<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Cmmission File Number
December 31, 1996 0-23284
- ---------------------- ----------------------
YOUTH SERVICES INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Maryland 52-1715690
- ------------------------------- -------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
</TABLE>
2 Park Center Court, Suite 200, Owings Mills, Maryland, 21117
- ------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 410-356-8600
------------
Not Applicable
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last
report)
Number of shares of common stock outstanding on December 31, 1996: 9,314,765
---------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE> 2
YOUTH SERVICES INTERNATIONAL, INC.
INDEX - FORM 10-Q
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Income -
For the Three Months and Six Months Ended
December 31, 1996 and 1995 ..................................... 1
Consolidated Balance Sheets -
As of December 31, 1996 and June 30, 1996 ...................... 2
Consolidated Statements of Cash Flows-
For the Three Months and Six Months Ended
December 31, 1996 and 1995 ..................................... 4
Notes to Consolidated Financial Statements ..................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 8
</TABLE>
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
<S> <C>
Item 1. Legal Proceedings .............................................. 14
Item 2. Changes in Securities .......................................... 14
Items 3 has been omitted since the item is either inapplicable or the answer is negative.
Item 4. Submission of Matters to a Vote of Security Holders ............ 14
Items 5 has been omitted since the item is either inapplicable or the answer is negative.
Item 6. Exhibits and Reports on Form 8-K ............................... 15
Signatures ............................................................................... 17
</TABLE>
<PAGE> 3
YOUTH SERVICES INTERNATIONAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN 000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ----------------------
1996 1995 1996 1995
--------------------- ----------------------
<S> <C> <C> <C> <C>
REVENUES $29,347 $24,234 $57,043 $46,992
------- ------- ------- -------
PROGRAM EXPENSES
Direct operating 24,068 20,607 48,000 40,012
Amortization of goodwill 627 213 1,010 478
Start-up costs 142 30 142 30
------- ------- ------- -------
CONTRIBUTION FROM OPERATIONS 4,510 3,384 7,891 6,472
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,911 1,452 3,761 2,801
------- ------- ------- -------
INCOME FROM OPERATIONS 2,599 1,932 4,130 3,671
OTHER INCOME (EXPENSE)
Interest expense (934) (670) (1,908) (1,234)
Other, net 48 (162) 258 (189)
------- ------- ------- -------
(886) (832) (1,650) (1,423)
------- ------- ------- -------
INCOME BEFORE INCOME TAX EXPENSE 1,713 1,100 2,480 2,248
INCOME TAX EXPENSE 748 572 946 978
------- ------- ------- -------
NET INCOME $ 965 $ 528 $ 1,534 $ 1,270
======= ======= ======= =======
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.10 $ 0.06 $ 0.15 $ 0.14
======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 10,141 9,089 10,027 8,898
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
Page 1 of 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------- -------------
(Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,037 $ 7,046
Restricted cash 371 500
Investments available-for-sale 5,204 9,798
Accounts receivable, net 23,625 17,467
Refundable income taxes 1,046 1,046
Current portion of notes receivable 51 113
Prepaid expenses, supplies and other 2,713 1,918
Deferred tax asset -- 78
---------- ---------
Total current assets 36,047 37,966
---------- ---------
PROPERTY, EQUIPMENT AND IMPROVEMENTS:
Land 1,086 621
Leasehold improvements 9,794 7,134
Program equipment 4,004 2,289
Buildings 11,698 5,162
Office furniture and equipment 4,181 3,874
Vehicles 1,543 1,320
---------- ---------
32,306 20,400
Accumulated depreciation (4,881) (3,265)
---------- ---------
27,425 17,135
---------- ---------
OTHER ASSETS:
Deposits 273 160
Deferred debt issue costs, net 2,511 2,613
Goodwill, net 20,675 9,613
Non-compete agreements, net 225 277
Notes receivable, net of current portion 3,133 4,133
Deferred tax asset 750 750
Other assets, net 1,899 1,992
---------- ---------
29,466 19,538
---------- ---------
Total assets $ 92,938 $ 74,639
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
Page 2 of 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ ---------
(Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,404 $ 1,465
Accrued payroll 1,859 1,641
Accrued interest payable 965 1,093
Other accrued expenses 3,926 3,018
Short-term borrowings 189 -
Current portion of long-term debt and
capital lease obligations 604 788
Deferred tax liability 50 -
----------- ----------
Total current liabilities 11,997 8,005
----------- ----------
DEFERRED REVENUE 288 38
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion 14,876 4,212
7% CONVERTIBLE SUBORDINATED DEBENTURES 32,200 37,950
12% SUBORDINATED DEBENTURES, net of
unamortized discount 988 983
----------- ----------
Total liabilities 60,349 51,188
----------- ----------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value: authorized
shares 70,000,000, issued and outstanding
9,314,765 at December 31, 1996 and
8,597,712 at June 30, 1996 93 86
Additional paid-in capital 27,499 20,099
Unrealized loss on investments available-for-sale (58) (255)
Retained earnings 5,055 3,521
----------- ----------
Total shareholders' equity 32,589 23,451
----------- ----------
Total liabilities and shareholders' equity $ 92,938 $ 74,639
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
Page 1 of 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,534 $ 1,270
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,968 1,290
Income from Introspect operations (371) 135
Net change in operating assets and liabilities (3,427) 807
-------- -------
Net cash provided by operating activities 704 3,502
INVESTING ACTIVITIES:
Purchases of property, equipment and improvements, net (7,686) (4,383)
Proceeds from sale of assets 33 363
Goodwill (3,470) (82)
Collections of notes receivable 62 -
Proceeds from sale of investments available-for-sale, net 4,887 -
Other long-term assets (405) (1,360)
-------- -------
Net cash used in investing activities (6,579) (5,462)
FINANCING ACTIVITIES:
Proceeds from borrowings 21,616 4,929
Repayments of long-term debt and capital lease obligations (21,354) (2,347)
Proceeds from the issuance of common stock under
the Employee Stock Option Plan and the Employee
Stock Purchase Plan, net 1,656 392
Other (52) -
-------- -------
Net cash provided by financing activities 1,866 2,974
NET (DECREASE) INCREASE IN CASH (4,009) 1,014
CASH, beginning of period 7,046 784
-------- -------
CASH, end of period $ 3,037 $ 1,798
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
Page 2 of 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------
1996 1995
--------------------
CHANGE IN OPERATING ASSETS AND LIABILITIES, NET OF BUSINESS
ACQUIRED IN 1996:
<S> <C> <C>
Cash held in escrow $ - $ 2,543
Restricted cash 131 (39)
Accounts receivable (4,350) (4,574)
Prepaid expenses, supplies and other (720) (368)
Deferred tax asset - 57
Deposits (3) (1)
Management fee receivable - 30
Accounts payable and accrued expenses 1,575 2,531
Accrued payroll (60) 591
Deferred tax liability - 37
-------- -------
Net change in operating assets and liabilities $ (3,428) $ 807
======== =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 2,050 $ 643
======== =======
Cash paid for taxes $ 723 $ 776
======== =======
Noncash reduction of accounts receivable through
application of advance payments for services $ 19 $ 46
======== =======
Noncash asset acquisition through notes payable,
assumption of liabilities and issuance of long-term $ 13,104 $ 9,315
debt ======== =======
Noncash converstion of 7% Convertible Subordinated
Debentures $ 5,750 -
======== =======
Change in market value of investments available-for-sale $ 326 -
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
YOUTH SERVICES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL INFORMATION
In management's opinion, the accompanying interim unaudited
consolidated financial statements include all adjustments, consisting only of
normal, recurring adjustments, necessary for a fair presentation of Youth
Services International, Inc.'s ("YSI's" or the "Company's" ) financial position
at December 31, 1996 and the results of its operations for the three months and
six months ended December 31, 1996 and 1995 and its cash flows for the three
months and six months ended December 31, 1996 and 1995. The accompanying
consolidated balance sheet as of June 30, 1996 is presented herein as set forth
in YSI's Annual Report on Form 10-K for the year ended June 30, 1996. These
statements are presented in accordance with the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in YSI's annual consolidated financial statements
have been omitted from these statements, as permitted under the applicable
rules and regulations. Readers of these statements should refer to the
consolidated financial statements and notes thereto as of June 30, 1996 and
1995 and for the years then ended filed with the Securities and Exchange
Commission on Form 10-K.
The consolidated financial statements as of and for the three months
and six months ended December 31, 1995 have been adjusted to reflect the
consolidation of the results of operations of Introspect Healthcare,
Corporation. See NOTE 2. ACQUISITION for further discussion.
The weighted average common and common equivalent shares and the per
share amounts as of and for the three months and six months ended December 31,
1995 have been restated to reflect a three-for-two stock split which was
effective May 24, 1996.
Operating results for the three months and six months ended December
31, 1996 and 1995 are not necessarily indicative of the results that may be
expected for a full fiscal year.
2. ACQUISITION
In September 1996, the Company exercised its option (the "Option") to
acquire all of the stock of Introspect Healthcare, Corporation ("Introspect").
The Company acquired the Option on July 1, 1995, in conjunction with acquiring
the Desert Hills New Mexico program from Introspect and entering into a
management agreement to manage Introspect for a period of five years. As a
result of the "early" exercise of the Option effective as of September 1, 1996
(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 required that the pre-acquisition operating results of
Introspect be consolidated with those of the Company. As a result, the three
months and six months ended December 31, 1995 have been adjusted to reflect
revenues of $3,858,000 and $7,268,000, expenses of $3,820,000, and $6,812,000,
and a net loss of $242,000 and $135,000, respectively, related to the
pre-acquisition consolidation of Introspect.
3. CERTAIN TRANSACTIONS
During the second quarter of fiscal 1997, the Company restructured
its arrangement with International Youth Institute ("IYI"). As previously
reported, the Company began outsourcing its training of its child care staff
workers from IYI as of July 1, 1996. In connection with this arrangement, a
number of YSI employees who were trainers of other YSI employees were hired by
IYI. In late calendar year 1996, YSI renegotiated the arrangement in order to
be compensated for the know-how, training materials and other intellectual
property that had been transferred to IYI by virtue of the transfer of former
YSI employees to IYI. Under the new agreement, IYI will pay $700,000 for the
transfer of such assets, and will not be compensated for training services it
provided prior to January 1, 1997. The sale amount of $700,000 has been
included in revenues in the accompanying statements of income for the three
months and six months ended December 31, 1996. In addition, IYI grants YSI
perpetual, fully-paid and
6
<PAGE> 9
royalty-free license to use the intellectual property in its operations. YSI
and IYI also are entering into a training services agreement pursuant to which
IYI will provide certain training services to YSI for a period of five years
at a rate of approximately $34 per month per full-time employee of YSI.
During the second quarter, the Company reached agreement with
Evergreen National Development, Inc. ("Evergreen") regarding termination of its
agreement with YSI. As previously reported, YSI had entered into an agreement
with Evergreen in early calendar year 1996 for services relating to property
and facility maintenance, mergers and acquisitions, business development and
general consulting matters. The Company terminated the agreement in September
1996 in connection with its determination that these services could more
efficiently and effectively be performed by Company personnel. As a result of
the termination, Evergreen agreed to pay the Company $648,000 of which
approximatey $360,000 was recorded as revenue in the quarter ended December 31,
1996.
In December 1996, the Company amended its Revolving Line of Credit
agreement with a bank to increase the loan amount to the lesser of $20,000,000
or the sum of 85% of the eligible accounts receivable and 95% of the cash and
cash equivalents on deposit with the bank. Amounts drawn under this line of
credit bear interest at prime plus one-half percent and are payable on demand.
As of December 31, 1996, YSI borrowed approximately $13,000,0000 to fund the
Introspect acquisition and repayment of related debt, and to fund general
working capital needs of the Company.
Effective November 8, 1996, the stockholder's of the Company approved
an increase in the Company's authorized common stock from 20,000,000 shares to
70,000,000 shares.
7
<PAGE> 10
YOUTH SERVICES INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As of December 31, 1996, YSI operated 20 residential programs in 12
states. The Company operates its programs through wholly-owned subsidiaries
pursuant to contracts directly with government agencies and third party payors
or, in certain instances, with unaffiliated not-for-profit entities that have
contracts with government agencies.
The Company's programs are operated pursuant to fixed per diem
contracts based upon program occupancy and management contracts, including
management contracts with not-for-profit entities, as well as various third
party payor reimbursement contracts. The Company recognizes revenues under
all contracts as the services are performed. Under certain cost-based
reimbursement contracts, certain costs may be subject to audit and adjustment
as determined through negotiations with government or third party payor
representatives. Under these contracts, contract revenues are recorded at
amounts that are expected to be realized. In addition, the Company recognizes
revenue from its consulting and development services as they are performed.
The contribution from operations, in general, is lower in the initial
stages of a program's development primarily due to costs associated with
staffing requirements needed to obtain licensing prior to admitting students
into a program as well as costs incurred during the period prior to the
achievement of stable program occupancy. The Company's contribution from
operations as a percentage of revenue is greater under some of its contractual
arrangements with unaffiliated not-for-profit entities because the
not-for-profit entity is responsible for certain elements of operating the
program and incurs some of the costs. Therefore, in these instances, the
Company earns its margin on a lower base of costs and revenues.
CERTAIN TRANSACTIONS
During the second quarter of fiscal 1997, the Company restructured
its arrangement with International Youth Institute ("IYI"). As previously
reported, the Company began outsourcing its training of its child care staff
workers from IYI as of July 1, 1996. In connection with this arrangement, a
number of YSI employees who were trainers of other YSI employees were hired by
IYI. In late calendar year 1996, YSI renegotiated the arrangement in order to
be compensated for the know-how, training materials and other intellectual
property that had been transferred to IYI by virtue of the transfer of former
YSI employees to IYI. Under the new agreement, IYI will pay $700,000 for the
transfer of such assets, and will not be compensated for training services it
provided prior to January 1, 1997. The sale amount of $700,000 has been
included in revenues in the accompanying statements of income for the quarter
ended December 31, 1996. In addition, IYI grants YSI a perpetual, fully-paid
and royalty-free license to use the intellectual property in its operations.
YSI and IYI also are entering into a training services agreement pursuant to
which IYI will provide certain training services to YSI for a period of five
years at a rate of approximately $34 per month per full-time employee of YSI.
During the second quarter, the Company reached agreement with
Evergreen National Development, Inc. ("Evergreen") regarding termination of its
agreement with YSI. As previously reported, YSI had entered into an agreement
with Evergreen in early calendar year 1996 for services relating to property
and facility maintenance, mergers and acquisitions, business development and
general consulting matters. The Company terminated the agreement in September
1996 in connection with its determination that these services could more
efficiently and effectively be performed by Company personnel. As a result of
the termination, Evergreen agreed to pay the Company $648,000 of which
approximately $360,000 was recorded as revenue in the quarter ended December
31, 1996.
8
<PAGE> 11
In December 1996, the Company amended its Revolving Line of Credit
agreement with a bank to increase the loan amount to the lesser of $20,000,000
or the sum of 85% of the eligible accounts receivable and 95% of the cash and
cash equivalents on deposit with the bank. Amounts drawn under this line of
credit bear interest at prime plus one-half percent and are payable on demand.
As of December 31, 1996, YSI borrowed approximately $13,000,0000 to fund the
Introspect acquisition and repayment of related debt, and to fund general
working capital needs of the Company.
In October 1996, the Company was awarded a contract by the State of
Florida, Department of Juvenile Justice, to operate a 102 bed juvenile
corrections facility for adjudicated youth in Dade County, Florida. The
Company commenced operations in early December 1996.
RECENT DEVELOPMENTS
During the second quarter, YSI entered into an agreement to operate a
juvenile facility at a former air force base in Michigan. The Company
commenced operations of the Keweenaw Academy in January 1997.
RESULTS OF OPERATIONS
The following table sets forth selected items from the Company's
consolidated financial statements expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
For the Three For the Six
Months Ended Months Ended
December 31, December 31,
- ------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Program expense:
Direct operating 82.0 85.0 84.2 85.2
Amortization of goodwill 2.1 1.0 1.8 1.0
Start-up costs 0.5 0.1 0.2 0.1
--- --- --- ---
Contribution from operations 15.4 13.9 13.8 13.7
Other operating expenses:
Selling, general and administrative 6.5 6.0 6.6 5.9
--- --- --- ---
Income from operations 8.9 7.9 7.2 7.8
Other income (expense):
Interest expense (3.2) (2.8) (3.3) (2.6)
Other, net 0.1 (0.6) 0.4 (0.4)
--- ----- --- -----
Income before income tax expense 5.8 4.5 4.3 4.8
Income tax expense (2.5) (2.4) (1.7) (2.1)
----- ----- ----- -----
Net income 3.3 2.1 2.6 2.7
--- --- --- ---
- ------------------------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1995
Revenues. Revenues increased $5,113,000, or 21.1%, to $29,347,000 for
the three months ended December 31, 1996 from $24,234,000 for the three months
ended December 31, 1995 primarily as a result of the addition of new programs
operated by the Company during each period and the continued expansion
9
<PAGE> 12
at existing facilities. Of the total increase in revenues, $2,321,000 was
attributable to the operations of four programs that were acquired, opened or
managed after the second quarter of fiscal 1996; $2,114,000 was attributable to
the sixteen programs that were operated by the Company in both the three months
ended December 31, 1996 and 1995; $700,000 was attributable to the sale of the
Company's training material and other intellectual property to IYI (see
"Certain Transactions"); and $360,000 was attributable to the termination of the
Company's agreement with Evergreen (see "Certain Transactions"). The increase
in revenues was partially offset by a decrease in revenues of $482,000
resulting from the closing of one program in fiscal 1996. The average daily
enrollment for all of the Company's programs increased 21.9% to 2,198 youth for
the three months ended December 31, 1996 from 1,803 youth for the three months
ended December 31, 1995, including a 15.3% increase in average daily enrollment
in the sixteen programs that the Company operated for both the three months
ended December 31, 1996 and 1995 to 2,078 youth from 1,803 youth. The Company
reported an occupancy rate of 92.2% for the second quarter of fiscal 1997
compared to 91.2% for the second quarter of fiscal 1996 based on an average
daily licensed capacity of 2,385 beds for the three months ended December 31,
1996 and 1,977 beds for the three months ended December 31, 1995.
Program Direct Operating Expenses. Program direct operating expenses
increased $3,461,000, or 16.8%, to $24,068,000 for the three months ended
December 31, 1996 from $20,607,000 for the three months ended December 31, 1995
primarily as a result of the addition of new programs operated by the Company
during each period and the continued expansion of existing facilities. Of the
total increase in expenses, $2,372,000 is attributable to the operations of
four programs that were acquired, opened or managed after the second quarter of
fiscal 1996. The increase in expenses was partially offset by a decrease in
expenses of $587,000 resulting from the closing of one program in fiscal 1996.
Salaries and related employee benefits constituted approximately 65.6% of
program direct operating expenses for the three months ended December 31, 1996
compared to 62.9% of program direct operating expenses for the three months
ended December 31, 1995.
Contribution from Operations. Contribution from operations for the
three months ended December 31, 1996 increased $1,126,000, or 33.3%, to
$4,510,000 from $3,384,000 for the three months ended December 31, 1995.
Contribution from operations increased as a percentage of revenues to 15.4% for
the three months ended December 31, 1996 compared to 13.9% for the three months
ended December 31, 1995.
Selling, General and Administrative Expenses. For the three months
ended December 31, 1996, selling, general and administrative expenses increased
$459,000, or 31.6%, to $1,911,000 from $1,452,000 for the three months ended
December 31, 1995. As a percentage of revenues, selling, general, and
administrative expenses increased to 6.5% for the three months ended December
31, 1996 from 6.0% for the three months ended December 31, 1995. The most
significant components of these costs relate to the compensation expense and
consulting fees associated with business professionals necessary for the
development and oversight of the Company's operations.
Interest Expense. Interest expense increased $264,000 to $934,000 for
the three months ended December 31, 1996 from $670,000 for the three months
ended December 31, 1995. Of the increase in interest expense, $563,000 was
attributable to the 7% Convertible Subordinated Debentures Due 2006 that were
issued on January 29, 1996, and the remaining increase of $75,000 was
attributable to interest payable on the financing of the Company's personal
property and increases in borrowings on the Company's revolving line of credit.
