<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report -- July 22, 1997
YOUTH SERVICES INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Maryland 0-23284 52-1715690
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(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
2 Park Center Court, Suite 200, Owings Mills, Maryland 21117
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(Address of principal executive offices) (Zip Code)
(410) 356-8600
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(Registrant's telephone number, including area code)
Not Applicable
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(Former Address)
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<PAGE> 2
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 22, 1997, Youth Services International, Inc. (YSI or the
Company) entered into a definitive agreement with Youth and Family Centered
Services, Inc. (YFCS), an unrelated party, to sell to YFCS its subsidiaries
which conduct the Company's behavioral health programs (the Behavioral Health
Business). Pursuant to the agreement, and after the closing of the sale, YFCS
will pay to YSI in cash, approximately $21,720,000 plus or minus the amount by
which the Final Net Working Capital, as defined in the agreement, is greater
than or less than $4,041,500 as of the closing, for all of the outstanding
common stock of a wholly-owned subsidiary corporation of YSI, which will be, at
the time of the closing, the parent of the following wholly-owned subsidiaries:
Developmental Behavioral Consultants, Inc., Introspect Healthcare, Corporation,
Desert Hills Center for Youth and Families, Inc., Desert Hills Center for Youth
and Families of New Mexico, Inc., Promise House, Inc., Southwestern Children's
Health Services, Inc., Youth Services International of Florida, Inc., Youth
Services International of New Mexico, Inc., Youth Services International of
Texas, Inc. and YSI of Utah, Inc. In connection with the sale, YSI has agreed
to indemnify YFCS for certain existing and contingent payment and lease
obligations. The closing of the sale is subject to governmental approvals, the
purchaser's consummation of borrowing under its credit facility to finance the
purchase and other normal closing conditions. YSI will continue to operate the
subsidiaries held for sale until the closing which is expected to be on or
before September 30, 1997.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Not applicable
(b) Pro Forma Financial Information
(1) Unaudited Pro Forma Consolidated Balance Sheet
as of March 31, 1997
(2) Unaudited Pro Forma Consolidated Statements of
Income for the year ended June 30, 1996 and the
nine months ended March 31, 1997
(c) Exhibits
Exhibit No. Description of Exhibits
2 Stock Purchase Agreement By
and Among Youth and Family
Centered Services, Inc.,
Youth Services International
Holdings, Inc. and Youth
Services International, Inc.
dated as of July 22, 1997
-2-
<PAGE> 3
YOUTH SERVICES INTERNATIONAL, INC.
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YOUTH SERVICES INTERNATIONAL, INC.
By: /s/ William P. Mooney
--------------------------
William P. Mooney
Chief Financial Officer
Date: August 6, 1997
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<PAGE> 4
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma consolidated financial statements include the unaudited
pro forma consolidated statements of income for the year ended June 30, 1996
and for the nine months ended March 31, 1997 and the unaudited pro forma
balance sheet as of March 31, 1997. The unaudited pro forma consolidated
statements of income are adjusted to give effect to the disposition of the
Company's behavioral health business as if such transaction had occurred at
the beginning of each period presented. The unaudited pro forma consolidated
balance sheet is adjusted to give effect to the disposition of the Company's
behavioral health business as if such transaction had occurred on March 31,
1997.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The pro forma
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and related notes thereto. The
unaudited pro forma consolidated financial statements do not purport to
represent what the Company's results of operations or financial position would
have been had the disposition occurred on the dates assumed or to project the
Company's results of operations or financial position for or at any future
period or date.
In March 1997, the Company committed to a plan to sell the Behavioral Health
Business. Given the fact that the net realizable value of the Business held for
sale was estimated to be below the carrying value of the net assets, in
accordance with generally accepted accounting principles, the Company
recognized a $27 million restructuring loss in the quarter ended March 31,
1997.
In April 1997, the Company changed its fiscal year from June 30 to December 31.
The pro forma statements of income in this Form 8-K continue to utilize June
30, 1996 as the Company's most recent yearend as the Company believes that this
twelve month period is the most informative for purposes of pro forma analysis.
<PAGE> 5
YOUTH SERVICES INTERNATIONAL, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1996
(IN 000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YSI Business Pro Forma YSI
Historical Sold Adjustments Adjusted
---------------------------------------------------- ----------
<S> <C> <C> <C> <C>
Revenues $ 100,353 $ (43,497) $ - $ 56,856
Program Expenses:
Direct operating 86,861 (39,236) - 47,625
Startup costs 58 - - 58
--------------------------------------------------- ----------
Contribution from operations 13,434 (4,261) - 9,173
Selling, general and administrative expenses 5,760 - - 5,760
Costs of attempted acquisitions 569 - - 569
Loss on disposal of business - - 20,514 (b) 20,514
--------------------------------------------------- ----------
(Loss) income from operations 7,105 (4,261) (20,514) (17,670)
Other Income (Expense) (2,978) 1,761 233 (d) (984)
--------------------------------------------------- ----------
(Loss) income before income taxes 4,127 (2,500) (20,281) (18,654)
Income tax (benefit) expense 1,856 (1,238) 89 (g) 707
--------------------------------------------------- ----------
Net (loss) income $ 2,271 $ (1,262) $ (20,370) $ (19,361)
=================================================== ==========
(Loss) earnings per common and common $ 0.25 $ (2.09)
equivalent share
Weighted average shares outstanding 9,267 9,267
</TABLE>
<PAGE> 6
YOUTH SERVICES INTERNATIONAL, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(IN 000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YSI Business Pro Forma YSI
Historical Sold Adjustments Adjusted
--------------------------------------------------- ----------
<S> <C> <C> <C> <C>
Revenues $ 84,293 $ (35,600) $ - $ 48,693
Program Expenses:
Direct operating 72,151 (33,583) - 38,568
Amortization of goodwill 1,606 (1,309) - 297
Startup costs 142 - - 142
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Contribution from operations 10,394 (708) - 9,686
Selling, general and administrative expenses 6,137 - (607) (f) 5,530
Loss on disposal of business 27,000 - (6,486) (b) 20,514
--------------------------------------------------- ----------
(Loss) income from operations (22,743) (708) 7,093 (16,358)
Other Income (Expense) (2,516) 459 25 (d) (2,032)
--------------------------------------------------- ----------
(Loss) income before income taxes (25,259) (249) 7,118 (18,390)
Income tax (benefit) expense (5,431) (94) 6,332 (c) 807
--------------------------------------------------- ----------
Net (loss) income $ (19,828) $ (155) $ 786 $ (19,197)
=================================================== ==========
(Loss) earnings per common and common (2.12) (2.06)
equivalent share
Weighted average shares outstanding 9,333 9,333
</TABLE>
<PAGE> 7
YOUTH SERVICES INTERNATIONAL, INC.
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
(IN 000'S)
<TABLE>
<CAPTION>
YSI Business Pro Forma YSI
Historical Sold Adjustments Adjusted
------------------------------------------------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 3,075 721 18,720 (a) 22,516
Investments 5,084 - - 5,084
Accounts receivable, net 22,396 (8,393) - 14,003
Prepaid expenses and supplies 2,090 (491) - 1,599
Other current assets 3,126 - (530) (c) 2,596
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Total current assets 35,771 (8,163) 18,190 45,798
Property and equipment, net 20,377 (8,644) 5,133 (d) 16,866
Deferred debt issue costs, net 2,406 - - 2,406
Goodwill, net 2,464 - - 2,464
Deferred tax asset 5,632 - (5,632) (c) -
Note receivable, net 3,133 - (3,133) (d) -
Other assets, net 1,912 (378) - 1,534
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Total assets 71,695 (17,185) 14,558 69,068
================================================= =========
Current Liabilities:
Accounts payable and accruals 10,217 (3,906) 3,287 (b) 9,598
Other current liabilities 752 (220) - 532
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Total current liabilities 10,969 (4,126) 3,287 10,130
Long-term debt and capital lease obligations, net 14,908 (2,112) - 12,796
7% Convertible subordinated debentures 32,200 - - 32,200
Other long-term liabilities 221 - - 221
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Total liabilities 58,298 (6,238) 3,287 55,347
Shareholders' Equity:
Common stock 100 - - 100
Additional paid-in capital 29,604 - - 29,604
Retained earnings (16,307) (10,947) 11,271 (e) (15,983)
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Total shareholders' equity 13,397 (10,947) 11,271 13,721
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Total liabilities and shareholders' equity 71,695 (17,185) 14,558 69,068
================================================= =========
</TABLE>
<PAGE> 8
YOUTH SERVICES INTERNATIONAL, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) Reflects the cash proceeds from the sale of the Behavioral Health Business,
net of amounts utilized to pay transaction costs and Company cash utilized to
purchase land and buildings at Tampa Bay Academy (see Note (d)) as
follows:
<TABLE>
<S> <C>
Estimated proceeds from the sale of the Behavioral Health Business $21,720,000
Estimated transaction costs (1,000,000)
Net cash paid to purchase Tampa Bay property ( 2,000,000)
------------
$18,720,000
</TABLE>
(b) Reflects the loss on sale of the Behavioral Health Business as follows:
<TABLE>
<S> <C>
Estimated proceeds from the sale of the Behavioral Health Business $21,720,000
Estimated transaction costs (1,000,000)
------------
Net proceeds from sale 20,720,000
Estimated basis of the net assets of the Behavioral Health Business
at the September 30, 1997 closing date 10,947,000
Restructuring charge previously recorded 27,000,000
Reserves to be recognized in connection with closing related to the
payment of certain future lease obligations of the buyer and other
indemnification contingencies 3,287,000
----------
Loss on sale of Behavioral Health Business $20,514,000
</TABLE>
(c) Reflects the reversal of deferred tax benefits totalling $6,162,000
recognized in connection with the Company's $27 million restructuring charge
recorded during the quarter ended March 31, 1997. The recognition of these tax
benefits assumed an ordinary loss in connection with the Company's disposition.
The contemplated sale of the Behavioral Health Business is structured as a stock
sale and, as such, would give rise to a capital loss. The Company's ability to
utilize the tax benefits associated with this capital loss at the present time
is not more likely than not. The pro forma adjustment for income taxes in the
Pro Forma Statement of Income for the nine months ended March 31, 1997 also
reflects the tax effect of the net gains related to the Tampa Bay option
exercise described in Note (d) and the reductions to selling, general and
administrative expenses described in Note (f).
(d) Reflects the Company's intention to exercise its option to purchase land
and buildings related to the Tampa Bay Academy for a net consideration of
$2,000,000 and lease it back to the buyer. The Company currently holds the
mortgage on this property which had a book value of approximately $3,133,000
as of March 31, 1997. The pro forma statements of income for the year ended
June 30, 1996 and the nine months ended March 31, 1997 reflect the net
gain from increase in rental income derived from the option exercise and
lease arrangement offset by the loss of interest income derived from the
mortgage note receivable and the depreciation expense attributable to the
property to be purchased.
(e) Reflects the estimated retained earnings impact of the other pro forma
adjustments described herein.
(f) Reflects the Company's estimate of the selling, general and administrative
expense savings due to the assumption by the buyer of certain costs and
obligations.
(g) Reflects the tax effect of the net gains related to the Tampa Bay option
exercise noted above.
<PAGE> 1
STOCK PURCHASE AGREEMENT
BY AND AMONG
YOUTH AND FAMILY CENTERED SERVICES, INC.
YOUTH SERVICES INTERNATIONAL HOLDINGS, INC.
AND
YOUTH SERVICES INTERNATIONAL, INC.
