(including the terms relating to a breach thereof), and no such payment or
partial payment shall be accelerated or made at any time earlier than the date
such payment or partial payment is due to be made pursuant to the terms of the
Consulting Agreement.
4. RELEASE.
4.1. General Release by DAI and the Stockholders. In
consideration of the exercise of the Option by YSI and SWCHS and the payment of
the sum of $4,000,000 (which sum exceeds the purchase price that would
otherwise be due under the terms of the Option Agreement), DAI and the
Stockholders, on behalf of themselves and their employees, affiliates, agents,
heirs, successors and assigns, hereby release YSI, SWCHS and each of their
subsidiaries and affiliates, and all directors, officers, stockholders,
employees, agents, successors and assigns of YSI, SWCHS and each of their
subsidiaries and affiliates, from and against any and all claims, actions,
proceedings, damages, costs, expenses, judgments, fines, liabilities or losses
(collectively, "Losses"), now existing or in the future arising out of or
related to facts and circumstances existing prior to or on the date of this
Agreement, whether known or unknown, pending or threatened, fixed or
contingent, direct or indirect, including without limitation any and all claims
which may be made under or which relate in any way to the Asset Purchase
Agreement, the Management Agreement dated June 26, 1995 by and among all of the
parties hereto (the "Management Agreement"), the Option Agreement or in
connection with the management of Introspect.
4.2. Limited Release by YSI and SWCHS. In consideration
of the general release set forth in Section 4.1, YSI and SWCHS, on behalf of
themselves and their employees, affiliates, agents, heirs, successors and
assigns, hereby release DAI and the Stockholders, and their agents, successors
and assigns, from and against any and all Losses, now existing or in the future
arising out of or related to facts and circumstances existing on the date of
this Agreement, whether known or unknown, pending or threatened, fixed or
contingent, direct or indirect, other than any facts or circumstances with
respect to which any claim may be made by YSI or SWCHS under and pursuant to an
agreement to which YSI and/or SWCHS and DAI and/or the Stockholders are
parties, including without limitation the Option Agreement, the Management
Agreement, the Asset Purchase Agreement and the Consulting Agreement.
Accordingly, nothing in this Section 4.2 shall be deemed or construed in any
way to limit or restrict in any way the ability of YSI or SWCHS to assert any
and all claims in respect of any and all Losses if such claims may be made
under and pursuant to the terms of any of the agreements specifically mentioned
in the preceding sentence or any other agreement to which YSI and/or SWCHS and
DAI and/or the Stockholders are parties.
- 5 -
<PAGE> 6
5. CONDITIONS TO CLOSING. The obligations of the parties to
consummate the transaction contemplated by this Agreement and to perform the
covenants and agreements set forth herein is conditioned upon the following.
5.1. Conditions to the Obligations of the Introspect
Companies, DAI and the Stockholders. All conditions set forth in Article XII
of the Option Agreement shall have been satisfied by YSI or SWCHS unless waived
by the Introspect Companies, DAI and the Stockholders.
5.2. Conditions to the Obligations of YSI and SWCHS.
(a) Conditions in Option Agreement. All
conditions set forth in Article XIII of the Option Agreement shall have been
satisfied by the Introspect Companies, DAI and the Stockholders unless waived
by YSI and SWCHS.
(b) Financial Statements. DAI and the
Stockholders shall have provided to YSI the audited consolidated financial
statements of Introspect as of and for the year ended June 30, 1996, which
shall have been prepared in accordance with generally accepted accounting
principles, consistently applied, and which shall fairly present the financial
condition and results of operations of the Introspect Companies at and for the
date and period then ended. DAI and the Stockholders understand and agree that
their obligations under this Section 5.2(b) shall be in addition to all
obligations to provide, and to used their best efforts to cause their
accountants to provide, financial statements, consents and other assurances
deemed necessary by YSI in connection with any and all filings made by YSI with
the Securities and Exchange Commission as set forth in Section 8.3 of the
Option Agreement.
(c) If the conditions set forth in the first
sentence of Section 5.2(b) are not satisfied, DAI and the Stockholders shall
provide YSI with such audited consolidated financial statements of Introspect
as promptly as possible following Closing. Such financial statements for the
year ended June 30, 1996 shall reflect a net loss of not more than $365,000.
DAI and the Stockholders further covenant and agree that they shall not
withdraw or take any position inconsistent with the representation letters they
have furnished to Arthur Andersen immediately prior to or on the date of this
Agreement concerning the consolidated financial statements of Introspect.