The increase in interest expense was partially offset by a decrease in interest
expense of $374,000 resulting from the repayment of debt incurred in connection
with the acquisitions of Desert Hills of New Mexico and Introspect.
Interest Income. Interest income increased $160,000 to $195,000 for
the three months ended December 31, 1996 from $35,000 for the three months
ended December 31, 1995. The increase is primarily attributable to $123,000 of
dividend income earned on temporary investments, and $69,000 of interest income
earned on the mortgage note receivable related to the Tampa Bay Academy
acquisition.
10
<PAGE> 13
The increase in interest income was partially offset by a decrease in interest
income resulting from the termination of the line of credit agreement with
Introspect as part of the acquisition of Introspect.
Income Taxes. The provision for income taxes was $748,000,
representing an effective tax rate of 43.7% for the three months ended December
31, 1996 as compared to $572,000, representing an effective tax rate of 52.0%
for the three months ended December 31, 1995. The decrease in the effective
tax rate was primarily attributable to the inclusion for accounting purposes of
the pre-acquisition consolidation loss generated by Introspect for the three
months ended December 31, 1995 which resulted in an unfavorable impact on the
effective tax rate.
Net Income. Net income was $965,000, or $.10 per share for the three
months ended December 31, 1996 compared to $528,000, or $.06 per share for the
three months ended December 31, 1995.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED
DECEMBER 31, 1995
Revenues. Revenues increased $10,051,000, or 21.4%, to $57,043,000
for the six months ended December 31, 1996 from $46,992,000 for the six months
ended December 31, 1995 primarily as a result of the addition of new programs
operated by the Company during each period and the continued expansion of
existing facilities. Of the total increase in revenues, $4,605,000 was
attributable to the operations of four programs that were acquired, opened or
managed after the second quarter of fiscal 1996; $5,519,000 was attributable to
the sixteen programs that were operated by the Company in both the six months
ended December 31, 1996 and 1995; $700,000 was attributable to the sale of the
Company's training material and other intellectual property to IYI (see
"Certain Transactions"); and $360,000 was attributable to the termination of
the Company's agreement with Evergreen (see "Certain Transactions"). The
increase in revenues was partially offset by a decrease in revenues of
$1,262,000 resulting from the closing of one program in fiscal 1996. The
average daily enrollment for all of the Company's programs increased 22.1% to
2,172 youth for the six months ended December 31, 1996 from 1,779 youth for the
six months ended December 31, 1995, including a 15.7% increase in average daily
enrollment in the sixteen programs that the Company operated for both the six
months ended December 31, 1996 and 1995 to 2,059 youth from 1,779 youth. The
Company reported an occupancy rate of 91.7% for the six months ended December
31, 1996 compared to 91.8% for the six months ended December 31, 1995 based on
an average daily licensed capacity of 2,368 beds for the six months ended
December 31, 1996 and 1,937 beds for the six months ended December 31, 1995.
Program Direct Operating Expenses. Program direct operating expenses
increased $7,988,000, or 19.9%, to $48,000,000 for the six months ended
December 31, 1996 from $40,012,000 for the six months ended December 31, 1995
primarily as a result of the addition of new programs operated by the Company
during each period and the continued expansion of existing facilities. Of the
total increase in expenses, $4,599,000 is attributable to the operations of
four programs that were acquired, opened or managed after the second quarter of
fiscal 1996. The increase in expenses was partially offset by a decrease in
expenses of $1,270,000 resulting from the closing of one program in fiscal
1996. Salaries and related employee benefits constituted approximately 66.4%
of program direct operating expenses for the six months ended December 31, 1996
compared to 64.5% of program direct operating expenses for the six months ended
December 31, 1995.
Contribution from Operations. Contribution from operations for the
six months ended December 31, 1996 increased $1,419,000, or 21.9%, to
$7,891,000 from $6,472,000 for the six months ended December 31, 1995.
Contribution from operations decreased as a percentage of revenues to 13.8% for
the six months ended December 31, 1996 compared to 13.7% for the six months
ended December 31, 1995.
Selling, General and Administrative Expenses. For the six months
ended December 31, 1996, selling, general and administrative expenses increased
$960,000, or 34.3%, to $3,761,000 from $2,801,000 for the six months ended
December 31, 1995. As a percentage of revenues, selling, general, and
administrative expenses increased to 6.6% for the six months ended December 31,
1996 from 5.9% for the
11
<PAGE> 14
six months ended December 31, 1995. The most significant components of these
costs relate to the compensation expense and consulting fees associated with
business professionals necessary for the development and oversight of the
Company's operations. The increase as a percentage of revenue for the six
months ended December 31, 1996 as compared to the six months ended December 31,
1995 is primarily attributable to the Company's efforts to develop the
infrastructure necessary to enhance its current operations and continue its
growth.
Interest Expense. Interest expense increased $674,000 to $1,908,000
for the six months ended December 31, 1996 from $1,234,000 for the six months
ended December 31, 1995. Of the increase in interest expense, $1,127,000 was
attributable to the 7% Convertible Subordinated Debentures Due 2006 that were
issued on January 29, 1996, and the remaining increase of $308,000 was
attributable to interest payable on the financing of the Company's personal
property and increases in borrowings on the Company's revolving line of credit.
The increase in interest expense was partially offset by a decrease in interest
expense of $761,000 resulting from paying off debt incurred in connection with
the acquisitions of Desert Hills of New Mexico and Introspect.
Interest Income. Interest income increased $439,000 to $483,000 for
the six months ended December 31, 1996 from $44,000 for the six months ended
December 31, 1995. The increase is primarily attributable to $292,000 of
dividend income earned on temporary investments, and $135,000 of interest
income earned on the mortgage note receivable related to the Tampa Bay Academy
acquisition.
Income Taxes. The provision for income taxes was $945,000,
representing an effective tax rate of 38.1% for the six months ended December
31, 1996 as compared to $978,000, representing an effective tax rate of 43.5%
for the six months ended December 31, 1995. The decrease in the effective tax
rate was attributable to a $264,000 increase in the pre-acquisition operating
results of Introspect. These operating results were not taxable to the
Company, and therefore, had a favorable impact on the Company's effective tax
rate.
Net Income. Net income was $1,534,000, or $.15 per share for the six
months ended December 31, 1996 compared to $1,270,000, or $.14 per share for
the six months ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had $3,037,000 in cash and
$24,050,000 of working capital, which included $5,204,000 of investments
available-for-sale. Net cash provided by operating activities was $704,000 for
the six months ended December 31, 1996 compared to net cash provided by
operating activities of $1,956,000 for the year ended June 30, 1996. Net
accounts receivable increased $6,158,000 to $23,625,000, at December 31, 1996
from $17,467,000 at June 30, 1996 primarily as a result of the acquisition of
Introspect effective September 1, 1996.
Net cash used in investing activities was $6,579,000 for the six
months ended December 31, 1996, of which $3,445,000 was used to fund the
acquisition of Introspect; $4,241,000 was invested in leasehold improvements,
vehicles, computer equipment and other capital expenditures in support of
existing programs, as well as the start-up of Keweenaw Academy in Michigan;
$4,887,000 represents the net principal and dividend income related to the
sale of a temporary investment; $3,470,000 represents goodwill, $2,610,000
of which resulted from the acquisition of Introspect and $860,000 of which
resulted from the acquisition of a group home business in Utah; and $405,000
represents investments in deferred software costs, a prepaid consulting
agreement and other long-term asset investments.
Net cash provided by financing activities was $1,866,000 for the six
months ended December 31, 1996 comprised of $15,396,000 of borrowings under the
Company's lines of credit, $6,220,000 of various notes payable and $1,656,000
of net proceeds from the Employee Stock Option and Employee Stock Purchase
Plans, offset by the repayment of
12
<PAGE> 15
$10,339,000 of debt assumed as part of the acquisition of Introspect, repayment
of $10,471,000 of borrowings under the lines of credit, and the repayment of
$596,000 of other long-term borrowings. As of December 31, 1996, the Company
had approximately $3,800,000 available on its existing bank revolving line of
credit.
Total debt of $48,857,000 on December 31, 1996 consisted primarily of
$32,200,000 of 7% Convertible Subordinated Debentures Due 2006, approximately
$12,977,000 of borrowings under the Company's lines of credit, approximately
$2,167,000 for a capital lease assumed in the acquisition of Desert Hills New
Mexico, $988,000 of 12% Subordinated Debentures, and approximately $525,000 in
other debt and capital leases.
The Company believes that its current funds and funds available under
its amended line of credit, together with existing capital resources and cash
flow from its existing operations, will be sufficient to meet all indebtedness
payments, to make all planned capital additions and improvements and meet other
working capital needs for the next twelve months. However, if the Company
should identify one or more acquisition targets or begins substantial "de novo"
programs, it may need to access additional capital.
13
<PAGE> 16
YOUTH SERVICES INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than routine
litigation which the Company does not believe is significant to its future
financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
On September 30, 1996, the Company commenced an exchange offer pursuant
to which the Company offered to issue an aggregate principal amount of
$31,600,000 of 7% Convertible Subordinated Debentures due 2006 under an
Indenture dated as of October 15, 1996 with The Chase Manhattan Bank (the
"Exchange Debentures") in exchange for an equal principal amount of 7%
Convertible Subordinated Debentures due 2006 originally issued by the Company
(the "Original Debentures") under a Fiscal and Paying Agency Agreement dated as
of January 29, 1996 with The Chase Manhattan Bank, N.A., New York, The Chase
Manhattan Bank, N.A. London and Chase Manhattan Bank Luxembourg, S.A. (the
"Fiscal Agency Agreement"). The exchange offer, which was required by the
Fiscal Agency Agreement, was for all of the Original Debentures that were
originally issued pursuant to Rule 144A or Regulation D under the Securities
Act of 1933 (the "Act"). The exchange offer terminated on October 31, 1996 and
all $31,600,000 of Original Debentures for which exchange was offered were
exchanged for an aggregate principal amount of $31,600,000 of Exchange
Debentures. The terms of the Exchange Debentures are substantially the same as
the terms of the Original Debentures. As a result of the exchange, as of
October 31, 1996, there were outstanding an aggregate principal amount of
$31,600,000 of Exchange Debentures and an aggregate principal amount of $600,000
of Original Debentures that were originally issued pursuant to Regulation S
under the Act.
The Company filed a registration statement with respect to
resales of the Exchange Debentures and resales of the shares of Common
Stock issuable upon conversion of the Exchange Debentures which registration
statement became effective with the Securities and Exchange Commission on
October 29, 1996. Under the Fiscal Agency Agreement and the Indenture, the
Company is required to keep such registration statement effective until January
29, 1999.
ITEM 3 has been omitted since the item is either inapplicable or the answer is
negative.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Youth Services International,
Inc. was held on November 8, 1996. The following items were submitted to a
vote of security holders:
1. Election of Directors of the Company - 7,603,612
shares, or 99.5% of the shares voted were in favor of the election of each of
the Directors nominated and presented to this meeting; 36,276 shares, or less
than 1% of the shares voted, abstained.
2. Approval and Adoption of the 1997 Employee Stock
Purchase Plan - 6,113,889 shares, or 99.25% of the shares voted, were in favor
of the approval and adoption of the 1997 Employee Stock Purchase Plan; 19,572
shares, or less than 1% of the shares voted, were against adoption of the plan;
26,593 shares, or less than 1% of the shares voted, abstained.
3. Approval and Adoption of the 1997 Employee Stock
Option Plan - 5,017,752 shares, or 81.45% of the shares voted, were in favor of
the approval and adoption of the 1997 Employee Stock Option Plan; 1,111,405
shares, or 18% of the shares voted, were against adoption of the plan; 30,897
shares, or less than 1% of the shares voted, abstained.
4. Approval and Adoption of an Amendment to the 1995
Directors Stock Option Plan to increase the number of shares issuable
thereunder to 200,000 - 6,036,054 shares, or 97.98% of the shares voted, were
in favor of the approval and adoption of the amendment to the 1995 Directors
Stock Option Plan; 90,755 shares, or 1.4% of the shares voted, were against
adoption of the amendment; 65,143 shares, or less than 1% of the shares voted,
abstained.
5. Approval of an Amendment to the Charter increasing
the number of authorized shares of capital stock from 20,000,000 to 70,000,000
- - 6,251,020 shares, or 84.7% of the shares voted, were in favor of amending the
Charter; 1,066,655 shares, or 14.45% of the shares voted, were against approval
of the amendment; 61,438 shares, or less than 1% of the shares voted,
abstained.
6. Approval of Arthur Andersen LLP as the Company's
accountant - 7,615,968 shares, or 99.68% of the shares voted, were in favor of
Arthur Andersen LLP as the Company's accountant; 1,214 shares, or less than 1%
of the shares voted, were against approval of Arthur Andersen LLP; 22,706
shares, or less than 1% of the shares voted, abstained.
14
<PAGE> 17
ITEM 5 has been omitted since the item is either inapplicable or the answer is
negative.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3(a) Articles of Incorporation of the Company, as amended.
3(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).
4(a) Form of 7% Convertible Subordinated Debenture (Incorporated by reference to Exhibit 4(c)
to the Company's Registration Statement on Form S-3 (Registration No. 333-09089)).
4(b) Indenture, dated October 15, 1996, by and between the Company and the Chase Manhattan
Bank, as trustee (Incorporated by reference to Exhibit 4(d) to the Company's Registration
Statement on Form S-3 (Registration No. 333-09089)).
10(a) First Amendment to Loan and Security Agreement dated December 12, 1996 by Signet Bank and
the Company and certain of its subsidiaries.
10(b) Amended and Restated Master Revolving Promissory Note from the Company (and certain of
its subsidiaries) to Signet Bank dated December 12, 1996.
10.1 State of Florida Department of Juvenile Justice Contract
10.2 Memorandum of Understanding between Youth Services International, Inc. and International
Youth Institute
10.3 Settlement and Release Agreement between Youth Services International, Inc. and Evergreen
National Development, Inc.
11 Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
(b) The registrant filed a Current Report on Form 8-K on
September 25, 1996 to report its acquisition of all of the outstanding capital
stock of Introspect Healthcare, Corporation from Diversification Association,
Inc. , and filed Amendments to Current Report on Form 8-K/A on October 17, 1996
and October 23, 1996 to file the required Financial Statements of Businesses
Acquired and Pro Forma Financial Information with respect to that acquisition
that were unavailable for filing at the time of the
15
<PAGE> 18
original filing of the Current Report on Form 8-K. The financial statements
filed included Audited Financial Statements of Introspect Healthcare,
Corporation and Subsidiaries as of and for the year ended June 30, 1996 and Pro
Forma Consolidated Statement of Income for the year ended June 30, 1996, and
Pro Forma Consolidated Balance Sheet as of June 30, 1996.
16
<PAGE> 19
YOUTH SERVICES INTERNATIONAL, INC.
SIGNATURES
Pursuant to the requirements of the Securities and 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 and Treasurer
Date: February 11, 1997
17
<PAGE> 20
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
YOUTH SERVICES INTERNATIONAL, INC.
-----------------------------
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
<PAGE> 21
YOUTH SERVICES INTERNATIONAL, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3(a) Articles of Incorporation of the Company, as amended.
3(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).
4(a) Form of 7% Convertible Subordinated Debenture (Incorporated by
reference to Exhibit 4(c) to the Company's Registration Statement on
Form S-3 (Registration No. 333-09089)).
4(b) Indenture, dated October 15, 1996, by and between the Company and
the Chase Manhattan Bank, as trustee (Incorporated by reference to
Exhibit 4(d) to the Company's Registration Statement on Form S-3
(Registration No. 333-09089)).
10(a) First Amendment to Loan and Security Agreement dated
December 12, 1996 by Signet Bank and the
Company and certain of its subsidiaries.
10(b) Amended and Restated Master Revolving Promissory Note
from the Company (and certain of its subsidiaries) to
Signet Bank dated December 12, 1996.
10.1 State of Florida Department of Juvenile Justice Contract
10.2 Memorandum of Understanding between Youth Services
International, Inc. and International Youth Institute
10.3 Settlement and Release Agreement between Youth Services
International, Inc. and Evergreen National Development, Inc.
11 Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3(a)
ARTICLES OF INCORPORATION
OF
YOUTH SERVICES INTERNATIONAL, INC.
FIRST: The undersigned, John P. Sarbanes, whose post office address is
1800 Mercantile Bank and Trust Building, 2 Hopkins Plaza, Baltimore, Maryland
21201, being over eighteen years of age and acting as incorporator, hereby forms
a Corporation under the Maryland General Corporation Law.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
YOUTH SERVICES INTERNATIONAL, INC.
THIRD: The purposes for which the Corporation is formed are as follows:
(a) To manage and operate facilities that provide for the
physical, mental, emotional and spiritual growth of adjudicated youth.
(b) To carry on any and all business, transactions and
activities permitted by the Maryland General Corporation Law which may be deemed
desirable by the Board of Directors of the Corporation, whether or not identical
with or related to the business described in the foregoing paragraphs of this
Article, as well as all activities and things necessary
<PAGE> 2
and incidental thereto, to the full extent empowered by such laws.
FOURTH: The post office address of the principal office of the
Corporation in this State is 4888 Butler Road, Glyndon, Maryland 21071. The
resident agent of the Corporation in this State is William J. Hindman, whose
Post office address is 4888 Butler Road, Glyndon, Maryland 21071. Said resident
agent is a citizen of the State of Maryland, and actually resides therein.
FIFTH: The total number of shares of stock of all classes which the
Corporation has authority to issue is Ten Million (10,000,000) shares, of the
par value of one cent ($0.01) each, all of which shares are of one class and are
designated Common Stock. The aggregate par value of all shares having par value
is One Hundred Thousand Dollars ($100,000,000).
SIXTH: The Corporation shall have three (3) directors, which number may
be increased or decreased, but to not less than the lesser of three (3) or the
number of stockholders, pursuant to the By-Laws of the Corporation, and William
J. Hindman, Henry Felton and Joan Stephens, shall act as such until the first
annual meeting or until their successors are duly chosen and qualified.
SEVENTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:
(a) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of
- 2 -
<PAGE> 3
shares of its stock of any class, whether now of hereafter authorized, and
securities convertible into shares of its stock, of any class or classes,
whether new or hereafter authorized, for such consideration as the Board of
Directors may deem advisable.
(b) No contract or other transaction between this Corporation
and any other corporation, partnership, individual or other entity and no act of
this Corporation shall in any way be affected or invalidated by the fact that
any of the directors of this Corporation are directors, principals, partners or
officers of such other entity, or are pecuniarily or otherwise interested in
such contract, transaction or act; provided that (i) the existence of such
relationship or such interest shall be disclosed to the Board of Directors or to
a committee of the Board of Directors if the matter involves a committee
decision, and the contract, transaction or act shall be authorized, approved or
ratified by a majority of disinterested directors on the Board or on such
committee, as the case may be, even if the number of disinterested directors
constitutes less than a quorum or (ii) the contract, transaction or act shall be
authorized, ratified or approved in any other manner permitted by the Maryland
General Corporation Law.
(c) The Corporation reserves the right to make, from time to
time, any amendments of its charter which may now or hereafter be authorized by
law, including any amendments
- 3 -
<PAGE> 4
which alter the contract rights of any class of outstanding stock as expressly
set forth in the charter.
(d) The Board of Directors shall have the power to classify or
reclassify any unissued stock, whether now or hereafter authorized, by setting
or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such stock.
(e) Notwithstanding any provision of law requiring any action
to be taken or authorized by the affirmative vote of the holders of a greater
proportion of the votes of all classes or of any class of stock of the
Corporation, such action shall be effective and valid if taken or authorized by
the affirmative vote of a majority of the total number of votes entitled to be
cast thereon, except as otherwise provided in this charter.
(f) Unless otherwise provided by the Board of Directors, no
holder of stock of any class shall be entitled to preemptive rights to subscribe
for or purchase or receive any part of any new or additional issue of stock of
any class of the Corporation or securities convertible into stock of any class
of the Corporation.