DATED AS OF JULY 22, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Agreement to Sell and Purchase Stock . . . . . . . . . . . . . . . . . . . . . 1
1.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Determination of Estimated Net Working Capital . . . . . . . . . . . . . . . . 2
1.4 Payment of Consideration at Closing . . . . . . . . . . . . . . . . . . . . . 2
1.5 Determination of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.8 Release from Corporate Obligations . . . . . . . . . . . . . . . . . . . . . . 5
1.9 Change of Corporate Names; Use of Service Marks and Trade Names . . . . . . . 5
1.10 Trasnfer Back of Accounts Receivable . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2 JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF YSI AND THE SELLER . . . . 6
2.1 Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Capacity and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Organization and Standing of the Seller Companies . . . . . . . . . . . . . . 7
2.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.10 Compliance with Laws, Licenses, Accreditation and Third-Party Payor . . . . . 10
2.11 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.12 Cost Reports, Third-Party Receivables and Conditions of Participation . . . . 11
2.13 Medical Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.14 Experimental Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.15 Wage Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.16 Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.17 Tax Returns and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.18 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.19 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.20 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.21 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.22 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.23 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.24 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.25 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.26 No Untrue or Inaccurate Representation or Warranty . . . . . . . . . . . . . . 20
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . . . 20
3.1 Organization; Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.2 Capacity and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.4 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.5 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.6 Absence of Certain Proceedings; No Required Consents . . . . . . . . . . . . . 21
3.7 Adequacy of Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.8 Due Diligence; Reliance on Representations and Warranties . . . . . . . . . . 22
3.9 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4 COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.1 Pre-Closing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 Best Efforts of YSI and the Seller . . . . . . . . . . . . . . . . . . . . . . 24
4.3 Purchaser's Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.4 Medicaid Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.5 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.6 Notification; Disclosure Schedule Changes . . . . . . . . . . . . . . . . . . 25
4.7 Purchaser Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.8 Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.9 Vacation and Holiday Pay, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 26
4.10 Non-Competition and Non-Solicitation Covenants . . . . . . . . . . . . . . . . 26
4.11 Election Under Section 338(h)(10) . . . . . . . . . . . . . . . . . . . . . . 27
4.12 Payment of Taxes and Tax Returns . . . . . . . . . . . . . . . . . . . . . . . 28
4.13 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.14 Financing by the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.15 Reorganization of the Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 31
4.16 Florida Juvenile Justice Assets . . . . . . . . . . . . . . . . . . . . . . . 31
4.17 Environmental Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.18 "Tail Insurance" Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.19 Transfer of 401(k) Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.20 Employee List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.21 List of Personal Property and Accounts, Deposits, etc. . . . . . . . . . . . . 33
4.22 Tax Basis in Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.23 Cash Flow Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.1 Grounds for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.2 Consequences of Termination . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.3 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 6 AMENDMENT OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE . . . . . . . . . . . 36
7.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 36
7.2 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.5 Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.6 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.7 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.8 No Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.9 Facility Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.10 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.11 Transition Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . 37
7.12 YSI Exercise of Option to Purchase . . . . . . . . . . . . . . . . . . . . . . 37
7.13 Lease of Tampa Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.14 Lease and Tax Matters Agreement . . . . . . . . . . . . . . . . . . . . . . . 38
7.15 Management Agreement Amendment . . . . . . . . . . . . . . . . . . . . . . . . 38
7.18 Release of Security Interests . . . . . . . . . . . . . . . . . . . . . . . . 38
7.17 Liquidation, Dissolution and Transfer of Entities . . . . . . . . . . . . . . 38
7.18 Tail Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.19 Consents, Approvals, Waivers, Etc. . . . . . . . . . . . . . . . . . . . . . . 38
7.20 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8 CONDITIONS PRECEDENT TO OBLIGATION OF YSI AND THE SELLER TO CLOSE . . . . . . 39
8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 39
8.2 Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.3 Good Standing and Existence . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.6 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.7 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 9 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.2 Agreement of YSI and the Seller to Indemnify . . . . . . . . . . . . . . . . . 40
9.3 Agreement of Purchaser to Indemnify . . . . . . . . . . . . . . . . . . . . . 41
9.4 Procedures for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 42
9.5 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.6 Exclusive Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.7 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.8 Tax Effect and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.9 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.10 Basket Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
9.11 Limitation of Liability of the Seller and YSI . . . . . . . . . . . . . . . . 45
9.12 Limitation of Purchaser Liability . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 10 PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 11 ADDITIONAL DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 12 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 13 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
13.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
13.2 Representations and Survival . . . . . . . . . . . . . . . . . . . . . . . . . 46
13.3 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.4 Assignability; Binding Terms and Provisions . . . . . . . . . . . . . . . . . 47
13.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.6 Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.7 Waiver of Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.8 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.9 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.10 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.11 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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<PAGE> 6
STOCK PURCHASE AGREEMENT
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
<TABLE>
<S> <C>
1.2(c) Exceptions to GAAP for Purposes of Determining Net Working Capital
1.8 Release from Corporate Obligations
2.4 Capital Stock
2.5 Subsidiaries of the Company
2.6 Violations
2.7 Subsidiary Financial Statements Matters
2.8 Insurance Policies
2.9 Litigation and Claims
2.10(a) Compliance Exceptions
2.10(b) Licenses, Permits List
2.12 Cost Report Dispute
2.13 Medical Staff
2.14 Experimental or Research Procedures
2.15 Wage Claims
2.16 Employment Compliance
2.17 Exceptions as to Tax Adequacy
2.18(a) Employee Benefit Plans
2.18(b) Compliance with ERISA
2.18(c) Representations Concerning Employee Benefit Plans
2.18(d) Compliance with Plan Reporting Requirements
2.18(h) Change in Control Agreements
2.18(i) Exceptions to Common Law Employees
2.19 Contracts and Commitments
2.20 Lease Agreements
2.21.1 Property Description(s)
2.21.2 Permitted Title Exceptions
2.21.3 Commitments to Others for Payment
2.21.4 Reassessment Notices
2.22 Title Exceptions
2.23 Hazardous Materials
2.24 Company Brokers
3.5 Purchaser Brokers
3.6 Required Consents
4.9 Vacation and Holiday Pay Schedule
4.19 401(k) Plan Transfers
</TABLE>
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<PAGE> 7
EXHIBITS
<TABLE>
<S> <C>
2.7 Financial Statements
7.4 Form of Opinion of Counsel to YSI and the Seller
7.11 Form of Transition Services Agreement
7.14 Form of Lease Matters Agreement
8.4 Form of Opinion of Counsel to Purchaser
</TABLE>
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<PAGE> 8
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 22, 1997 by and among YOUTH AND FAMILY CENTERED SERVICES, INC., a Georgia
corporation ("Purchaser"), YOUTH SERVICES INTERNATIONAL HOLDINGS, INC., a
Delaware corporation (the "Seller"), and YOUTH SERVICES INTERNATIONAL, INC., a
Maryland corporation ("YSI").
W I T N E S S E T H:
WHEREAS, the Seller owns, directly or indirectly, all of the issued
and outstanding shares of capital stock (the "Shares") of YSI Holdings-Georgia,
Inc., a Georgia corporation (the "Company"), and YSI owns, directly or
indirectly, all of the issued and outstanding capital stock of the Seller; and
WHEREAS, on or before the Closing Date, the Company shall own and
control, either directly or indirectly, all of the issued and outstanding
capital stock of each of the subsidiaries of YSI which are engaged in the
business of providing behavioral health services to troubled youth and which
are listed on Schedule 2.5 to this Agreement (the "Subsidiaries"); and
WHEREAS, the parties hereto desire to enter into this Agreement
pursuant to which Purchaser will purchase from the Seller, and the Seller will
sell to Purchaser, all of the Shares upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, the parties hereto agree as follows:
SECTION 1
SALE AND PURCHASE OF STOCK
1.1 Agreement to Sell and Purchase Stock. For the consideration
hereinafter provided and subject to the terms and conditions of this Agreement,
at the Closing (as defined in Section 1.6 hereof), the Seller shall sell,
assign, transfer, convey and deliver to Purchaser, free and clear of all liens,
charges, claims or encumbrances, and Purchaser shall purchase and acquire from
the Seller, the Shares. At the Closing, the Seller shall deliver to Purchaser
certificates representing the Shares, together with stock powers or instruments
of assignment, duly endorsed in blank for the transfer of such Shares to
Purchaser and with all necessary transfer taxes paid or other revenue stamps
affixed thereto.
<PAGE> 9
1.2 Consideration.
(a) The consideration to be paid by Purchaser to the
Seller for the sale, transfer, and conveyance of the Shares (the "Purchase
Price") shall be:
(i) $21,720,250.00; plus or minus
(ii) The amount by which the Final Net Working
Capital (as hereinafter defined in Section 1.5(b)) is greater than or
less than $4,041,500.00.
(b) Reserved.
(c) For purposes of this Agreement, "Net Working Capital'
shall mean the amount derived by subtracting from the book value of the total
current assets of the Company and the Subsidiaries, determined on a
consolidated basis in accordance with generally accepted accounting principles
("GAAP"), consistently applied, but as adjusted in the manner contemplated by
Schedule 1.2(c) to this Agreement, as of a specified date, the aggregate amount
of the book value of the current liabilities of the Company and the
Subsidiaries, determined on a consolidated basis in accordance with GAAP,
consistently applied, but as adjusted in the manner contemplated by Schedule
1.2(c) to this Agreement, as of such date. For purposes of a determination of
Audited Net Working Capital (hereinafter defined) only, the accounts receivable
portion of Net Working Capital shall be an amount equal to any and all accounts
receivable that have been collected by the Company and the Subsidiaries,
pursuant to the Purchaser's reasonable best efforts, for the period from the
Closing Date through close of business on the 150th calendar day subsequent to
the Closing Date. Whenever this Agreement provides for a calculation of Net
Working Capital of the Company and the Subsidiaries, the Net Working Capital
shall be determined in accordance with the procedures provided for in this
Section 1.2(c).
1.3 Determination of Estimated Net Working Capital. Not later
than ten (10) business days prior to the Closing Date, the Seller shall furnish
to Purchaser the Seller's best estimate of the Net Working Capital of the
Company as of the Closing Date (the "Estimated Net Working Capital"). The
Estimated Net Working Capital shall be determined in a manner consistent with
Section 1.5.
1.4 Payment of Consideration at Closing. On the Closing Date,
Purchaser shall deliver to the Seller a cash payment by wire transfer of
immediately available funds to such account(s) as the Seller shall designate in
the aggregate amount of $21,720,250.00, plus or minus the amount by which the
Estimated Net Working Capital as of the Closing Date is greater than or less
than $4,041,500.00 (the "Estimated Purchase Price").
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<PAGE> 10
1.5 Determination of Purchase Price.
(a) Not later than one hundred eighty (180) days
following the Closing Date, Purchaser, at its expense, shall furnish to the
Seller (i) an audited balance sheet reflecting the consolidated Net Working
Capital of the Company and the Subsidiaries as of the Closing Date prepared by
Purchaser and reported upon by Ernst & Young LLP ("Purchaser's Accountants")
(the "Audited Net Working Capital"), and (ii) a Schedule (the "Schedule")
prepared by Purchaser and reviewed by Purchaser's Accountants setting forth
Purchaser's determination of the Purchase Price based upon the Audited Net
Working Capital (the "Purchase Price"). The Seller shall have the right to
have its accountants review all work papers of Purchaser and Purchaser's
Accountants contemporaneously with the preparation and audit of such Audited
Net Working Capital.
(b) The Seller shall have fifteen (15) business days
following receipt of the Audited Net Working Capital and the Schedule to agree
or disagree with the calculation of the Purchase Price set forth in the
Schedule. If Purchaser and the Seller agree as to the Purchase Price within
such period, payment of any difference between the Estimated Purchase Price and
the Purchase Price shall be made in cash as provided in Section 1.5(d) hereof.
If Seller disagrees with the calculation of the Purchase Price set forth in the
Schedule, the Seller shall deliver written notice of its objection(s) to the
Purchaser within such fifteen (15) business day period, which notice shall
describe, in reasonable detail, the reasons for the Seller's objections
thereto. If the Seller fails to deliver a written notice of objection to the
Purchaser within such fifteen (15) business day period, the Seller shall be
deemed to have accepted the Audited Net Working Capital and the Schedule (and
the resulting determination of the Purchase Price). If the Seller delivers a
written notice of objection to the Purchaser within such fifteen (15) business
day period, the Seller and Purchaser shall thereafter endeavor in good faith to
resolve any disputed items within ten (10) business days after the date on
which the Purchaser received the notice of objection. If, however, Purchaser
and the Seller do not agree as to the Purchase Price within such ten (10) day
period, the disagreement shall be resolved by a nationally known ("Big Six")
independent accounting firm not then engaged by either YSI or Purchaser (the
"Independent Accountants"). In connection with the foregoing, the Independent
Accountants shall have reasonable access to all documents and facilities
necessary in their judgment to perform their function. The determination of
the Independent Accountants with regard to the disagreement shall be final and
binding on the parties. The Net Working Capital of the Company as finally
determined pursuant to this Section 1.5 (whether by failure of the Seller to
deliver a notice of objection to the Purchaser in a timely manner, by agreement
of the parties or by final determination of the Independent Accountants) shall
be deemed to be and shall be referred to herein as, the "Final Net Working
Capital."
(c) All costs associated with the resolution of any
dispute by the Independent Accountants shall be borne equally by the Seller and
Purchaser, except that the Seller and Purchaser shall each be responsible for
the fees of their own attorneys and accountants, and other expenses incurred in
connection with the resolution of the dispute.
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<PAGE> 11
(d) If the Final Net Working Capital is greater than the
Estimated Net Working Capital, Purchaser shall pay the difference between such
amounts, together with interest thereon as provided below, to the Seller. If
the Final Net Working Capital is less than the Estimated Net Working Capital,
the Seller shall pay the difference between such amounts, together with
interest thereon as provided below, to Purchaser. The payments required by
this Subsection (d) shall be made in cash or by wire transfer of immediately
available funds within ten (10) days after the earlier to occur of (i) the date
Purchaser and the Seller agree as to the Purchase Price or (ii) the
determination of the Purchase Price according to the provisions of Subsection
(b) above. The payment shall bear interest from the Closing Date until the
date of payment at the rate of ten percent (10%) per annum. The fees and
expenses of the Seller's accountants shall be borne by the Seller, and all fees
and expenses of Purchaser's Accountants shall be borne by Purchaser.