6. CLOSING.
6.1. Closing Date. The closing of the purchase of the
Optioned Shares (the "Closing") shall take place at the offices of Snell &
Wilmer L.L.P., One Arizona Center, 400 East Van Buren, Phoenix, Arizona, on
September 11, 1996, upon fulfillment of (a) all conditions to the obligations
of YSI and SWCHS set forth in Article XII of the Option Agreement and in
Section 5.1 hereof that
- 6 -
<PAGE> 7
have not been waived by the Introspect Companies, DAI and the Stockholders; and
(b) all conditions to the obligations of the Introspect Companies, DAI and the
Stockholders set forth in Article XIII of the Option Agreement and in Section
5.2 hereof that have not been waived by YSI and SWCHS. If such conditions have
not been fulfilled or waived by ____________, 1996, the Closing shall take
place within five business days after fulfillment or waiver of all such
conditions. The date on which the Closing occurs is referred to herein as the
"Closing Date."
6.2. Performance by DAI and the Stockholders. At Closing,
DAI and the Stockholders shall deliver or cause to be delivered to SWCHS the
following:
(a) Certificates representing the Optioned Shares
duly executed for transfer or with stock powers duly executed in blank
attached;
(b) Evidence satisfactory to YSI and SWCHS of the
release of all liens on the assets of Introspect and the Optioned Shares
previously in place to secure third party indebtedness;
(c) Certificates of the Secretary or an Assistant
Secretary of each of the Introspect Companies (but not including Desert Hills
Hawaii) and DAI and Desert Hills New Mexico, dated the Closing Date, setting
forth the appropriate resolutions of the respective party authorizing the
execution and delivery of this Agreement and the Option Agreement and the
consummation of the transactions contemplated by this Agreement and the Option
Agreement, and certifying that such resolutions have not been amended or
rescinded an dare in full force and effect;
(d) A good standing certificate and certified
articles of incorporation and bylaws dated as of a date reasonably close to the
Closing Date, in respect of DAI and Introspect;
(e) The written resignations of the Stockholders
who are officers and/or directors of the Introspect Companies, in form and
content reasonably satisfactory to YSI and SWCHS;
(f) The financial statements required by 5.2(b)
hereof; and
(g) Such other documents, instruments or
agreements as may be reasonably requested by YSI or SWCHS to effectuate the
transactions contemplated by this Agreement and the Option Agreement.
6.3. Performance by YSI and SWCHS. At Closing, YSI and
SWCHS shall deliver or cause to be delivered to DAI the following:
(a) Evidence reasonably satisfactory to DAI and
the Stockholders of a wire transfer of funds equal to the Purchase Price to the
account or accounts designated in writing by DAI;
- 7 -
<PAGE> 8
(b) Certificates of the Secretary or an Assistant
Secretary of YSI and SWCHS dated the Closing Date, setting forth the
appropriate resolutions of the respective Boards of Directors of YSI and SWCHS
authorizing the execution and delivery of this Agreement and the Option
Agreement and the consummation of the transactions contemplated by this
Agreement and the Option Agreement, and certifying that such resolutions have
not been amended or rescinded an dare in full force and effect; and
(c) Such other documents, instruments or
agreements as may be reasonably requested by DAI or the Stockholders to
effectuate the transactions contemplated by this Agreement and the Option
Agreement.
7. SURVIVAL.
7.1. Option Agreement. The Option Agreement is
incorporated by reference in its entirety in this Agreement and made a part
hereof, and except for the terms of the Option Agreement which are expressly
modified by the terms of this Agreement, the parties are bound in this
Agreement by each provision of the Option Agreement, including without
limitation Section 15.1 of the Option Agreement, in the same manner and to the
same extent as if it were fully set forth herein. Accordingly, except as
otherwise provided by Section 4 hereof, each party shall continue to be bound
and shall be entitled to enforce the provisions contained in the Option
Agreement, including those terms which survive and may be enforced following
SWCHS' purchase of the Optioned Shares. Notwithstanding the foregoing, YSI and
SWCHS covenant and agree that they will not proceed against DAI or any
Stockholder with respect to the breach of any representation or warranty made
by DAI or the Stockholders in the Option Agreement to the extent and only to
the extent that (a) the breach arose by reason of facts or circumstances that
occurred following July 1, 1995 and (b) such facts or circumstances giving rise
to the breach are the direct result of YSI's or SWCHS' mismanagement of
Introspect in breach of the terms of Section 7.1 of the Management Agreement.
7.2. Representations, Warranties and Covenants. The
representations, warranties, covenants and agreements made in this Agreement
shall survive the execution and delivery of this Agreement and the Closing Date
for a period of five years. Nothing in this Section 7.2 shall affect in any
way the manner in which the representations, warranties, covenants and
agreements set forth in the Option Agreement survive as set forth in the Option
Agreement.