(g) To the maximum extent that limitations on the
liability of directors and officers are permitted by the Maryland General
Corporation Law, as from time to time amended, no director or officer of the
Corporation shall have any
- 4 -
<PAGE> 5
liability to the Corporation or its stockholders for money damages. This
limitation on liability applies to events occurring at the time a person serves
as a director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted. No amendment or repeal of this paragraph, or the adoption of any
provision of the Corporation's Charter inconsistent with this paragraph, shall
apply to or affect in any respect the liability of any director or officer of
the Corporation with respect to any alleged act or omission which occurred
prior to such amendment, repeal or adoption.
(h) To the maximum extent permitted by the Maryland General
Corporation Law, as from time to time amended, the Corporation shall indemnify
its currently acting and its former directors against any and all liabilities
and expenses incurred in connection with their services in such capacities,
shall indemnify its currently acting and its former officers to the full extent
that indemnification shall be provided to directors, and may indemnify its
employees and agents and persons who serve and have served, at its request as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture or other enterprise as may to determined by the Board
of Directors. The Corporation shall, also to the same extent, advance expenses
to its directors, officers and other persons, if any, and may by Bylaw,
resolution or agreement make further provision for
- 5 -
<PAGE> 6
indemnification of directors, officers, employees and agents. No amendment or
repeal of this paragraph, or the adoption of any provision of the Corporation's
Charter inconsistent with this paragraph, shall apply to or affect in any
respect the indemnification of any director or officer of the Corporation with
respect to any alleged act or omission which occurred prior to such amendment,
repeal or adoption.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation on
the 16th day of January, 1991, and have acknowledged such Articles to be my act.
/s/ JESSICA COATES /s/ JOHN P. SARBANES
- ----------------------------------- -----------------------------------
Witness John P. Sarbanes, Incorporator
- 6 -
<PAGE> 7
AMENDED ARTICLES OF INCORPORATION
OF
YOUTH SERVICES INTERNATIONAL, INC.
FIRST: The undersigned, John P. Sarbanes, whose post office address is
1800 Mercantile Bank and Trust Building, 2 Hopkins Plaza, Baltimore, Maryland
21201, being over eighteen years of age and acting as incorporator, hereby
forms a Corporation under the Maryland General Corporation Law.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
YOUTH SERVICES INTERNATIONAL, INC.
THIRD: The purposes for which the Corporation is formed are as follows:
(a) To manage and operate facilities that provide for the
physical, mental, emotional and spiritual growth of adjudicated youth.
(b) To carry on any and all business, transactions and
activities permitted by the Maryland General Corporation Law which may be
deemed desirable by the Board of Directors of the Corporation, whether or not
identical with or related to the business described in the foregoing paragraphs
of this Article, as well as all activities and things necessary and incidental
thereto, to the full extent empowered by such laws.
<PAGE> 8
FOURTH: The post office address of the principal office of the
Corporation in this State is 4888 Butler Road, Glyndon, Maryland 21071. The
resident agent of the Corporation in this State is W. James Hindman, whose post
office address is 4888 Butler Road, Glyndon, Maryland 21071. Said resident agent
is a citizen of the State of Maryland, and actually resides therein.
FIFTH: The total number of shares of stock of all classes which the
Corporation has authority to issue is Twenty Million (20,000,000) shares, of the
par value of one cent ($0.01) each, all of which shares are of one class and are
designated Common Stock. The aggregate par value of all shares having par value
is Two Hundred Thousand Dollars ($200,000.00).
SIXTH: The Corporation shall have three (3) directors, which number may
be increased or decreased, but to not less than the lesser of three (3) or the
number of stockholders, pursuant to the By-Laws of the Corporation, and W. James
Hindman, Henry Felton and Joan Stephens, shall act as such until the first
annual meeting or until their successors are duly chosen and qualified.
SEVENTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:
(a) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of
-2-
<PAGE> 9
shares of its stock of any class, whether now or hereafter authorized, and
securities convertible into shares of its stock, of any class or classes,
whether now or hereafter authorized, for such consideration as the Board of
Directors may deem advisable.
(b) No contract or other transaction between this Corporation
and any other corporation, partnership, individual or other entity and no act of
this Corporation shall in any way be affected or invalidated by the fact that
any of the directors of this Corporation are directors, principals, partners or
officers of such other entity, or are pecuniarily or otherwise interested in
such contract, transaction or act; provided that (i) the existence of such
relationship or such interest shall be disclosed to the Board of Directors or to
a committee of the Board of Directors if the matter involves a committee
decision, and the contract, transaction or act shall be authorized, approved or
ratified by a majority of disinterested directors on the Board or on such
committee, as the case may be, even if the number of disinterested directors
constitutes less than a quorum or (ii) the contract, transaction or act shall be
authorized, ratified or approved in any other manner permitted by the Maryland
General Corporation Law.
(c) The Corporation reserves the right to make, from time to
time, any amendments of its charter which may now or hereafter be authorized by
law, including any amendments
-3-
<PAGE> 10
which alter the contract rights of any class of outstanding stock as expressly
set forth in the charter.
(d) The Board of Directors shall have the power to classify or
reclassify any unissued stock, whether now or hereafter authorized, by setting
or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such stock.
(e) Notwithstanding any provision of law requiring any action
to be taken or authorized by the affirmative vote of the holders of a greater
proportion of the votes of all classes or of any class of stock of the
Corporation, such action shall be effective and valid if taken or authorized by
the affirmative vote of a majority of the total number of votes entitled to be
cast thereon, except as otherwise provided in this charter.
(f) Unless otherwise provided by the Board of Directors, no
holder of stock of any class shall be entitled to preemptive rights to subscribe
for or purchase or receive any part of any new or additional issue of stock of
any class of the Corporation or securities convertible into stock of any class
of the Corporation.
(g) To the maximum extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, as
from time to time amended, no director or officer of the Corpotation shall have
any
- 4 -
<PAGE> 11
liability to the Corporation or its stockholders for money damages. This
limitation on liability applies to events occurring at the time a person serves
as a director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted. No amendment or repeal of this paragraph, or the adoption of any
provision of the Corporation's Charter inconsistent with this paragraph, shall
apply to or affect in any respect the liability of any director or officer of
the Corporation with respect to any alleged act or omission which occurred
prior to such amendment, repeal or adoption.
(h) To the maximum extent permitted by the Maryland General
Corporation Law, as from time to time amended, the Corporation shall
indemnify its currently acting and its former directors against any and all
liabilities and expenses incurred in connection with their services in such
capacities, shall indemnify its currently acting and its former officers to the
full extent that indemnification shall be provided to directors, and may
indemnify its employees and agents and persons who serve and have served, at
its request as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture or other enterprise as may be
determined by the Board of Directors. The Corporation shall, also to the same
extent, advance expenses to its directors, officers and other persons, if any,
and may by Bylaw, resolution or agreement make further provision for
-5-
<PAGE> 12
indemnification of directors, officers, employees and agents. No amendment or
reneal of this paragraph, or the adoption of any provision of the Corporation's
Charter inconsistent with this paragraph, shall apply to or affect in any
respect the indemnification of any director or officer of the Corporation with
respect to any alleged act or omission which occurred prior to such amendment,
repeal or adoption.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation on
the 12th day of June, 1991, and have acknowledged such Articles to be my act.
/s/ THOMAS J. BENNING /s/ JOHN P. SARBANES
- ----------------------------------- -----------------------------------
Witness John P. Sarbanes, Incorporator
- 6 -
<PAGE> 13
ARTICLES OF AMENDMENT
OF
YOUTH SERVICES INTERNATIONAL, INC.
Youth Services International, Inc., a Maryland corporation (the
"Corporation"), certifies as follows:
FIRST: The Articles of Incorporation of the Corporation are hereby
amended by deleting Article FIFTH in its entirety and replacing it with the
following:
"FIFTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is seventy million
(70,000,000) shares, of the par value of one cent ($0.01) each, all of
which shares are of one class and are designated Common Stock. The
aggregate par value of all shares of all classes of stock is seven
hundred thousand dollars ($700,000)."
SECOND: The total number of shares of stock of all classes that the
Corporation had authority to issue immediately before the foregoing amendment
was twenty million (20,000,000), of the par value of one cent ($0.01) each, all
of which shares were of one class designated common stock. The aggregate par
value of all shares of all classes of stock was two hundred thousand dollars
($200,000).
THIRD: The total number of shares of stock of all classes that the
Corporation has authority to issue after the foregoing amendment is seventy
million (70,000,000), of the par value of one cent ($0.01) each, all of which
shares are of one class designated common stock. The aggregate par value of all
shares of all classes of stock is seven hundred thousand dollars ($700,000).
FOURTH: This amendment was advised by the Board of Directors of the
Corporation and was approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name and on its behalf as of the day
of , 1996 by its Chief Executive Officer who acknowledges that these
Articles of Amendment are the act of the Corporation and that to the best of his
knowledge, information and belief and under penalties for perjury, all matters
and facts set forth in these Articles of Amendment are true in all material
respects.
ATTEST: YOUTH SERVICES INTERNATIONAL, INC.
By: (SEAL)
- ---------------------------------- --------------------------
Kendel S. Ehrlich Timothy P. Cole
Secretary Chief Executive Officer
24
<PAGE> 1
EXHIBIT 10(a)
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment")
made this 12th day of December, 1996, by SIGNET BANK, successor by merger to
SIGNET BANK/MARYLAND (the "Bank"), and YOUTH SERVICES INTERNATIONAL, INC., a
Maryland corporation ("YSI"), and certain of its wholly owned subsidiaries,
namely: YOUTH SERVICES INTERNATIONAL OF IOWA, INC., a Maryland corporation
d/b/a Clarinda Academy; YOUTH SERVICES INTERNATIONAL OF TENNESSEE, INC., a
Maryland corporation d/b/a Reflections Treatment Agency; YOUTH SERVICES
INTERNATIONAL OF MARYLAND, INC., a Maryland corporation d/b/a Victor Cullen
Academy; YOUTH SERVICES INTERNATIONAL OF BALTIMORE, INC., a Maryland
corporation d/b/a Charles H. Hickey, Jr. School; YOUTH SERVICES INTERNATIONAL
OF NORTHERN IOWA, INC., an Iowa corporation d/b/a Forest Ridge; YSI OF CENTRAL
IOWA, INC., an Iowa corporation d/b/a Woodward Academy; YSI OF UTAH, INC., a
Utah corporation; YOUTH SERVICES INTERNATIONAL OF SOUTH DAKOTA, INC., a South
Dakota corporation d/b/a Chamberlain Academy, Springfield Academy and Missouri
River Academy; YOUTH SERVICES INTERNATIONAL OF MISSOURI, INC., a Missouri
corporation d/b/a Tarkio Academy; and SOUTHWESTERN CHILDREN'S HEALTH SERVICES,
INC., an Arizona corporation d/b/a Parc Place, Inc., Promise House, Inc. and
Touchstone Community, Inc. (collectively, the "Original Borrowers").
RECITALS
A. The Original Borrowers and the Bank executed a Loan and
Security Agreement dated as of June 20, 1995 (the "Loan Agreement"), which
generally provided for the extension of a line of credit facility to the
Original Borrowers.
B. On July 25, 1995, YOUTH SERVICES INTERNATIONAL OF NEW MEXICO,
INC., a New Mexico corporation d/b/a Desert Hills Center for Youth and Families
of New Mexico, entered into an Assumption Agreement evidencing its entry into
the Loan Agreement and its agreement to the terms and obligations thereunder.
C. YOUTH SERVICES INTERNATIONAL OF MAMMOTH, INC., a California
corporation and an Original Borrower, has now ceased business operations,
dissolved under California law, and is no longer a party to the Loan Agreement,
the Line Credit Note, or any of the Loan Documents, except to the extent any
obligation previously undertaken expressly survives termination of the
borrowing relationship.
<PAGE> 2
D. Immediately prior to, or contemporaneously with, the execution
of this Amendment, YOUTH SERVICES INTERNATIONAL OF TEXAS, INC., a Texas
corporation d/b/a Desert Hills Center for Youth and Families of Texas, YOUTH
SERVICES INTERNATIONAL OF FLORIDA, INC., a Florida corporation d/b/a Tampa Bay
Academy, YOUTH SERVICES INTERNATIONAL OF VIRGINIA, INC., a Virginia corporation
d/b/a Camp Washington, DEVELOPMENTAL BEHAVIORAL CONSULTANTS, INC., an Arizona
corporation, INTROSPECT HEALTHCARE, CORPORATION, an Arizona corporation d/b/a
Desert Hills Center for Youth and Families, and DESERT HILLS CENTER FOR YOUTH
AND FAMILIES, INC., an Arizona corporation wholly-owned by INTROSPECT
HEALTHCARE, CORPORATION, each executed an Assumption Agreement evidencing their
agreement to be bound by the terms and conditions of the Loan Agreement. (The
Original Borrowers (excluding YOUTH SERVICES INTERNATIONAL OF MAMMOTH, INC.),
YOUTH SERVICES INTERNATIONAL OF NEW MEXICO, INC., YOUTH SERVICES INTERNATIONAL
OF TEXAS, INC., YOUTH SERVICES INTERNATIONAL OF FLORIDA, INC., YOUTH SERVICES
INTERNATIONAL OF VIRGINIA, INC., DEVELOPMENTAL BEHAVIORAL CONSULTANTS, INC.,
INTROSPECT HEALTHCARE, CORPORATION and DESERT HILLS CENTER FOR YOUTH AND
FAMILIES, INC. are hereafter each referred to as a "Borrower," and
collectively as the "Borrowers".)
E. The Borrowers have requested the Bank to amend the Loan
Agreement, and the Bank has agreed to do so, upon the terms and conditions
expressly set forth below.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINED TERMS. All terms defined in the Loan
Agreement shall have the same meaning when used in this Amendment. The term
"Loan Agreement" means the Loan and Security Agreement dated June 20, 1995
among the Original Borrowers and Bank, as amended by this Amendment.
SECTION 2. GENERAL DESCRIPTION OF AMENDMENTS. At the request of
the Borrowers, the Bank agrees to increase the maximum principal amount
available under the Line of Credit, and the parties agree to amend certain
other terms of the Loan Agreement including certain financial covenants all as
set forth below. The foregoing modifications and amendments shall be effected
by the execution of this Amendment and certain other instruments or documents
referred to below, and the Loan Agreement and all other Loan Documents are
hereby amended to incorporate the terms expressly provided herein.
2
<PAGE> 3
SECTION 3. AMENDMENTS. Subject to satisfaction of the
conditions and deliveries of this Amendment, the Loan Agreement is amended in
the following respects, and shall be construed and interpreted to give effect
to the modifications and amendments expressly set forth herein.
(a) Sections 1.13, 1.19, 1.22 and 1.29 of the Loan
Agreement are deleted in their entirety and the following substituted in their
stead:
SECTION 1.13. ELIGIBLE RECEIVABLES. The term "Eligible
Receivables" shall mean those Receivables which arise from goods sold
or from services performed in the ordinary course of business to or
for Account Debtors other than any Affiliate, and as to which: (a) the
delivery of the goods or the performance of the services has been
completed; (b) no return, rejection, or repossession has occurred; (c)
the representations and warranties contained in this Agreement as to
Receivables are and continue to be true and accurate; (d) no more than
ninety (90) days have elapsed from the billing or invoice date; (e) no
bankruptcy or insolvency proceedings or payment moratoriums of any
kind apply; (f) no notice of cancellation or termination of any
contract giving rise to the Receivable has been given by the Account
Debtor; (g) the Borrower has not received written notice of the Bank's
determination, in the Bank's good faith judgment, that the Receivable
is deemed to be unsatisfactory for any reason; and (h) the Bank
possesses a first priority security interest and lien thereon.
Eligible Receivables shall not include inter-company Receivables,
contra accounts, foreign accounts, finance charges or the Receivables
of any Account Debtor if 50% or more of the account balance of any
such Account Debtor is in excess of ninety (90) days from invoice or
billing date. As used herein, the term "Eligible Commercial
Receivables" shall mean Receivables otherwise eligible due from an
Account Debtor which is not a governmental agency, authority or
entity; and the term "Eligible Government Receivables" shall mean
Receivables otherwise eligible due from an Account Debtor which is a
federal, state or local governmental agency, authority or entity.
SECTION 1.19. LINE OF CREDIT NOTE. The term "Line of Credit
Note" shall mean the Amended and Restated Master Revolving Promissory
Note executed by the Borrowers, as obligors, in the principal amount of
Twenty Million Dollars ($20,000,000) and payable to the order of the
Bank, and any and all substitutions, extensions, renewals, amendments,
restatements, modifications or replacements thereof.
SECTION 1.22. LOAN DOCUMENTS. The term "Loan Documents"
shall mean all documents executed by the Borrowers in connection with
the Loan, including, but not limited to, this Agreement, the Line of
Credit
3
<PAGE> 4
Note, any Assumption Agreements, appropriate financing statements and
continuation statements, or any amendments, extensions or
modifications thereto.
SECTION 1.29. SUBORDINATED DEBT. The term "Subordinated
Debt" shall mean any and all indebtedness and liabilities of YSI or
any other Borrower which have been subordinated as to collection,
enforcement rights and lien priority by written agreement, or by the
express written terms of the subordinated indebtedness instruments, to
the principal and interest of the Loan amount owed by the Borrowers to
the Bank. Subordinated Indebtedness shall specifically include (a)
approximately $1,000,000 in outstanding subordinated debentures due
December 31, 2002, and (b) approximately $32,200,000 in senior
subordinated notes, with warrants to purchase common stock.
(b) Sections 2.1.1 and 2.1.2 of the Loan Agreement are
deleted in their entirety and the following is substituted in its stead:
SECTION 2.1.1. PURPOSE OF THE LINE OF CREDIT. The proceeds
of the Line of Credit shall be used by the Borrowers for the financing
of Receivables, for acquisitions permitted under Section 7.9 hereof,
capital expenditures (subject to the terms of Section 6.24 hereof),
and general working capital needs.
SECTION 2.1.2. ADVANCE RATES. Advances shall be permitted
under the Line of Credit up to a maximum aggregate principal amount
equal to the lesser of (a) Twenty Million Dollars ($20,000,000), or
(b) the sum of (i) eighty-five percent (85%) of Eligible Receivables,
and (ii) ninety-five percent (95%) of the cash or cash equivalents on
deposit with and under the exclusive control of the Bank. The
determination of what constitutes a "cash equivalent" and whether any
such property is on deposit with or under the exclusive control of the
Bank shall be determined by the Bank, from time to time, in its sole
and absolute discretion. The Advance Rate formula set forth in item
(b) in the preceding sentence may be changed, modified or amended at
any time and from time to time as provided in Section 10.10 hereof.
Availability under the Line of Credit shall be reduced, on a
dollar-for-dollar basis, for (i) any Outstanding Letter of Credit
Obligations, which shall not exceed in the aggregate, at any time and
from time to time, the sum of Five Million Dollars ($5,000,000), and
(ii) any Unwinding Amounts, existing at any time, and from time to
time. As used herein, the term " Unwinding Amounts" is intended to
represent the credit risk element with respect to any interest rate
swap, cap or collar agreement or other similar agreement entered into
from time to time by the
4
<PAGE> 5
Borrowers, or any one or more of them, and shall mean for purposes of
the Agreement the "Agreement Value" as such term is defined in the
Code of Standard Wording, Assumptions and Provisions for Swaps (1986
Ed.) issued by the International Swap Dealers Association, Inc.
(c) Section 2.1.4. of the Loan Agreement is deleted in
its entirety and the following shall be substituted in its stead:
SECTION 2.1.4. LINE OF CREDIT FEES. In addition to interest,
the Borrowers shall pay a monthly unused Line of Credit fee at an
annual percentage rate of one-quarter of one percent (0.25%) on the
average daily unborrowed maximum principal amount available (without
regard to the percentage limitations for Eligible Receivables and cash
or cash equivalents) under the Line of Credit (the "Unused Credit
Fee"). The Unused Credit Fee shall be payable to the Bank on the last
day of each month.