1.6 Closing. The closing of the sale and purchase hereunder (the
"Closing") shall take place at the offices of Alston & Bird LLP, located at One
Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424 at
10:00 a.m. local time, on or before September 30, 1997, or on such other date
and time as is mutually agreed upon by the parties, but in no event later than
September 30, 1997 (the date on which the Closing occurs being referred to as
the "Closing Date"). The transactions contemplated hereby shall be effective
for tax, accounting, and all other purposes as of 12:01 a.m. on the Closing
Date, unless otherwise mutually agreed upon in writing by the parties hereto.
Subject to the provisions of Section 5 hereof, failure to
consummate the transactions on or before September 30, 1997 shall not result in
the termination of this Agreement, and will not relieve any party of any
obligation hereunder.
1.7 Closing Documents.
At the Closing, the Seller, YSI, the Company and Purchaser, as the
case may be, shall execute and deliver, or cause to be delivered, all documents
required to be delivered by each of them under this Agreement, including, but
not limited to, the following (the "Closing Documents"):
(a) A copy of resolutions duly adopted by the Seller, YSI
and Purchaser authorizing and approving their performance of the transactions
contemplated hereby and the execution and delivery of the documents described
herein, certified as true and in full force and effect as of Closing by the
Secretary or an Assistant Secretary of each entity;
(b) A certified copy of the Articles of Incorporation,
and all amendments thereto, of each of the Seller, YSI, the Company, each of
the Subsidiaries, and Purchaser from its respective state of incorporation,
dated the most recent practical date prior to Closing;
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<PAGE> 12
(c) A copy of the Bylaws, and all amendments thereto, of
each of the Seller, YSI, the Company, the Subsidiaries, and Purchaser,
certified as true and in full force and effect as of Closing by the Secretary
or Assistant Secretary of each such entity;
(d) A certificate of the President or a Vice President of
the Seller, YSI and Purchaser, certifying that as of Closing all of the
representations and warranties by or on behalf of such party contained in this
Agreement are true and correct in all respects and each and every covenant and
agreement of each such party to be performed prior to or as of Closing pursuant
to this Agreement has been performed;
(e) Certificates of incumbency for the respective
officers of each corporate entity making certifications for Closing, dated as
of Closing Date;
(f) Certificates of corporate existence and good standing
of each of the Seller, YSI, the Company, the Subsidiaries and Purchaser from
its respective state of incorporation dated the most recent practical date
prior to Closing;
(g) The opinions of counsel to the parties, as provided
in Sections 7.4 and 8.4 hereof;
(h) Share certificates and stock powers provided for in
Section 1.1 hereof; and
(i) Such other instruments and documents as are necessary
to effect the transactions contemplated hereby and to place Purchaser in
possession of the Shares.
1.8 Release from Corporate Obligations. From and after the
Closing, the Purchaser shall use its best efforts to obtain the release of YSI
from any and all guaranties provided by YSI prior to the Closing in respect of
any of the obligations, duties or responsibilities of any of the Subsidiaries,
including, without limitation, those reflected in Schedule 1.8 hereto.
1.9 Change of Corporate Names; Use of Service Marks and Trade
Names. Promptly following the Closing, the Purchaser shall cause the Company
and each of the Subsidiaries which have the terms "YSI", or "Youth Services
International" in their respective corporate names to file with the appropriate
state agencies in the states in which each is incorporated articles of
amendment or similar documents in order to change the corporate names thereof
to a name which does not include either of such terms, or any variation thereof
or any confusingly similar term. From and after the Closing, neither the
Purchaser nor any of the Subsidiaries (or any of their present or future
affiliates or subsidiaries) shall use the terms "YSI" or "Youth Services
International" or any derivative, variation or transliteration thereof, or any
confusingly similar name, in their respective corporate names or as a service
mark or trade name in connection with their respective businesses. The parties
hereto acknowledge and agree that neither "Youth and Family
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<PAGE> 13
Center Services, Inc." nor "YFCS" is a derivative, variation or transliteration
of "YSI" or "Youth Services International."
1.10 Transfer Back of Accounts Receivable. As soon as practicable
after the date which is 150 calendar days subsequent to the Closing Date, the
Purchaser shall transfer and assign to YSI any and all accounts receivable of
the Company and the Subsidiaries (or portion thereof) that have not been
collected through close of business on the 150th day subsequent to the Closing,
pursuant to such instrument or instruments of transfer as shall be reasonably
satisfactory to YSI.
SECTION 2
JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES
OF YSI AND THE SELLER
As an inducement to Purchaser to enter into this Agreement and to
purchase the Shares, YSI and the Seller, jointly and severally, represent and
warrant to Purchaser as follows:
2.1 Ownership of Shares. The Seller is the owner of all right,
title and interest (legal, record and beneficial) in and to all of the Shares,
free and clear of any and all liens, charges, claims, encumbrances or
restrictions of any nature whatsoever. The delivery to Purchaser of the Shares
pursuant to the provisions of this Agreement will transfer to Purchaser good
and marketable title to all such Shares, free and clear of all liens, charges,
claims, encumbrances or restrictions of any nature whatsoever. Except as
specifically contemplated by this Agreement, no person or entity has any
agreement or option or any right or privilege (whether pre-emptive or
contractual) capable of becoming an agreement or option for the purchase of any
of the Shares.
2.2 Capacity and Validity. Each of YSI and the Seller has the
corporate power and authority to enter into, execute, deliver and perform this
Agreement and the other transaction documents required hereby to which it is a
party and to perform its obligations under this Agreement and the other
transaction documents required hereby to which it is a party. Each of this
Agreement and the other transaction documents to which YSI or the Seller, as
the case may be, is a party constitutes the legal, valid and binding obligation
of YSI or the Seller, as the case may be, enforceable against it in accordance
with the respective terms thereof, except to the extent that enforceability
thereof may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or similar laws of general application
relating to or affecting enforcement of creditor's rights and the exercise of
judicial discretion in accordance with general principles of equity. The
execution and delivery of this Agreement and the other transaction documents to
which YSI or the Seller, as the case may be, is a party, and the consummation
of the transaction contemplated hereby, has been duly authorized by all
necessary corporate action on the part of YSI and the Seller, respectively, and
no other proceedings (corporate or otherwise) by YSI or the Seller, as the case
may be, or any of the directors or the
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<PAGE> 14
shareholders thereof are necessary with respect thereto. Each of YSI and the
Seller will take, or cause to be taken, all action (corporate or otherwise)
necessary to consummate the transactions contemplated hereby.
2.3 Organization and Standing of the Seller Companies. Each of
YSI, the Seller, the Company and the Subsidiaries (collectively, the "Seller
Companies") is a corporation duly organized, validly existing, and in good
standing under the laws of its state of incorporation, and each of the Seller
Companies has the corporate power and authority to carry on its business as it
has been and is now being conducted and to own and lease the properties and
assets which it now owns or leases. Each of the Seller, the Company and the
Subsidiaries is qualified to do business as a foreign corporation in each state
or other jurisdiction in which the nature of the business conducted by it
requires it to be qualified or licensed to transact business. Copies of the
Articles of Incorporation and all amendments thereto of each of the Seller
Companies (certified by the Secretary of State of its state of incorporation)
and its Bylaws, as amended, (certified by its secretary or assistant
secretary), and copies of the corporate minutes of the Seller, the Company and
the Subsidiaries, which have been or will be made available to Purchaser for
review, are true and complete as in effect on the date of this Agreement. The
corporate minute books of the Subsidiaries accurately reflect all proceedings
of the shareholders and directors of the Subsidiaries (and all committees
thereof) which have taken place since YSI acquired control thereof and which
are required by law to be reflected therein. The stock record books of the
Company and the Subsidiaries, which have been or will be made available to
Purchaser for review, contain true, complete and accurate records of the stock
ownership of the Company and the Subsidiaries and the transfer of the shares of
their capital stock since the dates when YSI acquired control thereof.
2.4 Capital Stock. The authorized and outstanding capital stock
of the Company and the Subsidiaries is as indicated in Schedule 2.4 hereto, and
no other shares of capital stock of the Company or the Subsidiaries are
authorized, issued or outstanding. All of the shares of the capital stock of
each of the Subsidiaries that are outstanding as indicated in Schedule 2.4 (the
"Subsidiary Shares") have been duly and validly issued, are fully paid and
nonassessable. When issued, each of the Shares will have been duly and validly
issued and fully paid and nonassessable. The Shares will be issued pursuant to
a valid exemption from registration under (i) the Securities Act of 1933, as
amended, and (ii) applicable state blue sky laws. Except for this Agreement,
there are no outstanding warrants, options, rights (including outstanding
rights to demand registration or to sell in connection with a registration by
the Company or any of the Subsidiaries under the Securities Act of 1933, as
amended), calls or other commitments of any nature relating to the Shares or
the Subsidiary Shares, and there are no outstanding securities of the Company
or any of the Subsidiaries convertible into or exchangeable for Shares or
Subsidiary Shares or any other capital stock of the Company or any of the
Subsidiaries. Except as indicated in Schedule 2.4, neither the Company nor any
of the Subsidiaries is obligated to issue any shares of its capital stock for
any purpose, and no person or entity has entered into any contract, whether
oral or written, or option or any right or privilege (whether pre-emptive or
contractual) capable of becoming a contract or option for the
- 7 -
<PAGE> 15
purchase, subscription or issuance of any unissued shares, or other unissued
securities of the Company or any of the Subsidiaries.
2.5 Subsidiaries and Investments. (a) Neither the Company nor any
of the Subsidiaries currently owns, or will own, as of the Closing, directly or
indirectly, any capital stock or other equity, ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity other than the Subsidiaries listed in Schedule 2.5 hereto. As of
the Closing, the Seller will own all of the issued and outstanding capital
stock of the Company, and the Company will own and control, directly or
indirectly, all of the issued and outstanding capital stock of each of the
Subsidiaries.
(b) Neither HealthExpert Systems, Inc. nor Professional
Education Services, Inc. has made any contribution to revenues reflected in the
Financial Statements.
2.6. No Violation. Except as set forth in Schedule 2.6 hereto, the
execution and delivery of this Agreement and other agreements, instruments and
certificates to be delivered by YSI and the Seller at the Closing, and the
consummation by YSI and the Seller of the transactions contemplated herein (a)
will not conflict with or result in the breach or violation of any of the terms
or conditions of, or constitute (or with notice or lapse of time or both would
constitute) a default under, the respective Articles of Incorporation or Bylaws
of any of the Seller Companies, and (b) will not conflict with or result in the
material breach or violation of any of the material terms or conditions of, or
constitute (or with notice or lapse of time or both would constitute) a
material default under (i) any instrument, contract or other agreement to which
any of the Seller Companies is a party or by which any of the Seller Companies
is bound, (ii) any provision of law, statute, rule or regulation of any court
or governmental authority to which any of the Seller Companies is subject, or
(iii) any judgment, decree, franchise, order, license or permit applicable to
any of the Seller Companies.
2.7. Financial Statements. The unaudited consolidated and
consolidating balance sheets of the Company and each of the Subsidiaries as of
June 30, 1997, and the related unaudited consolidated and consolidating
statements of income and expense of the Company and each of the Subsidiaries
for the twelve month period ended on June 30, 1997, which are attached hereto
as Exhibit 2.7 (collectively the "Financial Statements"), present fairly in all
material respects the financial condition and results of operations of the
Company and the Subsidiaries as of the dates thereof and for the periods then
ended. Such Financial Statements have been, and all interim monthly financial
statements for periods which have been or are to be delivered to Purchaser will
be, prepared in accordance with GAAP, consistently applied, except as noted on
Schedule 2.7. As to the foregoing, the parties acknowledge and agree that YSI
and the Company shall incur no liability by reason of the fact that no reserve
for IBNR has been created on the Financial Statements.
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<PAGE> 16
Except as set forth on Schedule 2.7 hereto, since July 1, 1997:
(i) There has not been any material adverse change in the working
capital, financial condition, assets, liabilities (whether absolute, accrued,
contingent or otherwise), reserves, business or operations of the Company and
the Subsidiaries (taken as a whole);
(ii) Neither the Company nor any of the Subsidiaries has suffered
any casualty loss (whether or not such loss or damage shall have been covered
by insurance) that materially affects the ability of the Company or any of the
Subsidiaries to conduct its business;
(iii) Neither the Company nor any of the Subsidiaries has incurred
any liability or obligation of any material nature (whether absolute, accrued,
contingent or otherwise) except in the ordinary and regular course of business;
(iv) Neither the Company nor any of the Subsidiaries has paid,
discharged or satisfied any liability or obligation (whether absolute, accrued,
contingent or otherwise) other than by payment, discharge or satisfaction in
the ordinary and regular course of business and the settlement of any
intercompany amounts;
(v) Neither the Company nor any of the Subsidiaries has made (A)
capital expenditures for additions to property, plant or equipment exceeding,
in the aggregate, $500,000.00, or (B) commitments for addition to property,
plant or equipment exceeding, in the aggregate, $100,000.00;
(vi) Neither the Company nor any of the Subsidiaries has paid any
material amount to any federal, state or local government or authority or any
other third party for any claim, obligation, liability, loss, damage or
expenses, of whatever kind or nature, incurred or imposed or based upon any
provision of federal, state or local law or regulations or common law
pertaining to environmental protection;
(vii) There has not been any increase in the compensation or
benefits to any employee of the Company or any of the Subsidiaries, except
pursuant to written employment agreements which have been disclosed to the
Purchaser or except in the ordinary course of business; and
(viii) There has not been any transaction by the Seller, the Company
or any of the Subsidiaries relating to the Company or any of the Subsidiaries
outside the ordinary course of business.