8. MISCELLANEOUS.
8.1. Assignment; Binding Effect. No party to this
Agreement may assign this Agreement or any rights or obligations hereunder, in
whole or in part, without the prior written consent of the other parties
hereto; provided, however that YSI and SWCHS
- 8 -
<PAGE> 9
shall be entitled to assign the benefit of this Agreement and to delegate their
duties hereunder to any subsidiary or affiliate of YSI without the consent of
the other parties hereto. All of the terms and conditions contained in this
Agreement shall be binding upon, and inure to the benefit of, the parties and
their respective heirs, personal representatives, successors and permitted
assigns.
8.2. Notices. Any notice, request, instruction or other
document or communication required or permitted to be given under this
Agreement shall be given in accordance with the provisions of Section 15.4 of
the Option Agreement.
8.3. Headings. Section headings are for convenience only
and shall not limit or otherwise affect any of the provisions of this
Agreement.
8.4. Entire Agreement. This Agreement, the Asset Purchase
Agreement, the Management Agreement, the Consulting Agreement and the Option
Agreement, and the Schedules and Exhibits hereto and thereto, constitute the
entire agreement and understanding of the parties hereto with respect to the
matters herein set forth, and all prior negotiations, writings and
understandings relating to the subject matter of this Agreement are merged
herein and are superseded and canceled by this Agreement, the Asset Purchase
Agreement, the Management Agreement, the Consulting Agreement and the Option
Agreement.
8.5. Waiver; Amendment. Any of the terms or conditions of
this Agreement may be waived but only in writing by the party which is entitled
to the benefit thereof, and this Agreement may be amended or modified in whole
or in part only by an agreement in writing, executed by all the parties to this
Agreement.
8.6. Governing Law. This Agreement shall be construed
and enforced in accordance with the laws of the State of Arizona, without
regard to its principles of choice or conflicts of law.
- 9 -
<PAGE> 10
IN WITNESS WHEREOF, the parties have signed this Agreement,
each intending it to constitute an instrument under seal, as of the day and
year first above written.
ATTEST: YOUTH SERVICES INTERNATIONAL, INC.
By:
- ---------------------- ------------------------------
Name:
Title:
ATTEST: SOUTHWESTERN CHILDREN'S HEALTH
SERVICES, INC.
By:
- ---------------------- ------------------------------
Name:
Title:
ATTEST: DIVERSIFICATION ASSOCIATION, INC.
By:
- ---------------------- ------------------------------
Name:
Title:
ATTEST: INTROSPECT HEALTHCARE, CORPORATION
By:
- ---------------------- ------------------------------
Name:
Title:
ATTEST: DESERT HILLS CENTER FOR YOUTH AND
FAMILIES OF NEW MEXICO, INC.
By:
- ---------------------- ------------------------------
Name:
Title:
ATTEST: DESERT HILLS CENTER FOR YOUTH AND
FAMILIES, INC.
By:
- ---------------------- ------------------------------
Name:
Title:
- 10 -
<PAGE> 11
ATTEST: DESERT HILLS CENTER FOR YOUTH AND
FAMILIES OF NEVADA, INC.
By:
- ---------------------- ------------------------------
Name:
Title:
ATTEST: OCOTILLO PEDIATRIC SERVICES, INC.
By:
- ---------------------- ------------------------------
Name:
Title:
ATTEST: DESERT HILLS CENTER FOR YOUTH AND
FAMILIES OF HAWAII, INC.
By:
- ---------------------- ------------------------------
Name:
Title:
WITNESS: "STOCKHOLDERS"
- ---------------------- ---------------------------------
Anna Ash
- ---------------------- ---------------------------------
William Ash
- ---------------------- ---------------------------------
Manuel G. Bracamonte
- ---------------------- ---------------------------------
Tamatha Bracamonte
- ---------------------- ---------------------------------
Donald V. Campbell
- ---------------------- ---------------------------------
Mary K. Campbell
- ---------------------- ---------------------------------
Donna Heidinger
- 11 -
<PAGE> 12
- ---------------------- ---------------------------------
Guy W. Heidinger
- ---------------------- ---------------------------------
Daniel R. Lopez
- ---------------------- ---------------------------------
Nancy Lopez
- ---------------------- ---------------------------------
Elizabeth McCusker
- ---------------------- ---------------------------------
Fletcher J. McCusker
- ---------------------- ---------------------------------
Judy McKee
- ---------------------- ---------------------------------
Michael L. McKee
- 12 -