(d) A new section 3.6 of the Loan Agreement is added as
follows:
SECTION 3.6. ASSIGNMENT OF GOVERNMENT RECEIVABLES. Upon
request by the Bank, the Borrowers will cooperate with the Bank in
executing any assignment, claim, agreement, document or instrument
required or permitted by any governmental unit (federal, state or
local) to permit the registered assignment of payment of Receivables
to the Bank, including compliance with the Federal Assignment of
Claims Act. Unless compliance with such governmental laws, rules or
ordinances is required in order for the Bank to perfect its security
interest or otherwise assure payment, the Borrowers may continue to
collect all Receivables until the occurrence of an Event of Default.
Notwithstanding the foregoing, until further notice from the Bank or
the occurrence of an Event of Default which is not cured within any
applicable grace or cure period, if any, the Borrowers shall continue
to receive direct payment of all Medicare and Medicaid Receivables.
(e) Sections 6.19, 6.20 and 6.21 of the Loan Agreement
are deleted in their entirety and the following substituted in their stead:
SECTION 6.19. MAXIMUM QUARTERLY CAPITAL FUNDS RATIO. The
Borrowers shall attain, on a consolidated basis, as of the close of
each fiscal quarter during the term hereof, a ratio of (a) total
liabilities less Subordinated Debt, to (b) shareholders' equity plus
Subordinated Debt less all intangible assets (including, without
limitation, goodwill, deferred debt issuance costs, covenants not to
compete, organizational costs and prepaid expenses), of 1.0 to 1.0,
provided, however, that if additional Subordinated
5
<PAGE> 6
Debt and/or equity is received by YSI at any time hereafter which in
the aggregate is more than Five Million Dollars ($5,000,000), then YSI
for itself and all other Borrowers shall have thirty (30) days from
the date of written notice from the Bank to agree to a modification or
amendment of the covenants stated in Sections 6.19 through 6.24. Such
covenants shall be determined by the Bank in its sole discretion after
consultation with YSI.
SECTION 6.20. MINIMUM QUARTERLY TANGIBLE CAPITAL. The
Borrowers shall attain, on a consolidated basis, and maintain a
minimum quarterly tangible capital as of the close of each fiscal
quarter of $40,000,000.
SECTION 6.21. MINIMUM ANNUAL CASH FLOW COVERAGE. The
Borrowers shall, on a consolidated basis, attain as of the close of
each fiscal quarter during the term hereof, a Minimum Annual Cash Flow
Coverage of 2.25 to 1.0. As used herein, "Minimum Annual Cash Flow
Coverage" shall mean a ratio of the just-completed twelve-month
financial period's (a) net income plus depreciation, plus
amortization, plus interest, divided by (b) the prior year's current
maturity portion of long-term debt and capitalized leases, plus
interest, plus dividends.
(f) Section 6.24 of the Loan Agreement is deleted in its
entirety and the following is substituted in its stead:
SECTION 6.24. CONSOLIDATED DEBT TO EBITDA. The Borrowers
shall not permit, on a consolidated basis, as of the end of each
fiscal quarter, the ratio of Consolidated Debt to EBITDA to be greater
than 2.5 to 1.0. As used herein, "Consolidated Debt" shall mean all
of Borrowers' (a) indebtedness then owing to the Bank (including,
without limitation, all Letter of Credit Obligations, (b) all other
indebtedness for borrowed money and the deferred purchase price of
assets or services (exclusive of trade payables incurred in the
ordinary course of business), (c) all obligations of a Borrower
evidenced by any note or other instrument (excluding Subordinated
Debt), (d) all capital lease obligations, (e) all obligations under
any swap arrangement or other interest rate or hedging device, (f) all
obligations outstanding to retire or redeem capital stock, and (g) all
indebtedness secured by any lien, security interest or title retention
device; and "EBITDA" shall mean with respect to the Borrowers, on a
consolidated basis and as of the end of each fiscal quarter, the sum
of net income for the immediately preceding twelve-month financial
period, plus interest, taxes, depreciation, amortization and other
non-cash expenses or charges reducing income for such period.
6
<PAGE> 7
(g) Section 7.9 of the Loan Agreement is deleted in its
entirety and the following substituted in its stead:
SECTION 7.9. ACQUISITION OF STOCK OR ASSETS OF THIRD PERSON.
(a) Without the prior written consent of the Bank
which will not be unreasonably withheld or delayed, Borrowers will not
acquire any stock in, or all or substantially all of the assets of,
any Person during the term of this Agreement if the Actual Cost
thereof exceeds, in any one instance or in the aggregate, Three
Million Dollars ($3,000,000). As used herein, the term "Actual Cost"
shall mean, with respect to any acquisition of stock or assets, the
sum of (i) the amount of cash paid by YSI or any Borrower, (ii) the
fair market value of all capital stock or other ownership interests of
YSI or any other Borrower issued or given in connection with such
acquisition, (iii) the amount of all indebtedness incurred, assumed or
acquired in connection with such acquisition, (iv) the estimated
amount of all additional purchase price amounts in the form of
earnouts, contingent obligations, covenants not to compete, consulting
agreements and other related contracts, and (v) the aggregate fair
market value of all other considerations given by YSI or any other
Borrower in connection with such acquisition. All capital
expenditures made or projected to be incurred in connection with such
acquisition shall also be included in the Actual Cost attributable to
such acquisition. Any request for the consent of the Bank shall be in
writing and shall include such financial and other information, and in
such detail, as the Bank may from time to time require.
(b) All acquisitions with an Actual Cost in
excess of Five Hundred Thousand Dollars ($500,000) shall be for assets
used in, or for the stock of a corporation engaged in, a business
like, similar or related to the business of the Borrowers. At the
time of any such acquisition, YSI shall provide to the Bank at least
five (5) Business Days' prior written notice of such acquisition and
the following items: (i) a description of the material terms of such
acquisition, including, without limitation, a calculation of the
Actual Cost, together with a draft of the acquisition agreement, (ii)
calculations made by the Borrower as to compliance with the covenants
contained in Sections 6.19 through Sections 6.23, inclusive, for the
most recent calculation period ended immediately prior to the date of
such acquisition, on a pro forma basis as if the acquisition had
occurred on the first day of such period, which shall show that all
such covenants will be complied with after giving effect to the pro
forma consolidation of the business acquired.
(h) Section 7.11 of the Loan Agreement is deleted in its
entirety.
7
<PAGE> 8
(i) Section 9.5 of the Loan Agreement is deleted in its
entirety and the following substituted in its stead:
SECTION 9.5. ATTORNEYS' FEES AND EXPENSES. The Borrowers
shall pay all Liquidation Costs and/or reasonable attorneys' fees and
expenses which the Bank and any other banking institution
participating in the Loan at the time may incur as a result of the
happening of an Event of Default, even if judgment is not obtained or
confessed and the Event of Default is cured and the Loan is placed in
good standing.
(j) Section 10.1 of the Loan Agreement is deleted in its
entirety and the following substituted in its stead:
SECTION 10.1. LOAN COSTS. The Loan and all transactions
relating thereto and provided for herein shall be made at no cost to
the Bank or any banking institution participating in the Loan, and all
costs including, without limitation, the Bank's or any participant's
reasonable counsel fees, recordation costs, costs of documentary
stamps, photocopying expense, appraisals, lien searches, travel
expenses for the Bank's agents, employees, and counsel, and all other
reasonable out-of-pocket expenses shall be paid by the Borrowers,
whether incurred prior to or after closing, such that the subject
transactions shall be cost free to the Bank.
(k) Section 10.19 is added to the Loan Agreement as
follows:
SECTION 10.19. INFORMATION TO PARTICIPANT. In the event the
Bank sells a participating interest in the Loan to another financial
institution, the Bank may, from time to time, notify the Borrowers
that information to be reported and delivered to the Bank hereunder
shall also and simultaneously be provided to such participant,
whereupon it shall be Borrowers' obligation hereunder to provide such
participant with all information and notices directed to Bank. Any
participant shall have the right to join the Bank in the conduct of
any audit or examination of books and records.
(l) An Amended Schedule "A" and an Amended Schedule "B",
in the form attached hereto, shall be substituted in lieu of the Schedule "A"
and Schedule "B" appended to the 1995 Loan Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWERS.
Borrowers hereby represent and warrant to Bank that (i) execution of this
Amendment has been duly authorized by all requisite action of Borrowers; (ii)
no consents are necessary from any third parties for Borrowers' execution,
delivery or performance of this Amendment,
8
<PAGE> 9
(iii) this Amendment and the Loan Agreement as amended hereby constitute the
legal, valid and binding obligations of Borrowers enforceable against Borrowers
in accordance with their terms, except to the extent that the enforceability
thereof against Borrowers may be limited by bankruptcy, insolvency or other
laws affecting the enforceability of creditors rights generally or by equity
principles of general application, (iv) except as otherwise disclosed to the
Bank in writing, all of the representations and warranties contained in Article
V of the Loan Agreement, as amended hereby, are true and correct in all
material respects with the same force and effect as if made on and as of the
effective date of this Amendment, except that with respect to the
representations and warranties made regarding Financial Statements, such
representations and warranties are hereby made with respect to the most recent
Financial Statements delivered by Borrowers to Bank, (v) there exists no
Default which is continuing and no Event of Default has occurred and (vi) no
Default or Event of Default will occur immediately or with the passage of time
or giving of notice as a consequence of this Amendment becoming effective.
SECTION 5. CHIEF EXECUTIVE OFFICES. The location of each
Borrower's original entry books and records and the place where its records
relating to Accounts are maintained is identified in Amended Schedule B to the
Loan Agreement.
SECTION 6. REAFFIRMATION. Borrowers hereby acknowledge and
confirm that (i) except as expressly amended hereby, the Loan Agreement and
other Loan Documents remain in full force and effect, (ii) the Loan Agreement,
as amended hereby, is in full force and effect, (iii) Borrowers have no
defenses to their respective obligations under the Loan Agreement and the other
Loan Documents, (iv) the Liens of Bank under the Security Documents, continue
in full force and effect and have the same priority as before this Amendment,
and (v) Borrowers have no claim against Bank arising from or in connection with
the Loan Agreement or the other Loan Documents.
SECTION 7. AMENDED AND RESTATED MASTER REVOLVING PROMISSORY
NOTE, ETC. The terms of the Line of Credit Note shall be amended and restated
in an Amended and Restated Master Revolving Promissory Note to be executed and
delivered by all of the Borrowers simultaneously with the execution of this
Amendment. The Borrowers shall also deliver such additional resolutions,
certificates, agreements, opinions or other documents or perform such
additional acts as the Bank deems reasonable and necessary, including, without
limitation, updated financing statement searches, appropriate borrowing
resolutions and an opinion of Borrowers' counsel for the benefit of the Bank
and any participant.
SECTION 8. EFFECT OF AMENDMENT. Except as hereby amended, the
terms and conditions of the Loan Agreement and all other Loan Documents are
hereby approved, ratified and confirmed and shall remain in force and effect
until all principal, accrued interest and all other charges and costs due under
the Loan Agreement and any and all
9
<PAGE> 10
notes have been paid, in full. The execution and delivery of this Amendment
shall not constitute a novation, shall not extinguish, terminate, affect of
impair the obligations of the Borrowers, and shall not waive, extinguish,
terminate, affect or impair any security, right or remedy of the Bank against
the Borrowers, the Borrowers' property or any other person obligated under the
Loan Documents. The execution an delivery of this Amendment shall not
constitute a waiver of any provision of the Loan Agreement, any of the other
Loan Documents or any existing Default or Event of Default, nor act as a
release or subordination of the liens or security interests of Lender in the
Collateral.
SECTION 9. CLOSING FEE. In consideration of the amendments and
modifications in the Line of Credit as provided herein, the Borrowers shall pay
a closing fee to the Bank of Twelve Thousand Dollars ($12,000), payable at the
time of execution and delivery of this Amendment.
SECTION 10. EFFECTIVE DATE. Regardless of the date of execution
and delivery of this Amendment or any other instrument referenced herein, it is
intended that the terms of this Amendment and the modification and amendments
provided for herein shall be effective as of December 12, 1996, regardless of
the date of actual execution.
10
<PAGE> 11
[THIS PAGE INTENTIONALLY OMITTED]
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto execute this Amendment the date
and year first above written.
<TABLE>
<S> <C>
WITNESS/ATTEST: SIGNET BANK
/s/ JAMES C. HOLMAN By: /s/ WARREN F. BOUTILIER (SEAL)
- ---------------------------------- ----------------------------------------
Warren F. Boutilier
Vice President
YOUTH SERVICES INTERNATIONAL, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
Name: William P. Mooney
--------------------------------
Title: Senior Vice President and
-------------------------------
Chief Financial Officer
YOUTH SERVICES INTERNATIONAL OF
IOWA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
TENNESSEE, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
</TABLE>
[SIGNATURES CONTINUED]
12
<PAGE> 13
<TABLE>
<S> <C>
YOUTH SERVICES INTERNATIONAL OF
MARYLAND, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
BALTIMORE, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
NORTHERN IOWA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YSI OF CENTRAL IOWA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YSI OF UTAH, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
</TABLE>
[SIGNATURES CONTINUED]
13
<PAGE> 14
<TABLE>
<S> <C>
YOUTH SERVICES INTERNATIONAL OF
SOUTH DAKOTA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
MISSOURI, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
SOUTHWESTERN CHILDREN'S HEALTH
SERVICES, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
NEW MEXICO, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
TEXAS, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
</TABLE>
[SIGNATURES CONTINUED]
14
<PAGE> 15
<TABLE>
<S> <C>
YOUTH SERVICES INTERNATIONAL OF
FLORIDA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
VIRGINIA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
DEVELOPMENTAL BEHAVIORAL
CONSULTANTS, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
INTROSPECT HEALTHCARE,
CORPORATION
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
DESERT HILLS CENTER FOR YOUTH AND
FAMILIES, INC. (a wholly-owned subsidiary of
INTROSPECT HEALTHCARE, CORPORATION)
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
</TABLE>
[SIGNATURES END]
15
<PAGE> 16
ACKNOWLEDGMENTS
STATE OF MARYLAND, CITY/COUNTY OF HARFORD, TO WIT:
-------
I HEREBY CERTIFY, that on this 12th day of December, 1996,
before me, the undersigned, a Notary Public of the State aforesaid, personally
appeared Warren F. Boutilier, who acknowledged himself to be the Vice President
of SIGNET BANK, successor by merger to SIGNET BANK/MARYLAND, and that he, as
such Vice President, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as Vice President.
/s/ SHELLY L. HIPSLEY
---------------------------------
Notary Public
My Commission Expires:
2/1/97
- -----------------
STATE OF MARYLAND, CITY/COUNTY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY, that on this 27th day of November,
1996, before me, the undersigned, a Notary Public of the State aforesaid,
personally appeared William P. Mooney, who acknowledged himself to be the
Senior Vice President and Chief Financial Officer of Youth Services
International, Inc., a corporation, and that he, as such Senior Vice President
and Chief Financial Officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as Senior Vice President and Chief Financial Officer.
/s/ VICKI GAINOR LOMBARDI
-------------------------------------
Notary Public
My Commission Expires:
9/1/97
- ----------------------
16
<PAGE> 17
STATE OF MARYLAND, CITY/COUNTY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY, that on this 27th day of
November, 1996, before me, the undersigned, a Notary Public of the State
aforesaid, personally appeared William P. Mooney, who acknowledged himself to
be the Vice President of Youth Services International of Iowa, Inc., Youth
Services International of Tennessee, Inc., Youth Services International of
Maryland, Inc., Youth Services International of Baltimore, Inc., Youth Services
International of Northern Iowa, Inc., YSI of Central Iowa, Inc., YSI of Utah,
Inc., Youth Services International of South Dakota, Inc., Youth Services
International of Missouri, Inc., Southwestern Children's Health Services, Inc.,
Youth Services International of New Mexico, Inc., Youth Services International
of Texas, Inc., Youth Services International of Florida, Inc., Youth Services
International of Virginia, Inc., Developmental Behavioral Consultants, Inc.,
Introspect Healthcare, Corporation, and Desert Hills Center for Youth and
Families, Inc., and that he, as Vice President of each such corporation, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained, by signing the name of each of the corporations by himself as Vice
President.
/s/ VICKI GAINOR LOMBARDI
-------------------------------
Notary Public
My Commission Expires:
9/1/97
- ------------
17
<PAGE> 18
AMENDED AND RESTATED SCHEDULE A
PERMITTED LIENS
<TABLE>
<CAPTION>
DEBTOR SECURED PARTY JURISDICTION COLLATERAL
------ ------------- ------------ ----------
<S> <C> <C> <C>
I. FILINGS AFFECTING COLLATERAL
----------------------------
Youth Services International of Iowa Department of Economic Page County, Iowa and Iowa All Assets
Iowa, Inc. (Clarinda) Development Secretary of State
Youth Services International of Youth Services International, State of Florida All Assets
Florida, Inc. Inc.
Youth Services International of Meditrust of College Station, State of Texas and Brazos All Accounts, Instruments,
Texas, Inc. Inc. County, Texas General Intangibles and
Receivables
<CAPTION>
II. LEASE FILINGS FOR NOTICE PURPOSES ONLY
--------------------------------------
<S> <C> <C> <C>
Youth Services International of Continental Bank State of Tennessee Mita Copier, Serial No.
Tennessee 37001761
Youth Services International of Great American Leasing Corp. State of Iowa Toshiba Copiers and H.P.
Northern Iowa, Inc. Fax
(Forest Ridge)
Southwestern Children's Health Ameritech Credit Corporation State of Arizona All Telecommunications and
Services, Inc. Data Equipment
(Touchstone Community)
Dana Commercial Credit State of Arizona Computers, Printers and
Corporation Related Equipment
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
DEBTOR SECURED PARTY JURISDICTION COLLATERAL
------ ------------- ------------ ----------
<S> <C> <C> <C>
Southwestern Children's Health Foothill Bank State of Arizona Minolta Copier
Services, Inc.
(Desert Hills Center for Youth
and Families)
Colonial Pacific Leasing Co. State of Arizona Various Equipment
Southwestern Children's Health Ecolab Inc. State of Arizona Equipment
Services, Inc.
(Parc Place)
Youth Services International, Eaton Financial Corporation State of Maryland and Computers, Printers and
Inc. Baltimore County Related Equipment
Copelco Capital, Inc. State of Maryland and Ricoh Copier and Various
Baltimore County Equipment
The CIT Group/ Equipment State of Maryland, State of Various Computer Equipment
Financing, Inc. South Dakota and Atchison
County, Missouri
Youth Services International of GE Capital State of Maryland and Telephone System
Baltimore, Inc. Baltimore County
Youth Services International of American Business Credit State of New Mexico Mita Copiers
Texas, Inc. Corporation
Youth Services International of INB Leasing, Inc. State of Florida Computer Equipment and
Florida, Inc. Proceeds
(Tampa Bay Academy)
Master Lease Division of Tokai State of Florida Mita Copiers and Proceeds
</TABLE>
2
<PAGE> 20
<TABLE>
<CAPTION>
DEBTOR SECURED PARTY JURISDICTION COLLATERAL
------ ------------- ------------ ----------
<S> <C> <C> <C>
Youth Services International of Ecolab Inc. State of Virginia Dishmachine
Virginia, Inc.
Introspect Healthcare, Circle Business Credit, Inc. State of Arizona Various Equipment
Corporation
Xerox Corporation State of Arizona Xerox and Related Equipment
American National Corp. State of Arizona Minolta Copier
Colonial Pacific Leasing Co. State of Arizona Various Equipment
<CAPTION>
III. EQUIPMENT FILINGS
-----------------
<S> <C> <C> <C>
Youth Services International, Finova Capital Corporation State of Iowa, State of Utah Various Equipment
Inc. Atchison County, Missouri,
State of Arizona and State of
South Dakota
Youth Services International of John Deere Company State of Iowa [Equipment]
Iowa, Inc.
Finova Capital Corporation State of Iowa Various Equipment
Youth Services International of Bank of Glen Burnie State of Maryland Hamada Offset Press
Baltimore, Inc.