2.8. Insurance. A complete and accurate schedule of all insurance
policies (including a statement of policy limits and deductibles) held by, or
for the benefit of, the Company or any of the Subsidiaries now in force,
including, without limitation, malpractice, public liability, property damage,
business interruption, product liability and workers compensation or other
coverage, is set out in Schedule 2.8 hereto. The Company
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<PAGE> 17
and the Subsidiaries will continue to maintain such coverage in full force and
effect until the Closing Date. Neither the Company nor any of the Subsidiaries
has received any notice of requirements or recommendations by any insurance
company that issued any such policy or by any Board of Fire Underwriters or
other similar body exercising. similar functions or by any governmental
authority exercising similar functions which requires or recommends any changes
in the conduct of the business of the Company or any of the Subsidiaries, or
any repairs or other work to be done on or with respect to any of their assets.
Neither YSI, the Company nor any of the Subsidiaries has received any notice or
other communication from any such insurance company within two (2) years
preceding the date hereof (or such shorter period during which YSI controlled
such Subsidiary) canceling or materially amending or materially increasing the
annual or other premiums payable under any of said insurance policies, and to
the best knowledge of any of the Seller Companies, no such cancellation,
amendment or increase of premiums is threatened currently.
2.9. Litigation. Except as set forth on Schedule 2.9 hereto, there
are no lawsuits, proceedings, actions, arbitrations, claims or governmental
investigations, inquiries or proceedings pending, or, to the best knowledge of
any of the Seller Companies, threatened, at law or in equity, against the
Company or any of the Subsidiaries, and there is no action, suit or proceeding
by any person or agency pending, or, to the best knowledge of any of the Seller
Companies, threatened, which questions the legality, validity or propriety of
the transactions contemplated hereby.
2.10. Compliance with Laws, Licenses, Accreditation and Third-Party
Payor. Except as set forth on Schedule 2.10(a) hereto, the Company and the
Subsidiaries are in compliance in all material respects with all laws,
regulations and orders applicable to the operation of their respective
businesses. EEach of the Company and the Subsidiaries holds all governmental
licenses, permits, registrations, approvals, certificates, consents,
accreditations, approvals and franchises ("Licenses and Permits") required to
be held by it to conduct its businesses in material compliance with all
applicable laws and regulations and, with respect to those Subsidiaries which
participate in Medicaid programs, to participate in applicable Medicaid
reimbursement programs, including, without limitation, all licenses,
certificates of need and permits required by the states in which they do
business. Without limiting the generality of the foregoing, the facilities,
equipment and operations of each of the Company and the Subsidiaries satisfy in
all material respects the applicable licensing requirements of the states in
which they do business and, to the extent applicable to their respective
businesses, the accreditation standards of the Joint Commission on
Accreditation of Health Care Organizations ("JCAHO") and, with respect to those
Subsidiaries which participate in Medicaid programs, the requirements for
participation in applicable Medicaid programs. Schedule 2.10(b) lists each of
the Licenses and Permits held by the Company and the Subsidiaries, a true and
correct copy of each of which has previously been delivered to Purchaser. No
notice from any governmental authority with respect to the revocation,
termination, suspension or limitation of any of such Licenses or Permits has
been received by any of the Subsidiaries or YSI, and neither the Seller, YSI,
the Company nor any of the Subsidiaries has knowledge of the proposed
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<PAGE> 18
or threatened issuance of any such notice. Except as set forth in Schedule
2.10(b), none of the Licenses or Permits requires notice to, or the consent or
approval of, any governmental agency or third party to any of the transactions
contemplated hereby.
The Company has previously delivered to Purchaser true and complete
copies of (i) each of the Subsidiaries' most recent JCAHO accreditation survey
report and deficiency list, if any, (ii) each of the Subsidiaries' most recent
Statement of Deficiencies and Plan of Correction on Form HCFA-2567, (iii) each
of the Subsidiaries' most recent state licensing report and list of
deficiencies, if any, and (iv) each of the Subsidiaries' most recent Fire
Marshall's survey and deficiency list, if any.
2.11. Inventories. Except for items which were obsolete, below
standard quality or in the process of repair on the date of this Agreement and
for which adequate reserves have been or will be provided, all items of
inventory of the Subsidiaries which are reflected in the Financial Statements,
and all such items on hand on the date of this Agreement and to be on hand on
the Closing Date, consist and will consist, in all material respects, of items
of a quality usable or salable in the ordinary course of business. The
quantities of all Inventory are reasonable and justified under the normal
operations of the Company and the Subsidiaries. All inventories of the Company
and the Subsidiaries included on the Financial Statements are valued at the
lower of cost or market.
2.12. Cost Reports, Third-Party Receivables and Conditions of
Participation. The cost reports for Medicaid payments of each of the
Subsidiaries that participate in the Medicaid programs of the states in which
it operates, in each case for the fiscal year indicated in Schedule 2.12
hereto, have been audited and fully settled. All Medicaid cost reports of each
such Subsidiary were filed by the required filing dates, and (except for
insignificant amounts) such reports do not claim, and neither YSI, the Seller,
the Company nor any of such Subsidiaries has received reimbursement in excess
of the amount provided by law. Except as listed on Schedule 2.12 hereto, there
is no dispute between the Company and governmental authorities or any Medicaid
fiscal intermediary regarding such cost reports or the remaining unaudited cost
reports, other than with respect to adjustments thereto made in the ordinary
course of business which do not involve amounts in excess of $25,000.00 in the
aggregate, and no audit is currently in process. Neither the Company nor any
of the Subsidiaries participates in the federal Medicare program. All such
cost reports have been or will be when filed materially complete and accurate.
Revenues reflected in the Financial Statements include no material cost-based
reimbursement, other than revenues contributed by Youth Services International
of New Mexico, Inc.
2.13. Medical Staff. The Seller has previously delivered to
Purchaser a true and correct copy of all written agreements between any of the
Subsidiaries and physicians, physician groups, and psychologists engaged to
provide services to such Subsidiaries. A schedule listing all such physicians,
physician groups, or psychologists, including a description of any professional
liability litigation or claims pending against any of such
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<PAGE> 19
persons which, to the best of the knowledge of any of the Seller Companies,
exist, is attached hereto as Schedule 2.13.
2.14. Experimental Procedures. Except as described in Schedule 2.14
hereto, neither the Company nor any of the Subsidiaries has performed or
permitted the performance of any experimental or research procedures or studies
involving patients of the Company or any of the Subsidiaries.
2.15. Wage Claims. Except as disclosed in Schedule 2.15 hereto, no
present or former employee of the Company or any of the Subsidiaries has
asserted any claim (whether under federal or state law, under any employment
agreement or otherwise) against the Company or any of the Subsidiaries on
account of or for (a) overtime pay for any period on or before the Closing, or
(b) wages or salary accrued on or before the Closing.
2.16. Employment Matters. Except as set forth on Schedule 2.16
hereto, (i) each of the Company and the Subsidiaries is in compliance in all
material respects with all federal and state laws respecting employment
(including, without limitation, the Immigration and Control Act of 1986) and
employment practices, terms and conditions of employment, and wages and hours,
and are not engaged in any unfair labor practice; (ii) there is no unfair labor
practice complaint against the Company or any of the Subsidiaries pending
currently or, to the best knowledge of any of the Seller Companies, threatened
to be instituted before the National Labor Relations Board; and (iii) to the
knowledge of YSI and the Seller, neither the Company nor any of the
Subsidiaries has been the subject of any union organizing activities since the
dates on which YSI acquired control thereof.
2.17. Tax Returns and Liabilities.
All tax returns of every kind (including, without limitation,
returns of all income taxes, franchise taxes, real and personal property taxes,
intangibles taxes, withholding taxes, employee compensation taxes and all other
taxes of any kind applicable to the Company and the Subsidiaries) that are due
have been filed in accordance with applicable laws, and all taxes shown to be
due on such returns (other than those that may or will arise as a result of the
Section 338(h)(10) Election, hereinafter defined) have been paid in full or
will be paid or accrued on the balance sheets of the Company and the
Subsidiaries as of the Closing Date. Except as disclosed in Schedule 2.17, the
amounts so paid have been adequate in all material respects to pay all income,
franchise, real and personal property, intangibles, withholding and employment
compensation taxes and all other taxes of any kind whatsoever, including
interest and penalties, due and payable by the Company and the Subsidiaries for
all periods covered by those tax returns.
2.18. Employee Benefit Plans.
(a) Schedule 2.18(a) hereto lists every Employee Benefit
Plan currently sponsored by YSI and the Subsidiaries (as hereinafter defined)
of YSI and the
- 12 -
<PAGE> 20
Subsidiaries. True and complete copies of the Employee Benefit Plans listed on
Schedule 2.18(a) hereto (including with respect to any such Employee Benefit
Plans: (i) all trust agreements or other funding arrangements for such Employee
Benefit Plans (including insurance contracts), and all amendments thereto, (ii)
all determination letters, rulings, opinion letters, information letters, or
advisory opinions issued by the United States Internal Revenue Service, the
United States Department of Labor, or the Pension Benefit Guaranty Corporation
after December 31, 1988, (iii) annual reports or returns, audited or unaudited
financial statements, actuarial valuations and reports, and summary annual
reports prepared for any Employee Benefit Plan with respect to the most recent
three plan years, and (iv) the most recent summary plan descriptions and any
material modifications thereto) have heretofore been furnished to Purchaser.
(b) Except as disclosed in Schedule 2.18(b) hereto, all
of the Employee Benefit Plans other than those described in Schedule 4.19 and
the related trusts subject to ERISA (as hereinafter defined) comply with and
have been administered in compliance with (i) the provisions of ERISA, (ii) all
provisions of the Code (as hereinafter defined) relating to qualification and
tax exemption under Code Sections 401(a) and 501(a) or otherwise applicable to
secure intended tax consequences, (iii) all applicable state or federal
securities laws, and (iv) all other applicable laws, rules, regulations or
ordinances, and YSI and the Subsidiaries have not received any notice from any
Governmental Authority (as hereinafter defined) questioning or challenging such
compliance. All available government approvals for the Employee Benefit Plans
have been obtained, including, but not limited to, timely determination letters
on the qualification of the ERISA Plans (as hereinafter defined) and tax
exemption of related trusts, as applicable under the Code, and all such
government approvals continue in full force and effect. No event has occurred
which will or could give rise to disqualification of any such plan or loss of
intended tax consequences under the Code or to any tax under Section 511 of the
Code.
(c) Except as disclosed in Schedule 2.18(c) hereto, no
oral or written representation or communication with respect to any aspect of
the Employee Benefit Plans has been made to employees of YSI or the
Subsidiaries prior to the date hereof which is not in accordance with the
written or otherwise preexisting terms and provisions of such plans. Neither
YSI nor any of the Subsidiaries nor any administrator or fiduciary of any
Employee Benefit Plan (or any agent of any of the foregoing) has engaged in any
transaction, or acted or failed to act in any manner which could subject YSI or
the Subsidiaries or Purchaser to any direct or indirect liability (by indemnity
or otherwise) for breach of any fiduciary, co-fiduciary or other duty under
ERISA. There are no unresolved claims or disputes under the terms of, or in
connection with, the Employee Benefit Plans other than claims for benefits
which are payable in the ordinary course of business and no action, proceeding,
prosecution, inquiry, hearing or investigation has been commenced with respect
to any Employee Benefit Plan.
(d) Except as disclosed in Schedule 2.18(d) hereto, all
Employee Benefit Plan documents and annual reports or returns, audited or
unaudited financial statements, actuarial valuations, summary annual reports,
and summary plan descriptions
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<PAGE> 21
issued with respect to the Employee Benefit Plans other than any such plans
listed in Schedule 4.19 hereto are correct and complete, have been timely filed
with the United States Internal Revenue Service, the United States Department
of Labor or distributed to participants of the Employee Benefit Plans (as
required by law), and there have been no changes in the information set forth
therein.
(e) No "party in interest" (as defined in Section 3(14)
of ERISA) or "disqualified person" (as defined in Section 4975(e)(2) of the
Code) of any Employee Benefit Plan has engaged in any nonexempt "prohibited
transaction" (described in Section 4975(c) of the Code or Section 406 of
ERISA). Neither YSI nor any of the Subsidiaries has incurred any liability
under Title IV of ERISA, including any liability that could arise as a result
of YSI's or any Subsidiary's membership in a "controlled group" as defined in
ERISA Section 4001(a)(14) and ERISA Section 4001(b)(1).