</TABLE>
3
<PAGE> 21
<TABLE>
<CAPTION>
DEBTOR SECURED PARTY JURISDICTION COLLATERAL
------ ------------- ------------ ----------
<S> <C> <C> <C>
Youth Services International of Chemical Sanitizing Systems, State of South Dakota Pump Laundry System, Dish
South Dakota, Inc. Ltd. Machine, Scrap Trap
(Chamberlain Academy)
(Springfield Academy)
(Missouri River Academy)
Finova Capital Corporation State of South Dakota Various Equipment
Youth Services International of Texas Copy State of Texas Copier, Stapler, Fax
Texas, Inc.
Youth Services International of Sheffield Financial Corp. State of Florida Mower
Florida, Inc. (Tampa Bay
Academy)
Master Lease Division of Tokai State of Florida Mita Copier and Proceeds
Developmental Behavioral Canon Financial Services, Inc. State of Arizona Canon Copier
Consultants, Inc.
Finova Capital Corporation State of Arizona Various Equipment
Youth Services International of Finova Capital Corporation State of Iowa Various Equipment
Northern Iowa, Inc.
(Forest Ridge)
Bank of Dixon County State of Iowa Toshiba Copier and Related
Equipment
YSI of Central Iowa, Inc. Finova Capital Corporation State of Iowa Various Equipment
</TABLE>
4
<PAGE> 22
<TABLE>
<CAPTION>
DEBTOR SECURED PARTY JURISDICTION COLLATERAL
------ ------------- ------------ ----------
<S> <C> <C> <C>
Youth Services International of Finova Capital Corporation Atchison County, Missouri Various Equipment
Missouri, Inc.
YSI of Utah, Inc. Finova Capital Corporation State of Utah Various Equipment
Southwestern Children's Health Finova Capital Corporation State of Arizona Various Equipment
Services, Inc. (Parc Place)
Roche Diagnostic Systems, Inc. State of Arizona COBRA MIRA PLUS System
and Accessories
Southwestern Children's Health Finova Capital Corporation State of Arizona Various Equipment
Services, Inc. (Promise House)
Southwestern Children's Health Norwest Financial Leasing, Inc. State of Arizona Various Equipment
Services, Inc.
(Touchstone Community)
Introspect Healthcare, LDI Financial Services Corp. State of Arizona Various Equipment
Corporation
Xerox Corporation State of Arizona Xerox and Related Equipment
LDI Corporation State of Arizona Various Furniture and
Equipment
IBM Credit Corporation State of Arizona Various Equipment
Finova Capital Corporation State of Arizona Various Furniture and
Equipment
</TABLE>
5
<PAGE> 23
<TABLE>
<CAPTION>
IV. OTHER
-----
<S> <C> <C> <C>
Youth Services International of Mercantile Mortgage State of Maryland All Buildings, Rents and
Northern Iowa, Inc. Corporation and Rights Related Thereto
(Forest Ridge) Mercantile-Safe Deposit and
Trust Company
Youth Services International of The Bank of New Mexico Bernalillo County, New Mexico All Fixtures and Proceeds
New Mexico, Inc.
(Desert Hills Center for Youth
and Families)
</TABLE>
6
<PAGE> 24
AMENDED AND RESTATED SCHEDULE B
ADDITIONAL BUSINESS LOCATIONS,
PRIOR NAMES AND TRADE NAMES OF THE BORROWERS
<TABLE>
<CAPTION>
OPERATING PRINCIPAL OFFICE FOR
CORPORATION PRIOR NAME TRADE NAMES FACILITIES ACCOUNTS RECEIVABLE
----------- ---------- ----------- ------------ --------------------
<S> <C> <C> <C> <C>
1. YOUTH SERVICES 2 Park Center Court
INTERNATIONAL, INC. Suite 200
Owings Mills, MD 21117
2. YOUTH SERVICES Youth Services Clarinda Academy Clarinda Academy 2 Park Center Court
INTERNATIONAL OF International of 1800 North 16th Street Suite 200
IOWA, INC. Maryland, Inc. P.O. Box 29 Owings Mills, MD 21117
Clarinda, IA 51632
3. YOUTH SERVICES Reflections Treatment Reflections Treatment 2 Park Center Court
INTERNATIONAL OF Agency Agency Suite 200
TENNESSEE, INC. Waterside Building Owings Mills, MD 21117
5908 Lyons View Drive
Knoxville, TN 37919
4. YOUTH SERVICES Victor Cullen Academy Victor Cullen Academy 2 Park Center Court
INTERNATIONAL OF 6000 Cullen Drive Suite 200
MARYLAND, INC. Sabillasville, MD 21780 Owings Mills, MD 21117
5. YOUTH SERVICES Forest Ridge Forest Ridge 2 Park Center Court
INTERNATIONAL OF P.O. Box 515 Suite 200
NORTHERN IOWA, 4502 - 230th Street Owings Mills, MD 21117
INC. Wallingford, IA 51365
6. YOUTH SERVICES Youth Services Charles H. Hickey, Jr. Charles H. Hickey, Jr. 2 Park Center Court
INTERNATIONAL OF International of Utah, School School Suite 200
BALTIMORE, INC. Inc. 2400 Cub Hill Road Owings Mills, MD 21117
Baltimore, MD 21234
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
OPERATING PRINCIPAL OFFICE FOR
CORPORATION PRIOR NAME TRADE NAMES FACILITIES ACCOUNTS RECEIVABLE
----------- ---------- ----------- ------------ --------------------
<S> <C> <C> <C> <C>
7. YSI OF UTAH, INC. TRJ Guidance, Inc. No trade name 3809 So. West Temple 2 Park Center Court
Western Youth, Inc. Salt Lake City, UT 84107 Suite 200
Owings Mills, MD 21117
289 24th Street
Suite 300
Ogden, UT 84401
1089 S. Orem Boulevard
Orem, UT 84057
8. YOUTH SERVICES Chamberlain Academy Chamberlain Academy 2 Park Center Court
INTERNATIONAL OF Box 367 Suite 200
SOUTH DAKOTA, INC. 211 West 16th Avenue Owings Mills, MD 21117
Chamberlain, SD 57325
Springfield Academy Springfield Academy
709 - 6th Street
P.O. Box 485
Springfield, SD 57062
Missouri River Missouri River Academy
Academy RR1 Box 89
Plankinton, SD 57368
9. YOUTH SERVICES Tarkio Academy Tarkio Academy 2 Park Center Court
INTERNATIONAL OF 300 N. 13th Street Suite 200
MISSOURI, INC. Tarkio, MO 64491 Owings Mills, MD 21117
10. SOUTHWESTERN Parc Place, Inc. Parc Place, Inc. 2 Park Center Court*
CHILDREN'S HEALTH 5116 E. Thomas Road Suite 200
SERVICES, INC. Phoenix, AZ 85018 Owings Mills, MD 21117
</TABLE>
2
<PAGE> 26
<TABLE>
<CAPTION>
OPERATING PRINCIPAL OFFICE FOR
CORPORATION PRIOR NAME TRADE NAMES FACILITIES ACCOUNTS RECEIVABLE
----------- ---------- ----------- ---------- --------------------
<S> <C> <C> <C> <C>
Promise House, Inc. Promise House, Inc.
15210 N. 5th Avenue
Phoenix, AZ 85023
Touchstone Touchstone Community,
Community, Inc. Inc.
3420 East Shea
Suite 150
Phoenix, AZ 85028
Desert Hills Center Desert Hills Center for
for Youth and Families Youths and Families
2797 N. Introspect Drive
Tucson, AZ 85745
11. YSI OF CENTRAL Woodward Academy Woodward Academy 2 Park Center Court
IOWA, INC. 1251 334th Street Suite 200
Woodward, IA 50276 Owings Mills, MD 21117
12. YOUTH SERVICES Desert Hills Center for Desert Hills Center for 2 Park Center Court*
INTERNATIONAL OF Youth and Families of Youth and Families of Suite 200
NEW MEXICO, INC. New Mexico New Mexico Owings Mills, MD 21117
5310 Sequoia, N.W.
Albuquerque, NM 87120
13. YOUTH SERVICES Desert Hills Center for Desert Hills Center for 2 Park Center Court
INTERNATIONAL OF Youth and Families of Youth and Families of Suite 200
TEXAS, INC. Texas Texas Owings Mills, MD 21117
4201 Texas Avenue South
College Station, TX 77845
14. YOUTH SERVICES Tampa Bay Academy Tampa Bay Academy 2 Park Center Court
INTERNATIONAL OF 12012 Boyette Road Suite 200
FLORIDA, INC. Riverview, FL 33569 Owings Mills, MD 21117
</TABLE>
3
<PAGE> 27
<TABLE>
<CAPTION>
OPERATING PRINCIPAL OFFICE FOR
CORPORATION PRIOR NAME TRADE NAMES FACILITIES ACCOUNTS RECEIVABLE
----------- ---------- ----------- ---------- --------------------
<S> <C> <C> <C> <C>
15. YOUTH SERVICES Camp Washington Camp Washington 2 Park Center Court
INTERNATIONAL OF 4007 Burdette Road Suite 200
VIRGINIA, INC. Carrsville, VA 23315 Owings Mills, MD 21117
16. DEVELOPMENTAL No trade name 2405 E. Southern Avenue 2 Park Center Court
BEHAVIORAL Suite No. 9 Suite 200
CONSULTANTS, INC. Tempe, AZ 85282 Owings Mills, MD 21117
17. INTROSPECT Introspect, Desert Hills Center for Desert Hills Center for 2 Park Center Court*
HEALTHCARE, Incorporated Youth and Families Youth and Families Suite 200
CORPORATION 2797 N. Introspect Drive Owings Mills, MD 21117
Tucson, AZ 85745
18. DESERT HILLS CENTER No trade name 2797 N. Introspect Drive 2 Park Center Court*
FOR YOUTH AND Tucson, AZ 85745 Suite 200
FAMILIES, INC. Owings Mills, MD 21117
</TABLE>
- -----------------------
* Certain books and records, and the collection of accounts receivable for the
corporations indicated, may be located at 3640 North First Street, Suite 130,
Tucson, Arizona 85719.
4
<PAGE> 1
EXHIBIT 10(b)
Baltimore, Maryland $20,000,000
December 12, 1996
AMENDED AND RESTATED
MASTER REVOLVING PROMISSORY NOTE
RECITALS
A. YOUTH SERVICES INTERNATIONAL, INC., a Maryland corporation
("YSI"), and certain of its wholly-owned subsidiaries, namely YOUTH SERVICES
INTERNATIONAL OF IOWA, INC., a Maryland corporation d/b/a Clarinda Academy;
YOUTH SERVICES INTERNATIONAL OF TENNESSEE, INC., a Maryland corporation d/b/a
Reflections Treatment Agency; YOUTH SERVICES INTERNATIONAL OF MARYLAND, INC., a
Maryland corporation d/b/a Victor Cullen Academy; YOUTH SERVICES INTERNATIONAL
OF BALTIMORE, INC., a Maryland corporation d/b/a Charles H. Hickey, Jr. School;
YOUTH SERVICES INTERNATIONAL OF NORTHERN IOWA, INC., an Iowa corporation d/b/a
Forest Ridge; YSI OF CENTRAL IOWA, INC., an Iowa corporation d/b/a Woodward
Academy; YSI OF UTAH, INC., a Utah corporation; YOUTH SERVICES INTERNATIONAL OF
SOUTH DAKOTA, INC., a South Dakota corporation d/b/a Chamberlain Academy,
Springfield Academy and Missouri River Academy; YOUTH SERVICES INTERNATIONAL OF
MISSOURI, INC., a Missouri corporation d/b/a Tarkio Academy; SOUTHWESTERN
CHILDREN'S HEALTH SERVICES, INC. , an Arizona corporation d/b/a Parc Place,
Inc., Promise House, Inc. and Touchstone Community, Inc.; YOUTH SERVICES
INTERNATIONAL OF MAMMOTH, INC., a California corporation (all of the foregoing,
including YSI, are hereafter referred to individually and collectively, as the
"Original Borrowers"), executed and delivered their Master Revolving Promissory
Note dated as of June 20, 1995, payable to the order of SIGNET BANK/MARYLAND
(the "Original Promissory Note").
B. The extension of credit evidenced by the Original Promissory
Note was further governed by a Loan and Security Agreement among SIGNET
BANK/MARYLAND and the Original Borrowers dated as of June 20, 1995 (the "Loan
Agreement"). The Loan Agreement provided that additional subsidiaries of YSI
might subsequently assume the joint and several obligations of the Original
Borrowers under the Original Promissory Note upon the execution of an
Assumption Agreement.
C. Subsequently, on July 25, 1995, YOUTH SERVICES INTERNATIONAL
OF NEW MEXICO, INC., a New Mexico corporation d/b/a Desert Hills Center for
Youth and Families of New Mexico, executed an Assumption Agreement and became
bound, jointly and severally, with the Original Borrowers for all payment and
performance obligations set forth in the Original Promissory Note, the Loan
Agreement and various
<PAGE> 2
other documents and agreements in connection therewith (collectively, the "Loan
Documents").
D. YOUTH SERVICES INTERNATIONAL OF MAMMOTH, INC., a California
corporation and an Original Borrower, has now ceased business operations,
dissolved under California law, and is no longer a party to the Loan Agreement,
the Original Promissory Note or any of the Loan Documents, except to the extent
any obligation previously undertaken expressly survives termination of the
borrowing relationship.
E. Prior to or contemporaneously with the execution of this
Amended and Restated Master Revolving Promissory Note, YOUTH SERVICES
INTERNATIONAL OF TEXAS, INC., a Texas corporation d/b/a Desert Hills Center for
Youth and Families of Texas; YOUTH SERVICES INTERNATIONAL OF FLORIDA, INC., a
Florida corporation d/b/a Tampa Bay Academy; YOUTH SERVICES INTERNATIONAL OF
VIRGINIA, INC., a Virginia corporation d/b/a Camp Washington; DEVELOPMENTAL
BEHAVIORAL CONSULTANTS, INC., an Arizona corporation, INTROSPECT HEALTHCARE,
CORPORATION, an Arizona corporation d/b/a Desert Hills Center for Youth and
Families, and its wholly-owned subsidiary; DESERT HILLS CENTER FOR YOUTH AND
FAMILIES INC., an Arizona corporation, have executed an Assumption Agreement.
F. The Original Borrowers (excluding YOUTH SERVICES INTERNATIONAL
OF MAMMOTH, INC.), YOUTH SERVICES INTERNATIONAL OF NEW MEXICO, INC., YOUTH
SERVICES INTERNATIONAL OF TEXAS, INC., YOUTH SERVICES INTERNATIONAL OF FLORIDA,
INC., YOUTH SERVICES INTERNATIONAL OF VIRGINIA, INC., DEVELOPMENTAL BEHAVIORAL
CONSULTANTS, INC., INTROSPECT HEALTHCARE, CORPORATION and DESERT HILLS CENTER
FOR YOUTH AND FAMILIES, INC. (each a "Borrower" and collectively, the
"Borrowers") desire to amend and restate the Original Promissory Note for the
primary purpose of increasing the maximum principal amount that may be advanced
from Ten Million Dollars ($10,000,000) to Twenty Million Dollars ($20,000,000).
NOW, THEREFORE, WITNESSETH:
SECTION 1. AMENDMENT AND RESTATEMENT. The Original Promissory
Note is amended and restated in its entirety as set forth below:
FOR VALUE RECEIVED, the undersigned Borrowers jointly and
severally promise to pay to the order of SIGNET BANK, successor by
merger to SIGNET BANK/MARYLAND (the "Bank"), at the Bank's offices at
Commercial Loan Operations, P.O. Box 27145, Richmond, Virginia,
23261-7145, or at such other place as the holder of this Amended and
Restated Master Revolving Promissory Note (the "Promissory Note") may
2
<PAGE> 3
from time to time designate, the principal sum of Twenty Million
Dollars ($20,000,000), or so much of the principal sum as may have
been advanced or readvanced by the Bank, and borrowed or reborrowed by
the Borrowers, and which remains outstanding and unpaid, pursuant to
the terms and conditions of the Loan Agreement and the Loan Documents,
providing to the Borrowers a revolving line of credit (the "Loan"),
together with interest thereon at the rate hereafter specified and any
and all other sums which may be owing to the holder of this Promissory
Note by the Borrowers, on November 30, 1997, the final and absolute
due date (the "Maturity Date"), subject to acceleration as herein
provided. The following terms shall apply to this Promissory Note:
1. INTEREST RATE; ADDITIONAL CHARGES AND DEEMED ELECTION.
1.1 INTEREST RATE. Except as provided in Section 1.1(c)
below, for the period from the date of this Promissory Note until all
sums due hereunder have been paid in full, interest on the outstanding
and unpaid principal balance existing from time to time shall accrue
at an annual rate selected by YSI equal to either (i) the one-month
LIBOR Rate or the three-month LIBOR Rate, as provided below; or (ii)
the Prime Rate. The Borrower shall pay interest monthly in arrears as
provided below.
(a) As used herein, the term "LIBOR Rate"
applicable to any Interest Period means that rate per annum,
determined solely by the Bank, equal to one hundred seventy-five basis
points (1.75%) in excess of the per annum rate of interest, quoted by
Bank in its sole discretion on the first day of such Interest Period,
as the London Interbank Offered Rate (adjusted to reflect the cost of
reserve requirements as they exist from time to time) as published by
Bloomberg or Dow Jones-Telerate, as BBA LIBOR on page 3750 (or by
Reuters Monitor Money Rates Service (LIBO page), if Bloomberg or Dow
Jones-Telerate is not available), or such other page as may replace
that page on that service for the purpose of displaying rates or
prices comparable to that rate (rounded upwards, if necessary, to the
next higher 1/100%) for deposits in United States Dollars for a period
of one (1) month or three (3) months as selected by Borrowers. If
more than one such rate appears for either or both the one-month or
three-month rate(s) on such page or its replacement, LIBOR Rate shall
be the arithmetic mean of such rates. In the event the first day of
the Interest Period is not a Business Day, the applicable LIBOR Rate
shall be the rate in effect on the immediately preceding Business Day.
"Interest Period" means, initially, the period commencing on December
1, 1996, and ending one or three months thereafter as selected by YSI
on the day which is at least two (2) Business Days prior to the first
day of each succeeding Interest Period;
3
<PAGE> 4
and after the initial Interest Period, each period commencing on the
day immediately following the last day of the preceding Interest
Period (an "Effective Date") and ending on the corresponding day one
or three months thereafter, as the case may be; provided, however,
that no Interest Period shall extend beyond the Maturity Date.
Further, such selected LIBOR Rate shall be effective as the rate of
interest throughout such Interest Period even if Borrowers reduce the
outstanding and unpaid principal balance to zero and thereafter during
such Interest Period borrow or reborrow hereunder.
(b) As used herein, the term "Prime Rate" shall
mean that annual percentage rate periodically chosen and recorded by
the Bank as an index (called the "prime rate"), at, above or below
which interest rates are established for certain non-consumer loans.
The Prime Rate may not necessarily be the lowest rate at which the
Bank imposes interest upon credit extended to any of its commercial
customers. If interest is accruing on the Loan at the Prime Rate, the
applicable interest rate shall change immediately and automatically
with any change in the Prime Rate.
(c) (i) Notwithstanding anything to the
contrary above, the Borrowers may borrow monies from time to time
secured by a pledge of cash. The rate of interest on any borrowed
monies secured under this subsection (c)(i) shall be the LIBOR Rate
for the elected LIBOR Rate Period as determined on the second Business
Day preceding the date the cash is actually received and collected by
the Bank, plus fifty (50) basis points. The cash shall be held in an
interest-bearing account assigned to, and under the exclusive control
of, the Bank, with interest on the account accruing daily.
(ii) The Borrowers may borrow monies,
from time to time, secured by cash invested in certificates of deposit
issued by and drawn on the Bank. Such certificates of deposit shall
be pledged and assigned to the Bank, and held under its exclusive
control, and interest shall accrue on borrowed monies secured by such
certificates of deposit at the annual percentage rate of interest
being paid by the Bank with respect to the certificate of deposit,
plus fifty (50) basis points. Any such certificate of deposit which
is redeemed by the Borrowers prior to its stated maturity date in
order to prepay the related Advance shall be subject to the Bank's
standard penalty for early withdrawal applicable to certificates of
deposit.