(f) YSI, the Subsidiaries and any member of a group of
trades or businesses under common control (as defined in ERISA Sections
4001(a)(14) and 4001(b)(1)) with YSI or the Subsidiaries have never
(individually or otherwise) had an "obligation to contribute" (as defined in
ERISA Section 4212) or otherwise made contributions to a "multiemployer plan"
within the meaning of ERISA Sections 3(37) or 4001(a)(3). YSI, the
Subsidiaries and any entity or person required to be aggregated with YSI or the
Subsidiaries under Code Sections 414(b), (c), (m) or (o) have never
(individually or otherwise) maintained, sponsored, contributed to or been
obligated under applicable law to contribute to a "defined benefit plan" (as
defined in ERISA Section 3(35) or Code Section 414(j)).(g) Neither YSI nor any
of the Subsidiaries has either maintained in the past nor currently maintains
an Employee Benefit Plan providing welfare benefits (as defined in ERISA
Section 3(1)) to employees after retirement or other separation of service
except to the extent required under Part 6 of Title I of ERISA or Code Section
4980B or their successors. No tax under Code Sections 4980B or 5000 has been
incurred with respect to any Employee Benefit Plan, and no circumstances exist
which could give rise to such taxes. YSI and the Subsidiaries have provided
all notices required under Code Section 9801(e) and ERISA Section 701(e) in
compliance with applicable law. The Subsidiaries have and will in the future
have adequate information reasonably available to them to properly provide such
notices on or after the Closing with respect to events occurring prior to the
Closing.
(h) Except as disclosed on Schedule 2.18(h) hereto,
neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated hereby will (i) entitle any current or former
employee or director of YSI or any of the Subsidiaries to severance pay,
unemployment compensation or any payment contingent upon a change in control or
ownership of YSI or any of the Subsidiaries, (ii) increase or enhance any
benefits payable under any Employee Benefit Plan, or (iii) accelerate the time
of payment or vesting, or increase the amount, of any compensation due to any
such employee or former employee.
- 14 -
<PAGE> 22
(i) Except as otherwise noted in Schedule 2.18(i) hereto,
all individuals participating in (or eligible to participate in) any Employee
Benefit Plan maintained (or contributed to) by YSI or any of the Subsidiaries
are common-law employees under the rationale set forth in Professional and
Executive Leasing, Inc., 89 TC 225 (1987).
(j) Neither the Company nor the Subsidiaries have or will
in the future incur any liability, claim, expense, loss or other negative
financial impact resulting from their participation in the Employee Benefit
Plans.
(k) All liabilities of the Company and the Subsidiaries
arising out of or related to Employee Benefit Plans of YSI or any of the
Subsidiaries other than any such plans listed in Schedule 4.19 hereto are
reflected on the Financial Statements in accordance with GAAP.
(l) When used in this Agreement, the words and phrases
set forth below shall have the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
"Employee Benefit Plan" means collectively, each pension,
retirement, profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus or other incentive plan, any other
written or unwritten employee program, arrangement, agreement or understanding,
whether arrived at through collective bargaining or otherwise, any medical,
vision, dental or other health plan, any life insurance plan, or any other
employee benefit plan or fringe benefit plan, including, without limitation,
any "employee benefit plan," as that term is defined in Section 3(3) of ERISA
currently or previously adopted, maintained by, sponsored in whole or in part
by, or contributed to by YSI or any of the Subsidiaries for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors or other beneficiaries are eligible to
participate. Employee Benefit Plans include (but are not limited to) "employee
benefit plans" as defined in section 3(3) of ERISA and any other plan, fund,
policy, program, practice, custom, understanding or arrangement providing
compensation or other benefits to any current or former officer or employee or
director or independent contractor of YSI or any of the Subsidiaries, or any
dependent or beneficiary thereof, maintained by YSI or any of the Subsidiaries
or under which YSI or any of the Subsidiaries has any obligation or liability,
whether or not they are or are intended to be (i) covered or qualified under
the Code, ERISA or any other applicable law, (ii) written or oral, (iii)
funding or unfunded, (iv) actual or contingent, or (v) generally available to
any or all employees (or former employees) of YSI or any of the Subsidiaries
(or their beneficiaries or dependents), including, without limitation, all
incentive, bonus, deferred compensation, flexible spending accounts, cafeteria
plans, vacation, holiday, medical, disability, share purchase or other similar
plans, policies, programs, practices or arrangements.
- 15 -
<PAGE> 23
"ERISA" means Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Plan" means any Employee Benefit Plan which is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, or an "employee welfare benefit plan" as that term is defined in Section
3(1) of ERISA.
"Governmental Authority" means any federal, state, county,
local, foreign or other governmental or public agency, instrumentality,
commission, authority, board or body.
2.19. Contracts and Commitments. Except as set forth on Schedule
2.19 or Schedule 2.20 hereto:
(a) Neither the Company nor any of the Subsidiaries is a
party to or subject to any contract or agreement which by its terms requires
either the Company or any of the Subsidiaries to pay to any other person, or
entity or entities (or is likely to entitle) the Company or any of the
Subsidiaries to receive from any person or entity, more than $10,000.00 per
year;
(b) Neither the Company nor any of the Subsidiaries is a
party to or subject to any contract or agreement obligating it to furnish
services, except contracts made in the ordinary and regular course of business;
(c) Neither the Company nor any of the Subsidiaries is a
party to (i) any employment contract with any officer, consultant, director or
employee thereof, or (ii) any plan, arrangement or contract providing for
options, bonuses, stock purchases, deferred compensation or the like; and
(d) There are no persons holding powers of attorney from
the Company or any of the Subsidiaries.
Each contract, agreement, or lease described on Schedule 2.19 and
Schedule 2.20 (the "Contracts") is valid and in full force and effect, and
there are no existing material defaults by the Company or any of the
Subsidiaries thereunder, and, to the best knowledge of each of the Seller
Companies, there are no existing material defaults by any other parties
thereunder. No event has occurred that (whether with notice, lapse of time, or
both) would constitute a material default by the Company or any of the
Subsidiaries, or, to the best knowledge of each of the Seller Companies, by any
other parties, under any of the Contracts.
2.20. Leases. Schedule 2.20 hereto contains a true, correct and
complete list of all material leases of the Company and the Subsidiaries of
real or personal property (the "Leases"). All of the Leases are valid and are
in full force and effect, and there are no
- 16 -
<PAGE> 24
existing material defaults by the Company or any of the Subsidiaries
thereunder, and, to the best knowledge of each of the Seller Companies, there
are no existing material defaults by any other parties thereunder. No event
has occurred that (whether with notice, lapse of time, or both) would
constitute a material default by the Company or any of the Subsidiaries, or, to
the best knowledge of each of the Seller Companies, by any other parties, under
the Leases.
2.21. Real Property. At or prior to Closing, one or more of the
Subsidiaries shall have good and marketable fee title to or a valid leasehold
interest in the properties described on Schedule 2.21.1 (collectively, the
"Properties") free and clear of all liens, restrictions or encumbrances except
for the following (collectively the "Permitted Exceptions") (i) taxes not yet
delinquent, (ii) easement rights of record and other matters of public record,
or (iii) other items as set forth on Schedule 2.21.2. The Permitted Exceptions
do not materially impair the use of any or all of the Properties for its
present purpose, or result in the title thereto not being good or marketable.
None of the Seller Companies has received any notice from a governmental agency
or authority of any breach or violation with regard to the Property of any
ordinance, regulation, law, building or safety code, or rule, and to the best
knowledge of each of the Seller Companies, no such breach or violation exists.
None of the Seller Companies has received any lien assessment or the like
relating to any part of the Property or the operation thereof. There is no
condemnation or similar proceeding that could have a material adverse effect on
the Subsidiaries' title to the Property, and to the best knowledge of each of
the Seller Companies, there is no proposed condemnation proceedings that could
have such an effect. Except as indicated on Schedule 2.21.1, hereto:
(a) All of the buildings, fixtures and other improvements
constituting part of the Property are in good operating condition and repair as
of the date this Agreement.
(b) Each of the Subsidiaries holds all certificates,
approvals and other permits and licenses required by applicable law relating to
the operation of its respective facilities, including without limitation all
certificates of occupancy, underwriters' certificates relating to electrical
work, zoning, building, housing, safety, fire and health approvals;
(c) The Subsidiaries have not experienced during the two
years preceding the date hereof (or such shorter period during which YSI has
controlled such Subsidiaries) any material interruption in the delivery of
adequate quantities of any utilities (including, without limitation,
electricity, natural gas, potable water, water for cooling or similar purposes,
and fuel oil) or other public services (including without limitation sanitary
and industrial sewer service) required in the operation of the facilities
situated on the Property during such period.
(d) The zoning of each parcel of Property permits the
presently existing improvements and the continuation of the business of the
facilities situated on the Property
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<PAGE> 25
presently being conducted. None of the Subsidiaries has commenced, nor has any
of the Subsidiaries received notice of the commencement of, any proceeding that
would affect the present zoning classification of any such parcel.
(e) No person has any right, agreement, commitment,
option, right of first refusal or any other agreement, whether oral or written,
with respect to the purchase, assignment or transfer of all or any portion of
the Property.
(f) Neither YSI, the Seller, the Company nor any of the
Subsidiaries has taken any action (or failed to take any action) or received
any notice from any insurance carrier of any defects or inadequacies in the
Property or any portion thereof which would adversely affect the insurability
of the Property or the cost of such insurance.
(g) The Property is not subject to or affected by any
special assessment for public improvements or otherwise, whether or not
presently a lien upon the Property. Except as set forth in Schedule 2.21.3
hereto, neither YSI, the Seller, the Company nor any of the Subsidiaries has
made commitment to any governmental authority, utility company, school board,
church or religious body, homeowner or homeowner's association or any other
organization, group or individual relating to the Property which would impose
an obligation upon the Company or any of the Subsidiaries or its or their
successors or assigns to make, following the Closing, any contributions or
dedications of money or land, or to construct, install or maintain, following
the Closing, any improvements of a public or private nature as part of the
Property or upon separate lands. No governmental authority has imposed any
requirement that Seller or any of the Subsidiaries pay, directly or indirectly,
any special fees or contributions or incur any expenses or obligations in
connection with the development of the Property or any portion thereof,
following the Closing, other than any regular and nondiscriminatory local real
estate or school taxes assessed against the Property. The separate properties
constituting the Property are separately assessed for real property tax
assessment purposes and are not combined with any other real property for tax
assessment purposes. Except as disclosed on Schedule 2.21.4 hereto, neither
YSI, the Seller, the Company nor any of the Subsidiaries has received any
notice of any contemplated or actual reassessment of the Property or any
portion thereof for general real estate tax purposes. As of the date hereof,
all due and payable taxes, assessments, water charges and sewer charges
affecting the Property or any portion thereof have been paid.
(h) No portion of the Property is located in an area
designated as a "flood hazard area" in accordance with the document entitled
"Department of Housing and Urban Development, Federal Insurance Administration
- - Special Flood Hazard Area Maps" or within the 100-year flood plain as
depicted on the U.S. Army Corps of Engineers Geodetic Maps of such flood plain
areas.
(i) Neither YSI, the Seller, the Company nor any of the
Subsidiaries has received any written notice from the holder of any mortgage or
deed of trust encumbering any of the Property, or any portion thereof or
interest therein, or from any
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<PAGE> 26
insurance company which has issued a policy with respect to any of the Property
or from any board of fire underwriters (or other body exercising similar
functions) claiming any defect or deficiency in the Property or requiring the
performance of repairs, alterations or other work to the Property.
(j) Neither the Seller, the Company nor any of the
Subsidiaries is a "foreign person" as that term is defined in the Code and the
Regulations promulgated pursuant thereto.
2.22 Personal Property. Except as set forth and briefly described
on Schedule 2.22 hereto, the Company and the Subsidiaries: (i) have good,
valid and marketable title to all of the personal and mixed, tangible and
intangible property, rights and assets which they purport to own, including all
the personal property and assets reflected, but not shown as leased or
encumbered, in the Financial Statements (except for inventory and assets sold
in the ordinary course of business consistent with past practice and supplies
consumed in the ordinary course of business consistent with past practice), and
(ii) own such rights, assets and personal property free and clear of all title
defects or objections, liens, restrictions, claims, charges, security
interests, or other encumbrances of any nature whatsoever, including any
mortgages, leases, chattel mortgages, conditional sales contracts, collateral
security arrangements and other title or interest retention arrangements.
2.23 Environmental. There are no conditions at, in, on, under or
related to the assets of the Company and the Subsidiaries (the "Assets") which
pose a hazard to human health or the environment other than such conditions
which are in accordance with applicable law. Except as specified in Schedule
2.23, (a) there is and has been no production, use, treatment, storage,
transportation, handling, discharges, disposal, arrangement for disposal or
release or threatened release of any Hazardous Substance, hereinafter defined,
or Solid Waste, hereinafter defined, (i) at, in, on, under, from, over or
related to the Property or the Assets or (ii) into or upon or over soil,
surface water or groundwater at, on, under or related to the Property or the
Assets or (iii) at, in, on, under or from any location where Hazardous
Substances or Solid Waste from the Property or Assets have been placed,
discarded, stored, discharged or disposed otherwise than in compliance with all
applicable environmental laws; neither the Company nor any of the Subsidiaries
has placed, discarded, stored, discharged or disposed of Hazardous Substances
or Solid Waste at any location other than the Properties or the Assets within
the past two years; (b) there are and there have been no underground tanks,
below grade collection dumps or pits, land disposal facilities or surface
impoundments at, on, under or related to the Property or the Assets which are
or have been used for the collection, storage, treatment, handling, discharge
or disposal of Hazardous Substances or Solid Waste; (c) there is and there have
been no asbestos-containing material, PCB containing electrical transformers,
ballasts or other PCB items, as defined at 40 C.F.R. Section 761.3, or other
equipment or machinery which contains or has contained PCBs, or any radon, at,
on, under or related to the Properties in violation of applicable law; and (d)
there are no PCB items, radon, radioactive materials, asbestos in or on the
Properties. For the
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<PAGE> 27
purposes of this Agreement, Hazardous Substance means asbestos, radioactive
substances, radon, PCB, petroleum or any substance deemed under federal, law or
regulation, or state laws of any of the states in which facilities of the
Company or any of the Subsidiaries are situated, a hazardous or toxic
substance, material, chemical substance, pollutant or waste, or a pesticide,
fungicide, rodenticide, pollutant, contaminant, air pollutant or air
contaminant; Solid Waste means any substance deemed a waste under any
applicable federal, state, county, local or foreign laws, ordinance, rule or
regulation.
2.24. Brokers' and Finders' Fees. Except as set forth in Schedule
2.24 hereto, neither any of the Seller Companies nor anyone acting on behalf of
any of them has done anything to cause or incur any liability to any party for
any brokers' or finders' fees or the like in connection with this Agreement or
any transaction contemplated hereby.
2.25 Accounts Receivable. The accounts receivable included in the
Company's Balance Sheet dated June 30, 1997, constitute valid and bona fide
receivables established in the ordinary and regular course of business and in a
manner consistent with prior practice of the Company and the Subsidiaries, and
the accounts receivable included on the books of the Company and the
Subsidiaries at the date of Closing are and will be valid and bona fide
receivables.
2.26. No Untrue or Inaccurate Representation or Warranty. No
representation or warranty by YSI or the Seller in this Agreement, nor any
statement, exhibit, schedule, certificate or other information furnished or to
be furnished to Purchaser pursuant hereto, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not false or misleading. Copies of all
documents heretofore or hereafter delivered or made available to Purchaser
pursuant hereto were, or will be, complete and accurate copies of such
documents.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to YSI and the Seller as
follows:
3.1 Organization; Good Standing. Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Georgia. Purchaser has the full right, power, and authority (corporate and
otherwise) to own, lease, and operate all of the assets and properties it
presently owns, leases, and operates, and to conduct business as is presently
being conducted by it. Purchaser is duly qualified as a foreign corporation in
all jurisdictions where the nature of its business requires it to be so
qualified. Purchaser has delivered to the Seller complete and accurate copies
of the Articles of Incorporation and Bylaws of Purchaser, as amended and in
effect on the Closing Date.
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3.2. Capacity and Validity. Purchaser has the absolute and
unrestricted full right, power, and authority to enter into, execute, deliver
and perform this Agreement and the other transaction documents required hereby
to which it is a party and to perform its obligations under this Agreement and
the other transaction documents required hereby to which it is a party. Each
of this Agreement and the other transaction documents to which Purchaser is a
party constitutes the legal, valid and binding obligation of Purchaser
enforceable against it in accordance with the respective terms thereof. The
execution and delivery of this Agreement and the other transaction documents to
which Purchaser is a party, and the consummation of the transactions
contemplated hereby, have been duly authorized, and no other proceedings
(corporate or otherwise) by Purchaser, or any of the directors or the Seller
thereof are necessary with respect thereto. Purchaser will take, or cause to
be taken, all action (corporate or otherwise) necessary to consummate the
transactions contemplated hereby.
3.3. No Violation. Neither the execution and delivery of this
Agreement or the other transaction documents contemplated hereby, nor the
consummation by Purchaser of the transactions contemplated hereby or thereby
will conflict with or result in the breach or violation of any of the terms or
conditions of, or constitute (or with notice or lapse of time or both would
constitute) a default under the (i) Articles of Incorporation or Bylaws of
Purchaser, (ii) any instrument, contract or other agreement to which Purchaser
is a party or by which Purchaser is bound, (iii) any provision of law, statute,
rule or regulation of any court or governmental authority to which Purchaser is
subject, or (iv) any judgment, decree, franchise, order, license or permit
applicable to Purchaser.
3.4 Purchase for Investment. Purchaser is purchasing the Shares
for investment for its own account and not with a view to, or in connection
with, a distribution thereof within the meaning of Section 2(11) of the
Securities Act of 1993, as amended. Purchaser acknowledges that the Shares
have not been registered under the Securities Act of 1933, as amended, or the
securities laws of any state. Purchaser further acknowledges that the Seller
has given Purchaser and its representatives the opportunity to ask questions of
the officers and management employees of the Company and the Subsidiaries and
to acquire such additional information about the business and financial
condition of the Company and the Subsidiaries as Purchaser has requested, and
that all such information has been received by Purchaser.
3.5. Brokers' and Finders' Fees. Except as set forth on Schedule
3.5 hereto, neither Purchaser nor anyone acting on behalf of Purchaser has done
anything to cause or incur any liability to any party for any brokers' or
finders' fees or the like in connection with this Agreement or any transaction
contemplated hereby.
3.6 Absence of Certain Proceedings; No Required Consents. There
is no legal or other proceeding by any governmental authority or private party
that has been commenced against Purchaser that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
the transactions contemplated hereby and, to Purchaser's knowledge, no such
proceeding has been threatened. Except as
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set forth on Schedule 3.6 hereto, Purchaser is not and will not be required to
obtain the consent from any person or entity in connection with the
consummation of the transactions contemplated hereby.
3.7 Adequacy of Available Funds. Purchaser has no reason to
believe that it does not have the financial wherewithal to borrow funds, which,
when taken in the aggregate with other funds available to Purchaser, including
the funds that CGW Southeast Partners III, L.P. has committed to provide to
Purchaser pursuant to that certain letter of even date herewith and addressed
to YSI, will be an amount sufficient to pay the Purchase Price and provide
adequate working capital for the operation of the Business by Purchaser
following the Closing.
3.8 Due Diligence; Reliance on Representations and Warranties.
The Purchaser acknowledges that neither YSI nor the Seller has made any
representations and warranties with respect to (i) any projections, estimates
or budgets previously delivered or made to Purchaser or its counsel,
accountants or advisors of future revenues, expenses or expenditures or future
results of operations with respect to the Company or the Subsidiaries; or (ii)
any other information, materials or documentation (financial or otherwise)
previously made available to Purchaser or its counsel, accountants or advisors
with respect to the Company or the Subsidiaries, except for those made
expressly pursuant to this Agreement. Purchaser further acknowledges that it
has made its own independent analysis, evaluation and examination, including,
its own estimate of the value of the businesses of the Subsidiaries.
3.9 Statements True and Correct. No representation or warranty of
Purchaser in this Agreement or any of the other transaction documents required
hereby, and no statement or information in any certificates, lists, documents,
schedules or exhibits furnished by Purchaser in connection with the
transactions contemplated hereby, contains any untrue statement of material
fact or omits to state a material fact necessary to make the statements herein,
in light of the circumstances in which they were made, not false or misleading
(with the foregoing being to the knowledge of Purchaser with respect to
underlying statements and information which are expressly so qualified).
SECTION 4
COVENANTS AND AGREEMENTS
4.1. Pre-Closing Activities. Each of YSI and the Seller covenants
and agrees that from the date of this Agreement until the Closing Date, except
as otherwise specifically agreed to in writing by Purchaser (which agreement
shall not be unreasonably withheld), neither the Company nor any of the
Subsidiaries shall:
(a) incur or agree to incur any material liability or
obligation (absolute or contingent) except for trade payable and contractual
obligations incurred in the ordinary course of business;
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(b) authorize or make any capital expenditure in excess
of $25,000.00, individually, or $150,000.00, in the aggregate;
(c) create or incur any mortgage, lien, charge or
encumbrance on any of its assets other than purchase money security interests
and the interests of lessors of personal property incurred or created in
connection with the leasing by it of personal property in the ordinary course
of business;
(d) increase the salary of any employee except pursuant
to written employment agreements which have been disclosed to the Purchaser or
otherwise in the ordinary course of business consistent in timing and amount
with past practices, or pay or agree to pay any bonus to any employee except
pursuant to written employment agreements which have been disclosed to the
Purchaser or otherwise in the ordinary course of business consistent in timing
and amount with past practices or adopt any new Employee Benefit Plan (except
where required by law);
(e) amend, alter or terminate any agreement to which it
is a party except in the ordinary course of business;
(f) sell, assign, lease or otherwise transfer or dispose
of any of its property or equipment or its businesses, except in the normal
course of business and with comparable replacement therefor except as expressly
contemplated by this Agreement; or
(g) merge or consolidate or agree to merge or consolidate
with or into any other entity;
and the Company and each of the Subsidiaries, as the case may be, shall:
(a) maintain in effect the insurance coverage referred to
in Section 2.8;
(b) permit Purchaser and its authorized representatives
(including, without limitation, any attorneys and accountants designated by
Purchaser) to have access (at mutually agreeable times during normal daytime
business hours upon at least 48 hours' prior notice to the Company) to all
properties, records and documents of the Company and the Subsidiaries for the
purpose of making such inspections and examinations as Purchaser shall deem
desirable, and furnish to Purchaser and such representatives financial and
other information with respect to the business and properties of the Company
and the Subsidiaries as Purchaser may from time to time reasonably request;
(c) carry on business in substantially the same manner as
heretofore conducted (during the preceding one-year period) and not make any
material change in personnel, operations, finance, accounting policies, or real
or personal property;
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(d) maintain its assets and all parts thereof in as good
working order and condition as at present, ordinary wear and tear excepted;
(e) perform all obligations under agreements with others
in the ordinary course of business;
(f) use its best efforts to retain present employees and
medical staff, and maintain relationships with suppliers, patients and others
having business relations with it; and
(g) permit Purchaser to validate the inventories of the
Subsidiaries and, if Purchaser deems necessary, conduct a physical inventory.
4.2. Best Efforts of YSI and the Seller. YSI and the Seller
covenant and agree to use their reasonable best efforts to cause all of its
covenants and agreements and all conditions precedent to Purchaser's, YSI's and
the Seller's obligations to close hereunder to be performed, satisfied and
fulfilled.
4.3. Purchaser's Best Efforts. Purchaser covenants and agrees to
use its reasonable best efforts to cause all of its covenants and agreements
and all conditions precedent to YSI's, the Seller's and Purchaser's obligations
to close hereunder to be performed, satisfied and fulfilled.
4.4. Medicaid Change of Control. The Seller and the Company shall,
and the Company shall cause the Subsidiaries to, provide such assistance to
Purchaser as is required in order to effect the change of control of the
Company as provided in connection with the Medicaid programs in states in which
the Company and the Subsidiaries do business, and in which any of the
Subsidiaries participate, the cost of which shall be borne solely by Purchaser.
4.5 Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the transactions contemplated
hereby will be issued, if at all, at such time and in such manner as the
parties mutually agree upon in advance (it being understood and acknowledged,
however, by the Purchaser, that YSI may include information concerning the
transactions contemplated by this Agreement in disclosure documents required to
be filed by YSI pursuant to the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder and that
nothing contained herein shall be construed to prohibit YSI from including
information concerning the transactions contemplated by this Agreement in such
disclosure documents). The parties will consult with each other concerning the
means by which the Company's and the Subsidiaries' employees, customers,
patients, and suppliers and others having dealings with the Company or the
Subsidiaries will be informed, if at all, of this Agreement and the
transactions contemplated hereby, and each of YSI and Purchaser will have the
right to review in advance and approve the general form and substance of any
such written communications or to be present for any such oral communications
(it being
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understood and acknowledged, however, by the Purchaser, that YSI may include
information concerning the transactions contemplated by this Agreement in
disclosure documents required to be filed by YSI pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder and that nothing contained herein shall be construed to
prohibit YSI from including information concerning the transactions
contemplated by this Agreement in such disclosure documents).