(iii) In the sole discretion of the Bank,
the Borrowers may borrow monies, from time to time, secured by
securities, instruments, evidences of indebtedness, or other like
collateral (collectively, the "Securities"), which are held by,
endorsed to, pledged to, or subject to
4
<PAGE> 5
an enforceable lien, security interest or control agreement, and/or
under the exclusive control of the Bank. With respect to any request
to lend money to be secured by Securities, the decision to lend, the
rate of advance, and the rate of interest to accrue on borrowed
monies, shall be determined solely by, and in the absolute discretion
of, the Bank. Notwithstanding the foregoing, it is the general
intention of the Bank that if any loans are secured by acceptable
Securities, interest shall accrue on such loans at the LIBOR Rate plus
fifty (50) basis points. Nothing in this subsection (c)(iii) shall be
deemed a commitment of the Bank to loan monies or otherwise extend
credit based on the Securities.
(d) The date and amount of each Advance made by
the Bank and each payment made by the Borrowers shall be recorded by
the Bank on the books and records of the Bank, but any failure to
record such dates or amounts shall not relieve the Borrowers of their
obligation of repayment under this Promissory Note.
1.2. ADDITIONAL CHARGES.
(a) The Borrower shall also pay to the Bank a
monthly unused credit fee at the annual percentage rate of one-quarter
of one percent (0.25%) on the average daily unborrowed portion of the
$20,000,000 maximum principal amount available and undisbursed. The
unused credit fee shall be payable to the Bank on the last day of each
month.
(b) The Borrowers shall, from time to time, pay
to the Bank on demand such amount as the Bank may reasonably determine
to be necessary to compensate it for any increased costs attributable
to its making or maintaining the Loan which result from any change in
applicable law, regulation or directive, or in the interpretation or
application thereof, including specifically, without limitation, any
reserve, capital or other requirements that may be imposed by law,
regulation or guidelines adopted by any state or federal regulatory
agency. In the event that any demand for increased costs is made by
the Bank, the Bank shall provide the Borrower with a written
calculation of the increased costs attributable to the Loan.
1.3. INTEREST RATE ELECTION. YSI, on behalf of itself and
all Borrowers, may elect a one-month LIBOR Rate or a three-month LIBOR
Rate at any time or from time to time, provided, however, such
election shall be effective only if in writing and delivered to the
Bank at least two (2) Business Days prior to an Effective Date. A
LIBOR Rate so selected shall be applicable as to the daily outstanding
and unpaid principal balance as of the Effective Date and as of each
day thereafter during a LIBOR Rate Interest
5
<PAGE> 6
Period. In the absence of a timely election by YSI of a LIBOR Rate,
or upon the expiration of any LIBOR Rate in effect from time to time,
interest shall immediately thereafter accrue on the outstanding
principal balance at the Prime Rate set forth in Section 1.1(b) above
until a LIBOR Rate election is duly made by YSI.
2. CALCULATION OF INTEREST. Interest shall be
calculated on the basis of a three hundred sixty (360) days per year
factor applied to the actual days on which there exists an outstanding
and unpaid principal balance.
3. REPAYMENT. The Borrowers shall pay to the Bank, on
the last day of each month, commencing on the last day of July, 1995,
accrued interest and the unused credit fee as hereinabove set forth,
computed on the daily outstanding and unpaid principal balance of this
Promissory Note from time to time existing. The entire outstanding
and unpaid principal balance due under this Promissory Note, together
with accrued interest thereon to the date of payment, and any and all
other sums due and owing under this Promissory Note shall be
immediately due and payable on November 30, 1997, provided, however,
that upon the occurrence of an "Event of Default" under the Loan
Agreement, the terms of which are incorporated herein by this
reference, or any Loan Document, and subject to any applicable grace
or cure period, the entire outstanding and unpaid principal balance,
together with the accrued interest thereon to the date of payment, and
any and all other sums due and owing under this Promissory Note shall
be immediately due and payable at the option of the Bank.
4. PREPAYMENT. The Borrowers may prepay this Promissory
Note in whole or part at any time or from time to time without penalty
or additional interest, and the Borrowers shall immediately and
without demand prepay principal in an amount and at such times as may
be necessary to maintain the outstanding principal balance at or less
than the maximum principal amount available after application of the
Advance Rate (as defined in the Loan Agreement) and all other
limitations.
5. APPLICATION OF PAYMENTS. All payments made hereunder
shall be applied first to late penalties or other sums owing the
holder, next to the unused credit fee, then to accrued interest, and
then to principal, or, during any default by the Borrowers, in such
other order or proportion as the holder of this Promissory Note, in
its discretion, may determine.
6. LATE PAYMENT PENALTY. Should any payment of
interest, principal, or principal and interest, or any other sum due
hereunder be
6
<PAGE> 7
received by the holder of this Promissory Note more than fifteen (15)
days after its due date, the Borrowers shall pay a late payment
penalty equal to five percent (5%) of the amount then due.
7. DEFAULT INTEREST RATE. Upon a default in the payment
of any amount due under this Promissory Note, which default is not
cured or discharged within five (5) days following written notice, or
upon the occurrence of any "Event of Default" under the Loan Agreement
or any other Loan Document between the Bank and the Borrower, which
default is not cured or discharged within any applicable cure or grace
period, the holder may without notice or demand, and for the period
the Event of Default remains uncured, increase the rate of interest
accruing on the outstanding and unpaid principal balance by two (2)
percentage points above the rate of interest otherwise applicable,
independent of whether the holder of this Promissory Note elects to
accelerate the maturity of the obligation evidenced by this Promissory
Note.
8. CONFESSION OF JUDGMENT. Upon the occurrence of an
Event of Default under the Loan Agreement or a default under this
Promissory Note, each of the Borrowers, individually and collectively,
jointly and severally, authorize any attorney admitted to practice
before any court of record in the United States, on behalf of the
itself and any or all of the other Borrowers, to then confess judgment
against the Borrower(s) in the full amount of principal, interest and
costs due under this Promissory Note, plus attorneys' fees equal to
fifteen percent (15%) of all amounts due (not to exceed $50,000) which
attorneys' fees shall relate solely to services in connection with
the confession of judgment action. Each Borrower consents to the
jurisdiction of, and agrees that venue shall be proper in, the Circuit
Court for any County or the City of Baltimore, Maryland, and the
United States District Court for the District of Maryland, if
diversity of citizenship or other jurisdictional basis exists. Each
Borrower waives the benefit of any and every statute, ordinance or
rule of court which may be lawfully waived conferring upon any
Borrower any right or privilege of exemption, stay of execution, or
supplementary judgment or related proceedings on a judgment. The
authority and power to appear for and enter judgment against any
Borrower shall not be extinguished by any judgment entered pursuant
hereto; such authority and power may be exercised on one or more
occasions from time to time, in the same or different jurisdictions,
as often as the holder shall deem necessary or advisable until all
sums due under this Promissory Note have been paid in full.
9. INTEREST RATE AFTER JUDGMENT. If judgment is entered
against the Borrowers on this Promissory Note, the amount of the
judgment
7
<PAGE> 8
entered (which may include principal, interest, default interest, late
charges, fees, and costs) shall bear interest at the highest rate
authorized under this Promissory Note as of the date of entry of the
judgment.
10. EXPENSES OF COLLECTION. This Promissory Note may be
referred to an attorney for collection, whether or not suit has been
filed or judgment confessed, and the Borrowers shall pay all of the
holder's costs, fees, and expenses, including reasonable attorneys'
fees, resulting from such referral.
11. WAIVER OF PROTEST. The Borrowers, and all parties to
this Promissory Note, whether maker, endorser, or guarantor, waive
demand, presentment, notice of dishonor and protest.
12. EXTENSIONS OF MATURITY; WAIVER. All parties to this
Promissory Note, whether maker, endorser, or guarantor, agree that the
Bank, at its option, exercisable in writing and at its sole and
absolute discretion, may extend, waive, modify or grant indulgences
with respect to any payment due hereunder, without releasing,
discharging, or affecting the liability of any such party. Each
right, power and remedy of the Bank as provided for in this Promissory
Note or now or hereafter existing at law or in equity or by statute or
otherwise shall be cumulative and concurrent and shall be in addition
to every other right, power or remedy, and the exercise or beginning
of the exercise by the Bank of any one or more of such rights, powers
or remedies shall not preclude the simultaneous or later exercise by
the Bank of any or all such other rights, powers or remedies. No
failure or delay by the Bank to insist upon the strict performance of
any term, condition, covenant or agreement of this Promissory Note, or
to exercise any right, power or remedy upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant or agreement
or of any such breach, or preclude the Bank from exercising any such
right, power or remedy at any later time or times unless in writing.
If the Bank accepts any payment after its due date, it shall not
constitute a waiver of the Bank's right to receive timely payment of
all other amounts when due.
13. COMMERCIAL LOAN. The Borrowers warrant that this
Promissory Note is the result of a commercial loan transaction within
the meaning of Sections 12-101(c) and 12-103(e), Commercial Law
Article, Annotated Code of Maryland, as amended.
14. ADVANCE CONDITIONS. The Bank's obligation to make
advances under the terms of this Promissory Note shall be conditioned
upon and subject to Borrowers' continued compliance with the terms of
the
8
<PAGE> 9
Loan Agreement and other Loan Documents relating to the Loan evidenced
hereby. All statements of account rendered by the Bank to the
undersigned shall be presumed to be accurate and correct and shall
constitute an account stated between the Borrowers and the Bank,
unless within twenty (20) days after the Bank's mailing of any such
statement of account, YSI shall give the Bank written notice objecting
to such statement of account and specifying the error or errors
thought to be contained in such statement.
15. NOTICES. Any notice or demand required or permitted
by or in connection with this Promissory Note (but without implying
any obligation to give any notice or demand) shall be in writing and
made by hand delivery, by certified mail, return receipt requested,
postage prepaid, or by overnight courier service for next business day
delivery, addressed to the holder of this Promissory Note or YSI at
the appropriate address set forth below, or to such other address as
may be hereafter specified by written notice by the holder of this
Promissory Note or YSI, and shall be considered given as of the date
of hand delivery, as of three (3) business days after the date of
mailing, as of the date specified for delivery if by overnight courier
service, independent of the date of actual delivery, as the case may
be:
If to the Bank:
SIGNET BANK
Seven Saint Paul Street
Baltimore, Maryland 21202
Attention: Warren F. Boutilier
Vice President, or
Philip P. Phillips
Vice President
Telephone: (410) 625-6336
Facsimile: (410) 625-6365
If to the Borrower (notice to YSI constitutes notice to all
Borrowers):
YOUTH SERVICES INTERNATIONAL, INC.
2 Park Center Court
Suite 200
Owings Mills, Maryland 21117
Attention: William P. Mooney
Chief Financial Officer
Telephone: (410) 356-8600
Facsimile: (410) 356-8634
9
<PAGE> 10
16. ASSIGNABILITY. This Promissory Note may be assigned
by the holder of this Promissory Note.
17. BINDING NATURE. This Promissory Note shall inure to
the benefit of and be enforceable by the Bank and the Bank's
successors and assigns and any other person to whom the Bank may grant
an interest in the Borrowers' obligations to the Bank, and shall be
binding and enforceable against the Borrowers and the Borrowers'
successors.
18. INVALIDITY OF ANY PART. If any provision or part of
any provision of this Promissory Note shall for any reason be held
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions
of this Promissory Note and this Promissory Note shall be construed as
if such invalid, illegal or unenforceable provision or part hereof had
never been contained herein, but only to the extent of its invalidity,
illegality or unenforceability.
19. GOVERNING LAW. This Promissory Note shall be
strictly governed by and construed in accordance with the laws of the
State of Maryland, exclusive of its conflict of laws rules, and the
undersigned expressly acknowledges that this Promissory Note shall be
deemed for all purposes to have been executed and delivered to the
Bank within the geographic boundaries of the State of Maryland. The
Borrower consents to the jurisdiction of, and agrees venue shall be
proper in, the Circuit Court for any County or Baltimore City,
Maryland, or the United States District Court for the District of
Maryland, if diversity of citizenship or other jurisdictional basis
exists, if suit is filed by the Bank to enforce or construe this
Promissory Note or any of the Loan Documents.
20. SECURITY. The obligations under the Promissory Note
are secured by certain collateral identified in the Loan Agreement,
including specifically, all accounts, general intangibles, chattel
paper, documents and instruments of the Borrowers, as those terms are
defined in the Maryland Uniform Commercial Code - Secured
Transactions, Title 9, Commercial Law Article, Annotated Code of
Maryland.
21. JOINT AND SEVERAL LIABILITY. The liability of the
makers of this Promissory Note is joint and several. As used herein,
the singular "Borrower" shall mean the plural "Borrowers", and vice
versa, as the context may require.
10
<PAGE> 11
22. AGENT. Each of the Borrowers hereby individually
and collectively, jointly and severally, nominate, constitute and
appoint YSI as its exclusive agent and attorney-in-fact for purposes
of (a) requesting advances and receiving monies under the Promissory
Note and the Loan Agreement, (b) making a LIBOR Rate election, and (c)
receiving or giving notices hereunder, and taking any actions
hereunder for and on behalf of any or all of the Borrowers, and the
Bank shall be fully indemnified, released and acquitted from any
action taken, or not taken, in reliance upon information from, or
actions taken by, YSI. This appointment is irrevocable and shall
remain in full force and effect until all obligations of the Borrowers
hereunder have been paid, in full.
23. ADDITIONAL MAKERS. The Bank may permit
additional corporate persons to join in and jointly and severally
assume the obligations of the Borrowers provided herein and in the
Loan Agreement. Any such corporate person who shall assume such
obligations shall do so by executing and delivering an Assumption
Agreement, the terms and conditions of which shall be acceptable in
form and content to the Bank, and such other instruments or documents
as the Bank may require.
24. WAIVER OF JURY TRIAL. Any suit, action or
proceeding, whether claim, counterclaim or cross-claim, brought or
instituted by any party hereto or any successor or assign of any party
on or with respect to this Promissory Note or any other Loan Document,
shall be tried only by a court and not by a jury. EACH OF THE
BORROWERS AND THE BANK HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY
A JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING.
SECTION 2. EFFECT OF AMENDMENT. The execution and delivery of
this Amended and Restated Master Revolving Promissory Note is not intended as
repayment of the Original Promissory Note but is in substitution therefor. The
execution and delivery of this Amended and Restated Master Revolving Promissory
Note shall not constitute a novation, shall not extinguish, terminate, affect
or impair the obligations of the Borrowers, and shall not extinguish,
terminate, affect or impair any security, right or remedy of the Bank against
the Borrowers, the Borrowers' property or any other person obligated under the
Loan Documents.
11
<PAGE> 12
IN WITNESS WHEREOF, this Promissory Note has been executed by the
Borrower as of the 12th day of December, 1996, with the specific intention that
this Promissory Note constitute an instrument under seal.
<TABLE>
<S> <C>
WITNESS/ATTEST: YOUTH SERVICES INTERNATIONAL, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Senior Vice President
and Chief Financial Officer
YOUTH SERVICES INTERNATIONAL OF
IOWA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
TENNESSEE, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
MARYLAND, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
</TABLE>
[SIGNATURES CONTINUED]
12
<PAGE> 13
<TABLE>
<S> <C>
YOUTH SERVICES INTERNATIONAL OF
BALTIMORE, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
NORTHERN IOWA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YSI OF CENTRAL IOWA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YSI OF UTAH, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
SOUTH DAKOTA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
</TABLE>
[SIGNATURES CONTINUED]
13
<PAGE> 14
<TABLE>
<S> <C>
YOUTH SERVICES INTERNATIONAL OF
MISSOURI, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
SOUTHWESTERN CHILDREN'S HEALTH
SERVICES, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
NEW MEXICO, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
TEXAS, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
</TABLE>
[SIGNATURES CONTINUED]
14
<PAGE> 15
<TABLE>
<S> <C>
YOUTH SERVICES INTERNATIONAL OF
FLORIDA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
YOUTH SERVICES INTERNATIONAL OF
VIRGINIA, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
DEVELOPMENTAL BEHAVIORAL
CONSULTANTS, INC.
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
INTROSPECT HEALTHCARE,
CORPORATION
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ----------------------------------------
William P. Mooney
Vice President
</TABLE>
[SIGNATURES CONTINUED]
15
<PAGE> 16
<TABLE>
<S> <C>
DESERT HILLS CENTER FOR YOUTH AND
FAMILIES, INC. (a wholly-owned subsidiary of
INTROSPECT HEALTHCARE, CORPORATION)
[SIG] By: /s/ WILLIAM P. MOONEY (SEAL)
- ---------------------------------- ---------------------------------------
William P. Mooney
Vice President
</TABLE>
[SIGNATURES END]
16
<PAGE> 17
ACKNOWLEDGMENTS
STATE OF MARYLAND, CITY/COUNTY OF BALITMORE, TO WIT:
I HEREBY CERTIFY, that on this 27th day of November,
1996, before me, the undersigned, a Notary Public of the State aforesaid,
personally appeared William P. Mooney, who acknowledged himself to be the
Senior Vice President and Chief Financial Officer of Youth Services
International, Inc., a Maryland corporation, and that he, as such Senior Vice
President and Chief Financial Officer, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by himself as Senior Vice President and Chief Financial
Officer.
/s/ VICKI GAINOR LOMBARDI
------------------------------
Notary Public
My Commission Expires:
9/1/97
- ---------
STATE OF MARYLAND, CITY/COUNTY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY, that on this 27th day of November,
1996, before me, the undersigned, a Notary Public of the State aforesaid,
personally appeared William P. Mooney, who acknowledged himself to be the Vice
President of Youth Services International of Iowa, Inc., Youth Services
International of Tennessee, Inc., Youth Services International of Maryland,
Inc., Youth Services International of Baltimore, Inc., Youth Services
International of Northern Iowa, Inc., YSI of Central Iowa, Inc., YSI of Utah,
Inc., Youth Services International of South Dakota, Inc., Youth Services
International of Missouri, Inc., Southwestern Children's Health Services, Inc.,
Youth Services International of New Mexico, Inc., Youth Services International
of Texas, Inc., Youth Services International of Florida, Inc., Youth Services
International of Virginia, Inc., Developmental Behavioral Consultants, Inc.,
Introspect Healthcare, Corporation, and Desert Hills Center for Youth and
Families, Inc., and that he, as Vice President of each such corporation, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained, by signing the name of each of the corporations by himself as Vice
President.
/s/ VICKI GAINOR LOMBARDI
------------------------------
Notary Public
My Commission Expires:
9/1/97
- -------------------
17
<PAGE> 1
EXHIBIT 10.1
November 25, 1996 Contract # P7008
STATE OF FLORIDA
DEPARTMENT OF JUVENILE JUSTICE
STANDARD CONTRACT SECTION G
THE PARTIES AGREE:
1. THE PROVIDER AGREES:
A. To provide services according to the conditions specified in Section A.
B. STATE AND FEDERAL LAWS AND REGULATIONS
1. The provider agrees to comply with all applicable state and federal
laws and regulations, and rules, and all department rules, policies
and procedures.
2. If this contract contains federal funds, the provider shall comply
with the provisions of 45 Code of Federal Regulations (CFR),
Part 74, and/or 45 CFR, Part 92, and other applicable regulations as
specified in Section N/A .
-------
3. If this contract contains federal funds and is over $100,000, the
provider shall comply with all applicable standards, orders, or
regulations issued under Section 306 of the Clean Air Act, as amended
(42 U.S.C. 1857(h) et seq.), Section 508 of the Clean Water Act, as
amended (33 U.S.C. 1368 et seq.), Executive Order 11738, and
Environmental Protection Agency regulations (40 CFR Part 15). The
provider shall report any violations of the above to the department.
4. If this contract contains federal funding in excess of $100,000, the
provider must, prior to contract execution, complete the Certification
Regarding Lobbying form, Section D. If a Disclosure of Lobbying
Activities form, Standard Form LLL, is required, it may be obtained
from the contract manager. All disclosure forms as required by the
Certification Regarding Lobbying form must be completed and returned to
the contract manager.
C. AUDITS AND RECORDS
1. To maintain books, records, and documents (including electronic
storage media) in accordance with generally accepted accounting
procedures and practices which sufficiently and properly reflect all
revenues and expenditures of funds provided by the department under
this contract.