4.6 Notification; Disclosure Schedule Changes. Between the date
of this Agreement and the Closing Date, Purchaser, on the one hand, and YSI and
the Seller, on the other hand, will promptly notify the other party in writing
if Purchaser, on the one hand, or YSI and the Seller, on the other hand,
becomes aware of any fact or condition that causes or constitutes a breach, (a)
on the one hand, of any of Purchaser's representations and warranties as of the
date of this Agreement, or if Purchaser becomes aware of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a breach of any
such representation or warranty had such representation or warranty been made
as of the time of the occurrence or discovery of such fact or condition, or (b)
on the other hand, of any of YSI's or the Seller's representations and
warranties as of the date of this Agreement, or if YSI or the Seller become
aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition require any
change in the disclosure schedules contemplated by the provisions of this
Agreement as to YSI and the Seller, or as to Purchaser, if such disclosure
schedules were dated the date of the occurrence or discovery of any such fact
or condition, YSI and the Seller, on the one hand, and Purchaser, on the other
hand, will promptly deliver to the other party a supplement to the applicable
disclosure schedule specifying such change, any of which such supplement is
subject to the approval of Purchaser in its sole discretion, on the one hand,
and YSI and the Seller in their sole discretion, on the other hand. During the
same period, (i) Purchaser will promptly notify YSI and the Seller of the
occurrence of any breach of any covenant of Purchaser in this Section 4, or of
the occurrence of any event that may make the satisfaction of the conditions in
Section 8 hereof impossible or unlikely, and (ii) YSI and the Seller will
promptly notify Purchaser of the occurrence of any breach of any covenant of
YSI or the Seller in this Section 4, or of the occurrence of any event that may
make the satisfaction of the conditions in Section 7 hereof impossible or
unlikely.
4.7 Purchaser Exclusive. YSI and the Seller agree that during the
90 day period after the execution of this Agreement or until the earlier
termination of this Agreement, they will not, directly or indirectly (i)
solicit, initiate or encourage any offers or proposals to purchase the Company
or any of the Subsidiaries or any of their respective assets, nor (ii) engage
in negotiations or discussions with third parties that may be considering
making or have made offers with respect to any such acquisition.
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4.8. Antitrust. With regard to filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR Act"), YSI, the Seller and Purchaser
mutually covenant and agree that they shall each cooperate in the prompt
preparation and making of such filings, if applicable, the filing fees for such
filing to be the sole cost of Purchaser.
4.9. Vacation and Holiday Pay, Etc. Prior to the Closing, the
Seller shall provide Purchaser with Schedule 4.9 reflecting a list of all
accrued vacation and holiday pay estimated as of the Closing Date based upon
existing employment policies of the Company.
4.10 Non-Competition and Non-Solicitation Covenants. (a) Except as
specifically agreed to by Purchaser in writing, YSI and Seller covenant and
agree that from the date hereof and for a period of three (3) years from the
Closing Date, none of YSI, Seller or their affiliates shall, directly or
indirectly, own (excluding ownership of less than one percent (1%) of the
equity of any publicly traded entity), manage, operate, control, contract with
or be otherwise associated with, lend funds to, lend its name to or maintain
any interest whatsoever in, any enterprise having to do with the provision of
mental, psychiatric or behavioral health care services in competition with
Purchaser, the Company or any of the Subsidiaries (or any of their affiliates)
within a 100-mile radius of any facility owned or operated by any of the
Subsidiaries immediately prior to the time of the Closing (the "Protected
Territory"); provided, however, (1) the foregoing covenants of this Section
4.10 shall not apply to the extent that YSI shall become an owner or operator
of any such enterprise within such radius by reason of an acquisition by YSI of
an entity principally devoted to a business other than such an enterprise,
provided that (A) YSI promptly and in good faith acts to dispose of such
business, and (B) the Purchaser shall have a right of first offer with respect
to any such business; and (2) nothing contained herein shall be deemed to
prohibit either YSI or the Seller or any of their presently existing or
hereafter created affiliates from engaging in such services if the provision of
such services is merely incidental to the provision of services in connection
with the ownership, operation or management by such parties of any enterprise
engaged in the Juvenile Justice Business, as hereinafter defined, even if
within the Protected Territory. For purposes of the foregoing, "Juvenile
Justice Business" means the business of providing educational or rehabilitative
services under a detention and rehabilitative model to troubled youth
substantially all of whom have been adjudicated or deemed "at risk" by a
juvenile justice system or systems pursuant to contractual arrangements with
juvenile justice systems.
(b) The parties also agree that, from the date hereof and
for a period of three (3) years from the Closing Date, none of YSI, the Seller
or their affiliates shall, directly or indirectly, for its own benefit or the
benefit of others, induce, or attempt to induce, any employee of the Company or
any of the Subsidiaries (or any of its affiliates) to terminate his or her
employment with any such party. YSI and the Seller further agree that, from
the date hereof and for a period of three (3) years from the Closing Date, none
of YSI, Seller or their affiliates shall, directly or indirectly, for its own
benefit or the benefit of another, solicit, entice or induce, or attempt to
solicit, entice or induce, any
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employee or agent of the Company or any of the Subsidiaries or any of its
affiliates to leave such employ.
(c) YSI and the Seller understand and acknowledge that
the foregoing provisions in this Section are designed to preserve the goodwill
of Purchaser in the business which it is acquiring pursuant hereto.
Accordingly, if YSI or Seller breaches any obligation provided in this Section,
in addition to any other remedies available under this Agreement, at law or in
equity, Purchaser shall be entitled to enforce this Agreement by injunctive
relief and by specific performance, such relief to be without the necessity of
posting a bond, cash or otherwise (unless required by applicable law).
Additionally, nothing in this paragraph shall limit Purchaser's right to
recover any other damages to which it is entitled as a result of breach by YSI
or Seller. If any one or more of the provisions of this Section or any word,
phrase, clause, sentence or other portion of this Section (including, without
limitation, the geographical, temporal or scope of activity restrictions
contained in this Section) shall be held to be unenforceable or invalid for any
reason such provision or portion of provision shall be modified or deleted in
such a manner so as to make this Section, as modified, legal and enforceable to
the fullest extent permitted under applicable law.
4.11 Election Under Section 338(h)(10). (a) Purchaser, at its
option, shall have the right to make a timely election under Section 338(h)(10)
of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations promulgated
pursuant to the Code, and any corresponding elections under state or local tax
law. The Seller shall (i) take, and cooperate with the Purchaser to take, all
actions necessary and appropriate (including, without limitation, the
preparation, completion and timely joint filing by Purchaser and the Seller of
Form 8023-A, and the preparation, completion and timely filing of such other
forms, returns, elections, schedules and other documents and instruments) to
effect, perfect and preserve a timely Section 338(h)(10) election in accordance
with Section 338(h)(10) of the Code and Section 1.338(h)(10)-1 of the Treasury
Regulations promulgated pursuant to the Code, and (ii) report the purchase and
sale of the Purchased Shares, consistent with the election pursuant to Section
338(h)(10) and shall take no position contrary thereto or inconsistent
therewith in any tax return, or in any discussion with or any proceeding before
any taxing authority or other governmental body or otherwise.
(b) The Purchase Price and all other items that comprise
the "modified aggregate deemed sale price" (as defined in, and required to be
allocated pursuant to Section 338(h)(10) of the Code) and the Purchaser's
"adjusted grossed up basis" shall be allocated in accordance with a schedule
prepared by Purchaser (the "Allocation") and consented to by Seller, which
consent shall not be withheld unreasonably. The Allocation shall, for tax
purposes, be binding on the Company, the Seller and Purchaser. In the event
the parties cannot agree as to the Allocation, the parties shall, if the
Purchaser or the Seller so requests, mutually select an independent appraiser
who shall prepare an allocation of such items which shall be accepted by the
parties as the Allocation. The fees and expenses of such independent appraiser
shall be paid 50% by the Purchaser and 50% by the Seller. The Company, the
Seller and Purchaser shall file their respective tax returns in accordance
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with such allocation and shall not take any position inconsistent with such
allocation. In the event that such allocation is disputed by any tax
authority, the party receiving notice of such dispute shall promptly notify and
consult with the other parties hereto concerning resolution of such dispute and
no such dispute shall be finally settled or compromised without the mutual
consent of the parties, which consent will not be unreasonably withheld.
(c) At the Purchaser's election and to the extent
permitted by state, local or foreign tax laws, the Seller and the Purchaser
shall make any election similar to a Section 338(h)(10) Election which is
optional under any state, local or foreign law, and shall cooperate and join in
any election made by any of the Subsidiaries to effect such an election so as
to treat the transactions contemplated herein as a sale of assets for state,
local and foreign income tax purposes, the principles and procedures of this
4.11 shall also apply with respect to a Section 338(h)(10) Election under
state, local or foreign law.
(d) For purposes of determining the Final Net Working
Capital of the Seller and the Subsidiaries pursuant to Section 1.5 of this
Agreement, no accrual shall be made for any federal, state or local income or
other taxes which may arise and for which the Company or any of the
Subsidiaries may become liable as a result of the Section 338(h)(10) Election
(it being understood that such taxes shall not be considered in determining the
Purchase Price for the Shares).
4.12 Payment of Taxes and Tax Returns.
(a) YSI, for the Seller and on behalf of each of the
Subsidiaries, shall timely and accurately file or cause to be filed all
consolidated returns for consolidated taxes (including the filing of any state
or local consolidated returns that include the result of the Section 338(h)(10)
Election) required to be filed by or on behalf of any of the Subsidiaries for
any taxable year or taxable period ending on or before the Closing Date,
including any taxable period that ends on the Closing Date as a result of the
Section 338(h)(10) Election, and including any one-day state or local
consolidated returns (all such periods described in this Section 4.12(a) being
referred to herein as "Pre-Closing Periods").
(b) The Seller shall pay and be responsible for all
consolidated taxes imposed upon or with respect to any of the Subsidiaries for
any Pre-Closing Period, including any liability for Consolidated Taxes arising
out of the inclusion of any of the Subsidiaries in any consolidated returns,
and further including any liability for consolidated taxes arising as a result
of the Section 338(h)(10) Election. The Purchaser shall, promptly after the
receipt thereof, remit to Seller any Consolidated Tax refund received by the
Purchaser or any of the Subsidiaries to the extent such refund relates to a
Pre-Closing Period.
(c) The Purchaser and each of the Subsidiaries shall be
responsible for: (i) the timely preparation and filing of all tax returns of
the Subsidiaries for any taxable
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year or taxable period beginning after the Closing Date (the "Post-Closing
Period"), and (ii) the preparation and filing of all Tax Returns required to be
filed by any of the Subsidiaries after the Closing Date other than those tax
returns for consolidated taxes described in Section 4.12(b).
(d) The Purchaser shall pay and be responsible for, and
shall be entitled to all refunds and credits of, all taxes (including
reasonable attorneys fees and any legal or other expenses for investigating or
defending any actions with respect to Taxes) with respect to any of the
Subsidiaries for any Post-Closing Period.
(e) If, for any federal, state or local tax purpose, a
taxable year or taxable period of any of the Subsidiaries which begins before
the Closing Date and ends after the Closing Date (a "Bridge Period") does not
terminate on the Closing Date, the parties hereto will, to the extent permitted
by applicable law, elect with the relevant tax authority to treat the portion
of the Bridge Period ending on the Closing Date (the "Seller Period") for all
purposes as a short taxable period ending as of the close of the Closing Date
and such short taxable period shall be treated as a Pre-Closing Period for
purposes of this Agreement and the portion of the Bridge Period after the
Closing Date (the "Purchaser Period") shall be treated as a Post-Closing Period
for purposes of this Agreement. In any case where applicable laws do not
permit such an election to be made, then, for purposes of this Agreement,
consolidated taxes for the Bridge Period shall be allocated between the Seller
Period and the Purchaser Period using an interim-closing-of-the-books method
assuming that the Seller Period is a taxable period ending at the close of
business on the Closing Date.
(f) The Purchaser shall cause each of the Subsidiaries to
timely and accurately prepare and file all tax returns and pay all taxes due,
if any, with respect to any of the Subsidiaries for any Bridge Period that does
not terminate on the Closing Date, for which it is responsible to pay taxes in
whole or in part. The Seller shall promptly deliver to the Purchaser any work
papers in Seller's possession relating to taxes due for any such Bridge Period
setting forth in detail all information required to complete the applicable tax
returns. Upon notice from the Purchaser, Seller shall pay to the Purchaser the
taxes attributable to the Seller Period portion of the Bridge Period on or
before the second business day prior to the due date for the payment of such
taxes, by wire transfer of immediately available funds to the account
designated by the Purchaser.
(g) The Purchaser shall have exclusive control over and
responsibility to conduct any contest with respect to taxes arising in any
Post-Closing Period or in any Bridge Period; provided, however, that the
Purchaser shall not enter into any agreement in compromise or settlement of
such contest which could affect Seller's liability with respect to a
Pre-Closing Period or a Seller Period without the written consent of Seller,
which shall not be unreasonably withheld or delayed.
(h) Seller shall have exclusive control over and
responsibility to conduct any contest with respect to taxes arising in any
Pre-Closing Period, unless the
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Purchaser shall agree in writing to waive any claim for indemnification under
Sections 4.12(b) with respect thereto, in which event the Purchaser shall have
exclusive control over and responsibility to conduct any such contest;
provided, however, that the Purchaser shall not enter into any agreement in
compromise or settlement of such Contest which could affect Seller's liability
with respect to a Pre-Closing Period or a Seller Period without the written
consent of Seller, which shall not be unreasonably withheld or delayed; and
provided, further, that Seller shall not enter into any agreement in compromise
or settlement of such Contest which could affect the liability of the Purchaser
and each of the Subsidiaries with respect to a Post-Closing Period or a the
Purchaser Period without the written consent of the Purchaser, which shall not
be unreasonably withheld or delayed.