2. To assure that these records shall be subject at all reasonable times
to inspection, review, or audit by state personnel and other
personnel duly authorized by the department, as well as by federal
personnel.
3. To maintain and file with the department such progress, fiscal, and
inventory reports as specified in Section A, and other reports as
the department may require within the period of this contract.
4. To provide a financial and compliance audit to the department as
specified in Section C and to ensure that all related party
transactions are disclosed to the auditor.
5. To include these aforementioned audit and record keeping requirements
in all approved subcontracts and assignments.
6. If this contract contains federal funds, the Catalog of Federal
Domestic Assistance number(s) is NA .
-------
7. This contract is funded from a grants and aids appropriation.
------
D. RETENTION OF RECORDS
1. To retain all client records, financial records, supporting documents,
statistical records, and any other documents (including electronic
storage media) pertinent to this contract for a period of five (5)
years after termination of this contract, or if an audit has been
initiated and audit findings have not been resolved at the end of five
(5) years, the records shall be retained until resolution of the audit
findings.
2. Persons duly authorized by the department and federal auditors,
pursuant to 45 CFR, Part 92.36(i)(10), shall have full access to and
the right to examine any of said records and documents during said
retention period or as long as records are retained, whichever is
later.
3. Upon completion or termination of the contract and at the request of
the department, the provider will cooperate with the department to
facilitate the duplication and transfer of any said records or
documents during the required retention period as specified in
paragraph D.1. above.
E. MONITORING
1. To provide reports as specified in Section A. These reports will be
used for monitoring progress or performance of the contractual
services.
2. To permit persons duly authorized by the department to inspect any
records, papers, documents, facilities, goods and services of the
provider which are relevant to this contract, and/or interview any
clients and employees of the provider to be assured of satisfactory
performance of the terms and conditions of this contract. Following
such inspection the department will deliver to the provider a list of
its comments with regard to the manner in which said goods or services
are being provided. The provider will rectify all noted deficiencies
provided by the department within the specified period of time set
forth in the comments or provide the department with a reasonable and
acceptable justification for not correcting the noted shortcomings. The
provider's failure to correct or justify within a reasonable time as
specified by the department may result in the withholding of payments,
being deemed in breach or default, or termination of this contract.
F. INDEMNIFICATION:
If the provider is a state agency or subdivision as defined in Section
768.28, Florida Statues, only no. 2 below is applicable. Other than
state agencies or subdivisions refer to no. 1.
1. Pursuant to Section 768.28(11)(a), Florida Statutes, the provider
agrees that it and any of its employees, agents, or subcontractors are
agents and not employees of the state while acting within the scope of
their duties and responsibilities to be performed under this contract.
The provider further agrees, pursuant to Section 768.28(11)(a), Florida
Statutes, to indemnify the department, upon notice for any liabilities
caused by the provider or its employees' or agents' negligent or
tortious acts or omissions within the scope of their employment under
this contract up to the limits of sovereign immunity set forth in
Section 768.28(11)(a), Florida Statutes. The provider further agrees to
defend the department and to hold it harmless, upon receipt of the
department's notice of claim of indemnification to the provider,
against all claims, suits, judgments, damages, or liabilities,
including court costs and attorney's fees incurred by the department
because of the negligent or tortious acts or omissions of the provider
or its employees, agents or subcontractors. Nothing herein shall be
construed as consent by a provider who is a state agency or subdivision
of the state to be sued by third parties in any matter arising out of
any contract.
2. The provider shall assist in the investigation of injury or damage
claims either for or against the department or the State of Florida
pertaining to the department's respective areas of responsibility or
activities under this contract and shall contact the department
regarding the legal actions deemed appropriate to remedy such damage or
claims.
<PAGE> 2
November 25, 1996 Contract #P7008
Each party is responsible for all personal injury and property damage
attributable to negligent acts or omissions of that party and the
officers, employees, and agents thereof. Nothing herein shall be
construed as an indemnity or a waiver of sovereign immunity enjoyed by
any party hereto.
G. INSURANCE:
1. To provide adequate liability insurance coverage on a comprehensive
basis and to hold such liability insurance at all times during the
existence of this contract. The provider accepts full responsibility for
identifying and determining the type(s) and extent of liability
insurance necessary to provide reasonable financial protections for the
provider and the clients to be served under this contract. Upon the
execution of this contract, the provider shall furnish the department
written verification supporting both the determination and existence of
such insurance coverage. Such coverage may be provided by a
self-insurance program established and operating under the laws of the
State of Florida. The department reserves the right to require
additional insurance as specified in Section A where appropriate.
2. If the provider is a state agency or subdivision as defined by Section
768.28, Florida Statutes, the provider shall furnish the department,
upon request, written verification of liability protection in accordance
with Section 768.28, Florida Statutes. Nothing herein shall be construed
to extend any party's liability beyond that provided in Section 768.28,
Florida Statutes.
H. SAFEGUARDING INFORMATION
1. To allow public access to all documents, papers, letters, or other
materials subject to the provisions of Chapter 119, Florida Statutes,
and made or received by the provider in conjunction with this contract.
It is expressly understood that substantial evidence of the provider's
refusal to comply with this provision shall constitute grounds for
termination of this contract.
2. Not to use or disclose any information concerning a recipient of
services under this contract for any purpose not in conformity with
state statutes and any applicable federal regulations (45 CFR, Part
205.50), except upon written consent of the recipient, or his
responsible parent or guardian when authorized by law.
I. ASSIGNMENTS AND SUBCONTRACTS
1. To neither assign the responsibility of this contract to another party
nor subcontract for any of the work contemplated under this contract
without prior written approval of the department. No such approval by
the department of any assignment or subcontract shall be deemed in any
event to provide for the department incurring any obligation in addition
to the total dollar amount agreed upon in this contract. All such
assignments or subcontracts shall be subject to the conditions of this
contract (except Section I, paragraph O.1.) and to any conditions of
approval that the department shall deem necessary.
2. Unless otherwise stated in the contract between the provider and
subcontractor, payments made by the provider to the subcontractor must
be within seven (7) working days after receipt of full or partial
payments from the department in accordance with Section 287.0585,
Florida Statutes. The provider's failure to pay, without reasonable
cause, within seven (7) working days will result in a penalty charged
against the provider and paid to the subcontractor in the amount of
one-half of one (1) percent of the amount due, per day from the
expiration of the period allowed herein for payment. Such penalty shall
be in addition to actual payments owed and shall not exceed fifteen (15)
percent of the outstanding balance due.
J. RETURN OF FUNDS
1. To return to the department any overpayments due to unearned funds or
funds disallowed pursuant to the terms of this contract that were
disbursed to the provider by the department. The provider shall return
any overpayment to the department within forty (40) calendar days after
either discovery by the provider, or notification by the department, of
the overpayment. In the event that the provider or its independent
auditor discovers an overpayment has been made, the provider shall repay
said overpayment within forty (40) calendar days without prior
notification from the department. In the event that the department first
discovers an overpayment has been made, the department will notify the
provider by letter of such a finding. Should repayment not be made in a
timely manner, the department will charge interest of one (1) percent
per month compounded on the outstanding balance after forty (40)
calendar days after the date of notification or discovery.
2. For state universities, should repayment not be made within forty (40)
calendar days after the date of notification, the department will notify
the State Comptroller's Office who will then enact a transfer of the
amounts owed from the state university's account to the account of DJJ.
K. REQUIRED REPORTING
1. ABUSE, NEGLECT AND EXPLOITATION REPORTING
In compliance with Chapter 415, Florida Statutes, an employee of the
provider who knows, or has reasonable cause to suspect, that a child is
or has been abused, neglected, or exploited, shall immediately report
such knowledge or suspicion to the central abuse registry and tracking
system of the department on the single statewide toll-free telephone
number (1 800 96ABUSE).
2. CLIENT INFORMATION
To submit management, program, and client identifiable data, as
specified by the department in Section A.
L. PURCHASING
1. PRIDE
It is expressly understood and agreed that any articles which are the
subject of, or are required to carry out this contract shall, to the
extent required by law, be purchased from Prison Rehabilitative
Industries and Diversified Enterprises, Inc. (PRIDE) identified under
Chapter 946, Florida Statutes, in the manner set forth in Sections
946.515(2) and (4), Florida Statutes. This clause is not applicable to
any subcontractors, unless otherwise required by law.
2. PROCUREMENT OF PRODUCTS OR MATERIALS WITH RECYCLED CONTENT
Any products or materials which are the subject of, or are required to
carry out this contract shall, be procured in accordance with the
provisions of Sections 403.7065, and 287.045, Florida Statutes.
M. CIVIL RIGHTS REQUIREMENTS
1. THE PROVIDER ASSURES THAT IT WILL COMPLY WITH:
a. Title VI of the Civil Rights Act of 1964, as amended, 42 U.S.C.
2000d et seq., which prohibits discrimination on the basis of race,
color, or national origin.
b. Section 504 of the Rehabilitation Act of 1973, as amended, 29 U.S.C.
794, which prohibits discrimination on the basis of handicap.
c. Title IX of the Education Amendments of 1972, as amended, 20 U.S.C.
1681 et seq., which prohibits discrimination on the basis of sex.
d. The Age Discrimination Act of 1975, as amended, 42 U.S.C. 6101 et
seq., which prohibits discrimination on the basis of age.
<PAGE> 3
November 25, 1996 Contract # P7008
-----
e. Section 654 of the Omnibus Budget Reconciliation Act of 1981,
as amended, 42 U.S.C. 9849, which prohibits discrimination on
the basis of race, creed, color, national origin, sex, handicap,
political affiliation or beliefs.
f. The Americans with Disabilities Act of 1990, Public Law,
101-336, which prohibits discrimination on the basis of
disability and requires reasonable accommodation for persons
with disabilities.
g. All regulations, guidelines, and standards as are now or may be
lawfully adopted under the above statutes.
The provider agrees that compliance with this assurance
constitutes a condition of continued receipt of or benefit from
funds provided through this contract, and that it is binding
upon the provider, its successors, transferees, and assignees
for the period during which services are provided. The provider
further assures that all contractors, subcontractors,
subgrantees, or others with whom it arranges to provide services
or benefits to participants or employees in connection with any
of its programs and activities are not discriminating against
those participants or employees in violation of the above
statutes, regulations, guidelines, and standards.
2. COMPLIANCE QUESTIONNAIRE
The provider agrees to complete the Civil Rights Compliance
Questionnaire, DJJ Form 900 A and B, if services are provided
to clients and if 15 or more people are employed.
N. REQUIREMENTS OF SECTION 287.058, FLORIDA STATUTES
1. To submit bills for fees or other compensation for services or
expenses in sufficient detail for a proper pre audit and post
audit thereof.
2. Where applicable, to submit bills for any travel expenses in
accordance with Section 112.061, Florida Statutes.
3. To provide units of deliverables, including reports, findings,
and drafts as specified in Section A, to be received and
accepted by the contract manager prior to payment.
O. WITHHOLDINGS AND OTHER BENEFITS
To be financially and legally responsible for Social Security and
Income Tax withholdings.
P. SPONSORSHIP
As required by Section 286.25, Florida Statutes, non-governmental
providers sponsoring a program financed wholly or in part by state
funds or funds obtained from a state agency, shall, in publicizing,
advertising or describing the sponsorship of the program, state:
"Sponsored by
Youth Services International
------------------------------------------------------------------------
PROVIDER
and the State of Florida, Department of Juvenile Justice". If
the sponsorship reference is in written material, the words "State of
Florida, Department of Juvenile Justice" shall appear in the same size
letters or type as the name of the organization.
Q. FINAL INVOICE
To submit the final invoice for payment to the department no more than
45 days after the contract ends or is terminated; if the provider fails
to do so, all right to payment is forfeited and the department will not
honor any requests submitted after the aforesaid time period. Any
payment due under the terms of this contract may be withheld until all
reports due from the provider and necessary adjustments thereto have
been approved by the department.
R. USE OF FUNDS FOR LOBBYING PROHIBITED
To comply with the provisions of Section 216.347, Florida Statutes,
which prohibits the expenditure of contract funds for the purpose of
lobbying the Legislature, judicial branch or a state agency.
S. BLOODBORNE PATHOGENS
The program shall comply with Federal Rule 1910.1030 regarding
Bloodborne Pathogens.
T. INSPECTOR GENERAL'S OFFICE REQUIREMENTS
Pursuant to Section 20.055, Florida Statutes, the Office of the
Inspector General is responsible for providing direction for supervising
and coordinating audits, investigations, and reviews relating to the
programs and activities operated by or financed by the department for
the purpose of promoting economy and efficiency in the administration
of, or preventing and detecting fraud, waste, and abuse in, its programs
and activities.
1. BACKGROUND SCREENING REQUIREMENTS
The provider agrees to comply with the Department of Juvenile
Justice, Office of the Inspector General's Statewide Procedure
on Background Screening for Employees, Providers, and
Volunteers. The provider agrees, at no cost to the department,
to comply with the requirements for the background screening as
mandated in Section 39.001, Florida Statutes. Failure to comply
with the department's background screening procedure could
result in cancellation of the contract.
2. INCIDENT REPORTING PROCEDURE REQUIREMENTS
The provider agrees to comply with the Department of Juvenile
Justice, Inspector General's Statewide Incident Reporting
Procedure. Failure to comply with this procedure could result in
cancellation of the contract.
3. CLIENT RISK PREVENTION
If services to clients will be provided under this contract,
the provider and any subcontractors shall, in accordance with
the client risk prevention system, report those reportable
situations listed in the Inspector General's reports procedures
now in effect or under such procedures as the department
subsequently issues.
4. QUALITY ASSURANCE REQUIREMENTS
The provider agrees to comply with the department of Juvenile
Justice quality assurance goals, objectives and standards for
High Risk Residential
----------------------------------------------------------------
programs
The provider acknowledges that in accordance with Section
39.021 (10), Florida Statutes, the department shall evaluate
the provider's program to determine if the provider is meeting
satisfactory levels of performance for the quality assurance
standards.
The provider agrees that the program shall meet satisfactory
levels of performance for the quality assurance standards and
understands that failure to achieve satisfactory performance
within six months of an on-site quality assurance review, unless
there are extenuating circumstances approved by the department,
will result in cancellation of the contract. The provider
further understands that pursuant to Section 39.021 (10),
Florida Statutes, the department is prohibited from contracting
with the provider for the canceled service for a period of 12
months.
The provider agrees to participate in a minimum of one on-site
quality assurance review of a similar program type in another
district during the contract year at the provider's expense.
<PAGE> 4
November 25, 1996 Contract # P7008
___________
5. ANNUAL FINANCIAL AND COMPLIANCE AUDIT REQUIREMENTS
The provider agrees to comply with an annual audit of its financial
records by an independent accounting firm. The audit report shall
mention whether the provider complied with the provisions of this
contract, adhered to all applicable laws and regulations, and used the
Department's funds properly. A copy of the audit report and related
management letter shall be sent to the Inspector General not later than
120 days after the close of the provider's fiscal year. Failure to
comply with this procedure could result in cancellation of the contract.
6. GENERAL REQUIREMENTS
The provider agrees to allow members of the Inspector General's Office
timely access to its facilities, records, and staff members in the
conducting of investigations, audits, and quality assurance reviews. The
provider further agrees to remove from the facility or programs any
provider staff members who refuse to answer questions directed to them
or provide information requested of them by the Inspector General's
Office. Failure to comply with these requirements could result in
cancellation of the contract.
INVESTIGATION OF ABUSE AND NEGLECT ALLEGATIONS REQUIREMENTS (LAW
ENFORCEMENT PROVIDERS ONLY). The provider agrees to comply with the
Department of Juvenile Justice, Inspector General's Procedure for
Investigating Allegations of Client Abuse in Contracted Programs
Operated by Law Enforcement Agencies. Failure to comply with this
procedure could result in cancellation of the contract.
U. STATE OF FLORIDA PUBLIC ENTITY CRIME STATEMENT.
A person or affiliate who has been placed on the convicted vendor list
following a conviction for a public entity crime may not submit a bid on a
contract to provide any goods or services to a public entity, may not submit
a bid on a contract with a public entity for the construction or repair of a
public building or public work, may not submit bids on leases or real
property to a public entity, may not be awarded or perform work as a
contractor, supplier, subcontractor, or consultant under a contract with any
public entity, and may not transact business with any public entity in
excess of the threshold amount provided in s. 287.017, Florida Statutes for
CATEGORY TWO for a period of 36 months from the date of being placed in the
convicted vendor list.
V. PROPERTY
1. NON-EXPENDABLE PROPERTY
a.) Nonexpendable property is defined as tangible personal property that
is of a nonconsumable nature.
b.) Title (ownership) to all nonexpendable property acquired from: a)
the expenditure of funds provided under a cost-reimbursement
contract; b) the expenditure of funds provided as start-up; or c)
expenditure of funds provided as operational expense dollars for
which the total cost of the property was directly allocated to the
program budget and for which the department relied upon to determine
the total price to be "fair and reasonable" shall be vested in the
department upon the purchase of the property.
c.) Title (ownership) to all vehicles, non-permanent structures, etc.
acquired with funds as described in paragraph 2 above shall be
vested in the department upon completion or termination of the
contract. The provider will retain custody and control during the
contract period, including extensions and renewals.
d.) All nonexpendable property for which paragraph 2 above applies
purchased under this contract shall be listed at the time of receipt
on the property records of the provider. Said listing shall include
a description of the property, model number, manufacturer's serial
number, funding source, information needed to calculate the federal
and/or state share, date of acquisition, unit cost, property
inventory number, location and use information, condition, and
transfer, replacement or disposition of the
e.) At no time shall the provider dispose of nonexpendable property
purchased under this contract except with the permission of, and in
accordance with instructions from the department.
f.) An executed contract amendment is required prior to the purchase of
any nonexpendable property item for which paragraph 2 above is
applicable with a value greater than $25 not specifically listed in
the approved contract
g.) A report of nonexpendable property shall be submitted annually on
the anniversary of the contract effective date to the department
along with the expenditure report for the period in which it was
purchased, as well as a final inventory submitted with the final
expenditure report.
2. TANGIBLE PERSONAL PROPERTY
The provider acknowledged and agrees that any tangible property as
defined in section 273.02, Florida Statutes, purchased directly or
indirectly through this contract, will be solely for the use of the
provider in the delivery of the contracted services.
3. OTHER EXPENDABLE PROPERTY - FOOD ITEMS
When a 30 day supply of staple food items/products is purchased prior to
the opening of a facility with start-up/preoperational funds the
provider will upon completion or termination of the contract, return to
the department the dollar amount listed in the start-up/preoperational
budget for the purchase of these staple food items/products.
W. FACILITY STANDARDS
The provider shall conform to standards required by the fire and health
authorities with jurisdiction. Facilities and grounds will be maintained to
provide a safe, sanitary and comfortable environment for youth, visitors and
employees.
X. COPYRIGHTS AND RIGHT TO DATA:
Where activities supported by this contract produce original writing, sound
recordings, pictorial reproductions, drawings or other graphic
representation and works of any similar nature, the department has the right
to use, duplicate and disclose such materials in whole or in part, in any
manner, for any purpose whatsoever, and to have others acting on behalf of
the department to do so. If the materials so developed are subject to
copyright, trademark or patent, legal title and every right, interest, claim
or demand of any kind in and to any patent, trademark or copyright, or
application for the same, will vest in the State of Florida, Department of
State for the exclusive use and benefit of the state.
Y. TRADE SECRETS
The State of Florida is unable to assure confidentiality of information
fitting the definition of "trade secrets" pursuant to Section 812.081,
Florida Statutes, due to the lack of protection of "trade secrets" in
Chapter 119, Florida Statutes.
<PAGE> 5
November 25, 1996 Contract #P7008
II. THE DEPARTMENT AGREES:
A. CONTRACT AMOUNT
To pay for contracted services according to the conditions of Section A
in an amount not to exceed $8,413,776.00, subject to the lawful
availability of funds. The State of Florida's performance and obligation
to pay under this contract is contingent upon an annual appropriation by
the Legislature. The costs of services paid under any other contract or
from any other source are not eligible for reimbursement under this
contract.
B. CONTRACT PAYMENT
Section 215.422, Florida Statutes, provides that agencies have 5 working
days to inspect and approve goods and services, unless bid
specifications or the purchase order specifies otherwise. With the
exception of payments to health care providers for hospital, medical, or
other health care services, if payment is not available within 40 days,
measured from the latter of the date the invoice is received or the
goods or services are received, inspected and approved, a separate
interest penalty set by the Comptroller pursuant to Section 55.03,
Florida Statutes, will be due and payable in addition to the invoice
amount. To obtain the applicable interest rate, please contact the
Agency's Fiscal Section at (904) 921-2186 or Purchasing Office at (904)
921-6586. Payments to health care providers for hospitals, medical or
other health care services, shall be made not more than 35 days from the
date of eligibility for payment is determined, and the daily interest
rate is .03333%. Invoices returned to a vendor due to preparation errors
will result in a payment delay. Invoice payment requirements do not
start until a properly completed invoice is provided to the agency.
C. VENDOR OMBUDSMAN
A Vendor Ombudsman has been established within the Department of Banking
and Finance. The duties of this individual include acting as an advocate
for vendors who may be experiencing problems in obtaining timely
payment(s) from a state agency. The Vendor Ombudsman may be contacted at
(904) 488-2924 or by calling the State Comptroller's Hotline,
1-800-848-3792.
III. THE PROVIDER AND DEPARTMENT MUTUALLY AGREE:
A. EFFECTIVE DATE
1. This contract shall begin at 12:01 a.m. on 12/02/1996 or
on the date on which the contract has been signed by
both parties, whichever is later.
2. This contract shall end at midnight on 11/30/1999
subject to any written renewals or extensions agreed
upon by the parties.
B. TERMINATION
1. TERMINATION FOR CONVENIENCE
This contract may be terminated by the provider upon no less
than ninety (90) calendar days notice, without cause, at no
additional cost, unless a different notice period is mutually
agreed upon by both parties. The provider must be operating in a
state of compliance with the terms and conditions of the
contract at the time the notice is issued and must remain
compliant for the duration of the performance period. The
contract may be terminated by the Department upon no less than
thirty (30) days notice, without cause, at no additional cost,
unless a different notice period is mutually agreed upon by the
parties.
2. TERMINATION BECAUSE OF LACK OF FUNDS
In the event funds to finance this contract become unavailable,
the department may terminate the contract upon no less than
twenty four (24) hours notice in writing to the provider. The
department shall be the final authority as to the availability
of funds.
3. TERMINATION FOR DEFAULT
Unless the provider's breach is waived by the department in
writing, the department may, by written notice to the provider,
terminate this contract upon notice. If applicable, the
department may employ the default provisions in Chapter 60A
1.006(4), Florida Administrative Code. Waiver of breach of any
provisions of this contract shall not be deemed to be
a waiver of any other breach and shall not be construed to be
a modification of the terms of this contract. The provisions
herein do not limit the department's right to remedies at law
or to damages.
4. All termination notices shall be sent by certified mail, or
other delivery service with proof of delivery.
C. NOTICE AND CONTACT
1. The name, address and telephone number of the contract manager
for the department for this contract is:
Barbara J. Boers (904/414-8819)
Department of Juvenile Justice
2737 Centerview Drive
Tallahassee, FL 32399-3100
2. The name, address and telephone number of the representative of
the provider responsible for administration of the program under
this contract is:
Maury Jarmon, Executive Director (305/247-6492)
Youth Services International, Inc.
18500 S.W. 424th Street
Florida City, FL 33034
3. In the event that a different department contract manager
or provider representative is designated after contract
execution, notice of the name and address of the new contract
manager or representative will be rendered in writing to the
other party and said notification shall then be attached
by each party to originals of this contract.
D. RENEGOTIATION OR MODIFICATION
1. Modifications of provisions of this contract shall only be valid
when they have been reduced to writing and duly signed by all
parties observing all the formalities of the original contract.
The department is not obligated to pay for costs related to this
contract that were incurred prior to the date of contract
execution or after the termination date. The parties agree to
re-negotiate this contract if federal and/or state revisions of
any applicable laws, or regulations make changes in this
contract necessary.
2. The rate of payment and the total dollar amount may be adjusted
retroactively to reflect price level increases and changes in
the rate of payment when these have been established through
the appropriations process and subsequently identified in the
department's operating budget.
E. NAME, MAILING AND STREET ADDRESS OF PAYEE
1. The name (provider name as shown on page 1 of this contract) and
mailing address of the official payee to whom the payment shall
be made:
Youth Services International of Florida, Inc.
12012 Boyette Road
Riverview, FL 33569
(813/677-6700)
<PAGE> 6
Contract # P7008
------------
November 26 1996
2. The name of the contact person and street address where financial and
administrative records are maintained:
George Kudder
-----------------------------------------------------------------------
12012 Boyette Road
-----------------------------------------------------------------------
Riverview, Florida 33569
-----------------------------------------------------------------------
813/677-6700
-----------------------------------------------------------------------
F. ALL TERMS AND CONDITIONS INCLUDED
This contract and its sections as referenced,
A, B, C, D, E, F, G, and Exhibits attached thereto.
---------------------------------------------------------------------------
contain all the terms and conditions agreed upon by the parties.
G. VENUE
The venue for all legal and administrative proceedings construing this
contract shall be Leon County, Florida. This contract shall be governed by,
and construed under, the laws of the State of Florida.
- -------------------------------------------------------------------------------
IN WITNESS THEREOF, the parties hereto have caused this 69 page contract to be
executed by their undersigned officials as duly authorized.
PROVIDER STATE OF FLORIDA, DEPARTMENT OF
JUVENILE JUSTICE
Youth Services International, Inc.
- -----------------------------------
Owings Mills, MD 21117
- -----------------------------------
SIGNED BY: /s/ Timothy P. Cole SIGNED BY: /s/ Woodrow W. Harper
- ----------------------------------- -----------------------------------
NAME: Timothy P. Cole NAME: Woodrow W. Harper
- ----------------------------------- -----------------------------------
TITLE: Chief Executive Officer TITLE: Deputy Secretary
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
DATE: 2 December 1996 DATE: 12/4/96
- ----------------------------------- -----------------------------------
FEDERAL ID NUMBER (or SS Number for an Individual):
- -----------------------------------
STATE AGENCY 29 DIGIT SAMAS CODE:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
--------------------------------------------------------------
CONTRACT IS NOT VALID UNTIL SIGNED AND DATED BY BOTH PARTIES
--------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.2
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU") is made this 5th day of
February, 1997, by and between International Youth Institute ("IYI") and Youth
Services International, Inc. ("YSI").
Whereas, YSI is currently in the business of operating youth
development programs and the like; and
Whereas, YSI desires and plans to expand its business into other
related fields; and
Whereas, IYI is currently in the business of training workers employed
in youth development programs or the like and providing materials and/or
products related thereto; and
Whereas, IYI desires and plans to expand its business into training
related fields including, but not limited to, academics, institutions, churches,
community and social organizations, and those that work with today's youth.
In furtherance of each party's respective business interests, the
parties hereby agree as follows:
1. Conveyance of Property Rights. YSI has sold and assigned all
rights, title, and interest in ideas, plans, other documents, know-how and all
other forms of intellectual property, whether tangible or intangible, made
available to IYI as well as by the transfer of 11 former employees, more or
less, YSI to IYI.
2. Consideration. IYI agrees to pay YSI the sum of $700,000 and
to grant to YSI a non-exclusive, non-assignable, perpetual license to use any
and all intellectual property transferred by YSI to IYI as part of this
transaction. This sum is payable 90 days after confirming agreements are signed.
3. IYI Obligations. IYI agrees to provide:
A. Tier I training at all YSI operated facilities for a
period of five (5) years commencing January 1, 1997.
Said Tier I training includes:
(i) Training need assessment;
(ii) Quality assurance, performance analysis and
monthly reporting;
(iii) Standard orientation of new employees;
<PAGE> 2
(iv) Modified orientation for non-standard programs;
(v) Annual certification training;
(vi) Development and delivery of a selective
supervisor training curriculum.
B. Tier II training consisting of selective courses for
continuation training (where not required by Tier I)
and various training products (e.g. independent study
material, video tapes and correspondence courses).
C. Tier III training consisting of program specific
adjustments to the Tier I training.
4. YSI Obligations. YSI agrees to:
A. Use IYI to satisfy YSI's training needs during the
five (5) year term as defined in the Training
Services Agreement.
B. Pay IYI for Tier I, II and III training as specified
in the Training Services Agreement.
5. Obligations of Both Parties. Both parties agree:
A. To complete all necessary confirming agreements
within 30 days from the date of this MOU is signed.
B. To cooperate with the other party in marketing
complementary services, developing new markets and
exchanging information in support of said marketing
and developing efforts. Both parties will ensure that
no disclosure of proprietary data occurs.
C. Termination provisions will be specifically defined
in the Training Services Agreement.
D. That each party will not compete in, or directly
assist others to compete in, the current or future
business of the other party.
E. Release one another, their agents, successors and
assigns from any and all claims, disputes, causes of
action, agreements, promises, and liabilities from
the beginning of time through and including the date
of any agreements entered into pursuant to this
letter of intent.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this MOU to be
executed by their duly authorized representative as of the date first written
above.
INTERNATIONAL YOUTH YOUTH SERVICES
INSTITUTE, INC. INTERNATIONAL, INC.
By: /s/ THAD A. WOLFE By: /s/ TIMOTHY P. COLE
---------------------- --------------------------
Thad A. Wolfe, Chairman Timothy P. Cole, CEO
- 3 -
<PAGE> 1
EXHIBIT 10.3
SETTLEMENT AND RELEASE AGREEMENT
THIS SETTLEMENT AND RELEASE AGREEMENT (this "Agreement") is made and
entered into as of the 31st day of December, 1996, by and between YOUTH
SERVICES INTERNATIONAL, INC., a Maryland corporation ("YSI") and EVERGREEN
NATIONAL DEVELOPMENT, INC., a Maryland corporation ("Evergreen").
W I T N E S S E T H
WHEREAS, YSI and Evergreen are parties to that certain Agreement dated
as of February 1, 1996 (the "Original Agreement"), pursuant to which YSI
engaged Evergreen to perform certain services in connection with the business
of YSI;
WHEREAS, by letter dated September 20, 1996 from YSI to Evergreen, YSI
terminated the Original Agreement effective December 20, 1996, pursuant to the
terms of Section 6C of the Original Agreement; and
WHEREAS, the parties desire to settle all amounts due under the
Original Agreement, and each party desires to release the other party from any
future obligation under the Original Agreement, as more fully set forth herein.
NOW, THEREFORE, in consideration of these premises and of the mutual
covenants set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follow:
1. No Further Liability.
(a) YSI hereby acknowledges and agrees that, as of the
date of this Agreement, except as set forth herein, Evergreen has no further
liability or obligation to YSI or any of its subsidiaries or affiliates arising
out of, or based upon, the Original Agreement or any other agreement (written
or oral) related thereto.
(b) Evergreen hereby acknowledges and agrees that, as of
the date of this Agreement, except as set forth herein, neither YSI nor any of
its subsidiaries or affiliates has any further liability or obligation to
Evergreen arising out of, or based upon, the Original Agreement or any other
agreement (written or oral) related thereto), including without limitation any
liability or obligation with respect to the payment of any fees (in respect of
any services provided by Evergreen to YSI or otherwise) to Evergreen.
2. Waiver of Insurance Requirement. YSI agrees that,
notwithstanding the provisions of Section 2F of the Original Agreement,
Evergreen is not, and shall not be, required to maintain any errors and
omissions insurance coverage for any period of time following the effective
date of the termination of the Original Agreement. Notwithstanding the
foregoing, the requirement set forth in Section 2F of the Original Agreement
that Evergreen
<PAGE> 2
maintain comprehensive liability insurance in an aggregate amount of $2.0
million and with a limit of not less than $500,000 per occurrence remains in
full force and effect.
3. Settlement of Funds Due. Within 120 days of the date hereof,
Evergreen shall pay to YSI the sum of Six Hundred Forty-Eight Dollars
($648,000) in the form of a company check made payable to YSI. YSI and
Evergreen agree that such sum represents all amounts due from Evergreen to YSI
in connection with the Original Agreement, and takes into account all monetary
obligations of Evergreen to YSI and all overpayments made by YSI to Evergreen.
YSI and Evergreen agree that, following such payment, no further sums of money
shall be due to YSI or Evergreen from the other party under and pursuant to the
Original Agreement.
4. Mutual Release.
(a) In consideration of the release set forth in Section
4(b) below, YSI, on behalf of itself, its subsidiaries and affiliates, and all
directors, officers, employees, agents, and representatives of YSI and its
subsidiaries and affiliates, and the heirs, successors and assigns of the
foregoing parties, hereby releases Evergreen, and its subsidiaries and
affiliates, and all directors, officers, employees, agents, and representatives
of Evergreen and its subsidiaries and affiliates, and the heirs, successors and
assigns of the foregoing parties, 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, as a result of
or related to the Original Agreement, whether known or unknown, pending or
threatened, fixed or contingent, direct or indirect (it being understood that
the release set forth in this Section 4(a) shall not apply to any Loss arising
as a result of or related to the terms and provisions of this Agreement).
(b) In consideration of the release set forth in Section
4(a) above, Evergreen, on behalf of itself, its subsidiaries and affiliates,
and all directors, officers, employees, agents, and representatives of
Evergreen and its subsidiaries and affiliates, and the heirs, successors and
assigns of the foregoing parties, hereby releases YSI and its subsidiaries and
affiliates, and all directors, officers, employees, agents, and representatives
of YSI and its subsidiaries and affiliates, and the heirs, successors and
assigns of the foregoing parties, from and against any and all Losses, now
existing or in the future arising, as a result of or related to the Original
Agreement, whether known or unknown, pending or threatened, fixed or
contingent, direct or indirect (it being understood that the release set forth
in this Section 4(b) shall not apply to any Loss arising as a result of or
related to the terms and provisions of this Agreement).
- 2 -
<PAGE> 3
5. No Disruptive Actions.
(a) Each of Evergreen and YSI agrees not to take any
action or to say anything that would have an adverse effect or disruptive
impact on the community standing or economic condition of the other party or
any of its subsidiaries or affiliates or any of their respective relationships
with employees, providers, clients, governmental agencies or other revenue
sources.
(b) Evergreen and YSI acknowledge that the other party
would suffer substantial damage in the event of a breach by Evergreen or YSI,
as the case may be, of the covenants and agreements contained in this Section
5 and that it would be difficult to compute the amount of such damage.
Therefore, either party shall be entitled to enforce the provisions of this
section by injunction or other equitable relief as well as claim damages or
exercise any other remedy under law or equity for any such breach. The
existence and exercise of the right to equitable relief shall not preclude the
exercise of any other rights and remedies that the such party may have in law,
equity or otherwise.
6. Miscellaneous.
(a) Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the substantive laws of the State
of Maryland, exclusive of its conflicts of laws principles.
(b) Entire Agreement; Amendment; Waiver. This Agreement
constitutes the entire agreement of the parties regarding the subject matter
hereof, and all other prior agreements and representations of the parties with
respect to the subject matter hereof, whether written, or oral, are merged
herein. This Agreement may be amended only by a written instrument signed by
both parties hereto. Any of the terms or conditions of this Agreement may be
waived but only in writing by the party entitled to the benefit thereof.
(c) Notices. All notices or other communications
required or permitted to be given hereunder shall be in writing and shall be
effective upon delivery in person or transmittal by facsimile or three days
after mailing, certified or registered mail, postage prepaid, addressed:
(i) If to YSI, to:
Youth Services International, Inc.
2 Park Center Court, Suite 200
Owings Mills, Maryland 21117
Attention: Timothy P. Cole
Facsimile Number: (410) 356-8634
- 3 -
<PAGE> 4
with a copy to:
John B. Frisch, Esquire
Miles & Stockbridge,
a Professional Corporation
10 Light Street
Baltimore, Maryland 21202
Facsimile Number: (410) 385-3700
(ii) If to Evergreen, to:
Evergreen National Development, Inc.
2 Park Center Court, Suite 400
Owings Mills, Maryland 21117
Attention: V. Joel Nicholson
Facsimile Number: (410) 356-0137
(d) Section Headings. The section headings throughout
this Agreement are for convenience and reference only, and the words contained
therein shall not in any way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Agreement.
(e) Binding Effect; Assignment. This Agreement shall be
binding on and inure to the benefit of each party and such party's permitted
successors and assigns. Neither party to this Agreement may assign this
Agreement or any rights or obligations hereunder, in whole or in party, without
the prior written consent of the other party hereto; provided, however, that
YSI shall be entitled to assign the benefit of this Agreement and to delegate
its duties hereunder to any subsidiary or affiliate of YSI without the consent
of Evergreen.
(f) Severability. In the event that any provision hereof
shall be modified or held ineffective by any court in any respect, such
adjudication shall not invalidate or render ineffective the balance of the
provisions of this Agreement.
(g) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
shall constitute one and the same instrument.
(h) Interpretation. The parties agree that each and
every term and condition of this Agreement has been mutually negotiated,
prepared and drafted, and that if at any time the parties hereto desire or are
required to interpret or construe any of the terms or conditions hereof, no
consideration shall be give to the issue of which party hereto actually
prepared, drafted or requested any term or condition hereof.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ATTEST: YOUTH SERVICES INTERNATIONAL, INC.
By: /s/ TIMOTHY P. COLE
- ---------------------- -----------------------------
Name: Timothy P. Cole
Title: Chief Executive Officer
EVERGREEN NATIONAL DEVELOPMENT, INC.
- ---------------------- By: /s/ JOEL V. NICHOLSON
-----------------------------
Name: Joel V. Nicholson
Title: President
- 5 -
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF
PRIMARY EARNINGS PER SHARE
Youth Services International, Inc.
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
12/31/96 12/31/95 12/31/96 12/31/95
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding 9,244,471 8,139,728 9,114,600 8,119,695
Weighted average common stock
equivalents outstanding:
Common stock
Stock options 1,403,892 1,352,298 1,421,042 1,341,953
Employee stock purchase options 320,015 191,382 250,404 168,440
Warrants 171,733 231,900 179,828 231,900
--------- --------- --------- ---------
Total 1,895,640 1,775,580 1,851,274 1,742,292
--------- --------- --------- ---------
Assumed treasury stock repurchases:
Common stock
Stock options 638,752 552,209 646,555 681,707
Employee stock purchase options 320,961 191,382 251,145 168,440
Warrants 39,373 82,455 41,229 113,364
--------- --------- --------- ---------
Total 999,086 826,046 938,928 963,510
--------- --------- --------- ---------
Net weighted average common stock
equivalents 896,554 949,535 912,346 778,782
--------- --------- --------- ---------
Total primary weighted average
common stock and common stock
equivalents outstanding 10,141,025 9,089,262 10,026,946 8,898,477
========== ========== ========== ==========
Note: 20% buy back limit 1,848,894 1,627,946 1,822,920 1,623,939
========== ========== ========== ==========
Net income $965,000 $528,000 $1,534,000 $1,270,000
========== ========== ========== ==========
Primary earnings per share $0.10 $0.06 $0.15 $0.14
========== ========== ========== ==========
</TABLE>
Note: The fully-diluted calculation has not been presented as the impact is
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,037
<SECURITIES> 5,204
<RECEIVABLES> 23,625
<ALLOWANCES> 952
<INVENTORY> 0
<CURRENT-ASSETS> 36,047
<PP&E> 32,306
<DEPRECIATION> 4,881
<TOTAL-ASSETS> 92,938
<CURRENT-LIABILITIES> 11,997
<BONDS> 0
0
0
<COMMON> 93
<OTHER-SE> 32,496
<TOTAL-LIABILITY-AND-EQUITY> 92,938
<SALES> 0
<TOTAL-REVENUES> 57,043
<CGS> 0
<TOTAL-COSTS> 52,913
<OTHER-EXPENSES> 1,650
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,908
<INCOME-PRETAX> 2,480
<INCOME-TAX> 946
<INCOME-CONTINUING> 2,480
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,534
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
</TABLE>