(i) The Purchaser shall notify Seller in writing promptly
upon receipt by any of the Subsidiaries after the Closing of notice of any
assessment or the assertion of any deficiency by any tax authority relating to
a Pre-Closing Period or a Bridge Period with respect to any of the
Subsidiaries.
(j) Seller may participate in any contest concerning
taxes with respect to any Bridge Period that relates to a Seller Period at its
own expense. Seller shall not be liable for any portion of any settlement of
any contest for a Bridge Period that relates to a Seller Period without its
written consent, provided such consent was not unreasonably withheld or
delayed.
(k) Except as otherwise provided in this Agreement and
subject to the allocation of liabilities for Taxes, Seller and the Purchaser
agree to cooperate fully with each other with respect to the preparation of all
tax returns and with respect to all matters relating to taxes, and to keep each
other advised as to any issue relating to taxes of which such party is aware
which could have a bearing on such other party's responsibilities hereunder.
(1) In any contest controlled by Seller or the Purchaser,
the other party will take such action as the one party may by written notice
reasonably request in connection with such contest (including the payment of a
tax preparatory to filing a claim for refund of such tax).
(m) As of the Closing, except as otherwise provided in
this Agreement, Seller and the Subsidiaries shall mutually release each other
from any obligation with respect to any period under any tax sharing, tax
indemnity or tax allocation agreement between any of the Subsidiaries and
Seller or YSI.
4.13 Confidentiality. Each of the parties hereto, for themselves
and their respective officers, directors, employees, stockholders and
representatives, hereby agrees to hold in confidence all information, books,
records and documents acquired from any other party hereto prior to, on, or
after the date hereof in the course of negotiation of the transactions
contemplated hereby or pursuant to the provisions hereof and will not disclose
the same to any third party except as required by law, and except to the extent
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necessary to (a) respond to lawful process, (b) comply with applicable laws,
(c) establish a lawful claim or defense, or (d) obtain reasonably necessary
advice of counsel, and shall not use such information for any purpose
whatsoever other than for purposes of negotiating the transactions contemplated
hereby, or, in the case of the Purchaser, evaluating the businesses of the
Subsidiaries in connection with the transactions contemplated hereby (it being
understood and acknowledged, however, by the Purchaser that YSI may include
information concerning the transactions contemplated by this Agreement in
disclosure documents required to be filed by YSI pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder and
that nothing contained herein shall be construed to prohibit YSI from including
information concerning the transactions contemplated by this Agreement in such
disclosure documents). Should the transactions contemplated hereby not be
consummated for any reason, each party shall promptly return to the other all
originals and copies of such documents and other written information obtained
from the other in the course of such negotiations or pursuant hereto and shall
promptly destroy all evaluations and studies prepared by it or by any of its
representatives on the basis of such information, books, records or documents.
The provisions of this Section 4.13 shall survive the termination of this
Agreement for a period of two (2) years following the date on which this
Agreement shall have been terminated.
4.14 Financing by the Purchaser. Promptly following the execution
hereof, the Purchaser shall promptly undertake such actions and use its
reasonable best efforts to obtain such financing as will provide it with funds
sufficient to pay to the Seller the Purchase Price for the Shares at the
Closing.
4.15 Reorganization of the Subsidiaries. At, or immediately prior
to the Closing, YSI shall take, and shall cause the Seller to take, all such
actions as may be reasonably necessary to cause all of the issued and
outstanding capital stock of each of the Subsidiaries to be contributed to the
capital of the Company, such that, as of the Closing, the Company shall own and
control all of the issued and outstanding capital stock of each of the
Subsidiaries.
4.16 Florida Juvenile Justice Assets. At, or immediately prior to
the Closing, YSI shall cause Youth Services International of Florida, Inc.
("YSI Florida") to distribute to YSI or to another subsidiary of YSI, all of
its assets, rights and properties which are used or useful substantially
exclusively in connection with the operation of its Cypress Creek School and
Everglades Academy programs, subject to all of the liabilities and obligations
of YSI Florida relating to the operation of such programs, and to assign to YSI
or another subsidiary of YSI its option to purchase the Tampa Bay Property
under Section 23 of that certain Lease Agreement dated as of March 27, 1996 by
and between The Tampa Bay Academy, L.P. and YSI Florida.
4.17 Environmental Due Diligence. For a period of twenty (20)
business days following the date hereof, the Purchaser and its agents shall
have the right from time to time to enter upon the business premises of the
Subsidiaries for the purpose of conducting Phase I environmental surveys of the
facilities and properties of the Subsidiaries and
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testing for the presence of lead paint, asbestos and other hazardous materials
in, on, under or about the facilities of properties of the Subsidiaries;
provided that such entries do not interfere unreasonably with the business
operations of the Subsidiaries thereon and that the Purchaser shall repair any
damage caused to the facilities or properties by its agents or employees while
conducting such surveys and that the Purchaser shall indemnify and hold
harmless YSI and each of the Subsidiaries from and against any and all claims,
damages, liabilities, costs or expenses (including attorneys' fees and
expenses) asserted against, suffered by or incurred by YSI or any of the
Subsidiaries by reason of, in connection with or as a result of any bodily
injury, death or property damage proximately caused by the agents or employees
of the Purchaser in conducting such surveys. Purchaser shall furnish to Seller
a copy of any written Phase I Environmental Survey prepared by the Purchaser's
environmental consultant and provided to the Purchaser by such consultant. If,
in the course of conducting such surveys, the Purchaser shall discover the
presence of any lead paint, asbestos or other hazardous materials in, on, under
or about any of the facilities or properties of any of the Subsidiaries, which
presence is in violation of any applicable environmental law (an "Unlawful
Environmental Condition"), the Purchaser promptly shall so notify YSI in
writing of the discovery thereof. If, in the reasonable estimation of the
Purchaser, the cost to remediate any such Unlawful Environmental Condition
would exceed $500,000 in the aggregate (a "Material Environmental Condition"),
YSI shall have the right to either (i) terminate this Agreement, or (ii)
remediate such Material Environmental Condition to the reasonable satisfaction
of the Purchaser. If, as a result of any such survey, the Purchaser shall
discover the presence of lead paint, asbestos or any other hazardous materials
in violation of any applicable environmental laws, and, in the reasonable
estimation of the Purchaser, the cost to remediate is $500,000 or less (an
"Immaterial Environmental Condition"), the Purchaser shall so notify YSI, and
the Purchaser shall have the right, provided that it exercises such right prior
to the close of business on the 20th business day following the date of this
Agreement, to elect to require YSI to remediate such Immaterial Environmental
Condition, at the sole cost and expense of YSI, without any adjustment to the
Purchase Price, prior to the Closing. If the Purchaser shall so elect, YSI
shall proceed diligently and in good faith to remediate the same and the
parties shall proceed to closing.
4.18 "Tail Insurance" Policy. Effective at the Closing, YSI shall
provide, at its sole expense, for the benefit and in the name of the Company
and the Subsidiaries, a so-called "tail insurance" policy covering professional
liability and malpractice claims against the Company and the Subsidiaries for a
period of seven (7) years subsequent to the Closing Date and providing
insurance in favor of such entities with such deductibles and otherwise
substantially similar to the professional liability insurance policy in effect
for the Company and the Subsidiaries immediately prior to the Closing, all with
an insurer reasonably satisfactory to the Purchaser and pursuant to a policy of
insurance that is reasonably satisfactory to the Purchaser.
4.19 Transfer of 401(k) Plans. Prior to the Closing, YSI shall
have effected a transfer to itself or an affiliate other than the Company or
any of the Subsidiaries of sponsorship of the 401(k) plans described in
Schedule 4.19 hereto.
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4.20 Employee List. Not later than thirty (30) days prior to the
Closing, YSI shall provide to the Purchaser a list of all employees of the
Company and Subsidiaries as of the most recent practicable date prior to the
date when such list is provided. Such list shall designate whether such
employees would constitute highly compensated employees as defined in Code
Section 414(q).
4.21 List of Personal Property and Accounts, Deposits, etc. Not
later than thirty (30) days prior to the Closing, YSI shall provide to the
Purchaser (i) a complete and accurate list and brief description of all
tangible assets of the Company and the Subsidiaries existing on August 1, 1997,
the net book value of which, as properly reflected in their respective books
and records, on an individual item-by-item basis, exceeds $500.00, and (ii) to
the extent not itemized in the Subsidiary Financial Statements, a complete and
accurate list and brief description of all certificates of deposit, equipment,
utility and other deposits, bank accounts and other cash equivalents owned by
the Company and the Subsidiaries.
4.22 Tax Basis in Assets. Not later than thirty (30) days prior to
the Closing, YSI shall provide to the Purchaser a complete and accurate
schedule showing the Company's and Subsidiaries' tax basis in its and their
assets as of the most recent practicable date prior to the date when such
schedule is provided.
4.23 Cash Flow Statements. Not later than thirty (30) days prior
to the Closing, YSI shall provide to the Purchaser consolidated and
consolidating statements of cash flows of the Company and each of the
Subsidiaries for the twelve-month period ended on June 30, 1997.
SECTION 5
TERMINATION
5.1 Grounds for Termination. Anything herein to the contrary
notwithstanding, this Agreement and the obligations of the parties hereunder
may be terminated on or prior to the Closing Date, as follows:
(a) By Purchaser (i) in the event that the transactions
contemplated hereunder have been prohibited or enjoined by reason of any final
judgment, decree or order entered or issued by a court of competent
jurisdiction in litigation or proceedings involving either Purchaser, YSI, the
Seller or the Company; (ii) in the event the conditions precedent to
Purchaser's obligation to close are not satisfied and performed in full (or
waived in writing by the Purchaser) at or prior to close of business on
September 30, 1997; or (iii) in the event YSI or the Seller breaches or
violates any material provision of this Agreement or fails to perform any
material covenant or agreement to be performed by YSI or the Seller under the
terms of this Agreement, and such breach, violation or failure is not cured or
waived by Purchaser prior to Closing, provided, however, that the right of
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the Purchaser to terminate this Agreement pursuant to Section 5.1(a)(ii) shall
not be available if the failure to satisfy such conditions on or before such
date was caused by or resulted from the failure of the Purchaser to perform any
of the material obligations to be performed by it prior to or as of the Closing
under this Agreement.
.
(b) By YSI or the Seller (i) in the event that the
transactions contemplated hereunder have been prohibited or enjoined by reason
of any final judgment, decree or order entered or issued by a court of
competent jurisdiction in litigation or proceedings involving YSI, Purchaser,
the Seller or the Company; (ii) in the event the conditions precedent to the
obligation of YSI and the Seller to close are not satisfied and performed in
full (or waived in writing by YSI) at or prior to close of business on
September 30, 1997; or (iii) in the event Purchaser breaches or violates any
material provision of this Agreement or fails to perform any material covenant
or agreement to be performed by Purchaser under the terms of this Agreement,
and such breach, violation or failure is not cured or waived by YSI or the
Seller prior to Closing; provided, however, that the right of YSI and the
Seller to terminate this Agreement pursuant to Section 5.1(b)(ii) shall not be
available if the failure to satisfy such conditions on or before such date was
caused by or resulted from the failure of YSI or the Seller to perform any of
the material obligations to be performed by them prior to or as of the Closing
under this Agreement.
(c) By YSI, the Seller and Purchaser by mutual agreement.
5.2 Consequences of Termination. (a) Each party's right of
termination under Section 5.1 hereof is in addition to any other rights such
party may have under this Agreement or otherwise, and the exercise of a right
of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 5.1, all further obligations of the parties
under this Agreement shall terminate, except for those which survive
termination expressly under the terms hereof, and except that the obligations
in Section 4.5 and Section 10 will survive; provided, however, that if this
Agreement is terminated by a party because of the breach of this Agreement by
another party or because one or more of the conditions to the terminating
party's obligations under this Agreement is not satisfied as a result of the
other party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
(b) Anything herein to the contrary notwithstanding, in
the event that, at or before the close of business on September 30, 1997, the
Purchaser has not obtained such financing as will provide the Purchaser with
funds sufficient to pay to the Seller the Purchase Price for the Shares, and,
as of such time, YSI and the Seller shall (A) have performed or complied with
all of the covenants or agreements required to be performed or complied with by
each of them prior to the Closing in order to satisfy the conditions to the
obligation of the Purchaser to close, and (B) be ready, willing and able to
take such other actions as are reasonably required in order to effect the
Closing; Purchaser shall thereupon be and become obligated to make payment to
YSI in an amount equal to
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$650,000.00, such payment to constitute liquidated damages to YSI for the
damages it will have incurred by reason of entering into an agreement to deal
exclusively with the Purchaser in connection with the transactions contemplated
hereby from the date of the execution and delivery hereof through the date of
the termination hereof (which damages are not reasonably ascertainable as of
the date hereof). In such event, anything herein to the contrary
notwithstanding, (i) such remedy shall be the sole and exclusive remedy of YSI
and the Seller by reason of such failure on the part of the Purchaser, (ii)
neither YSI nor Seller shall have the right to any other remedy by reason of
such failure; in either such case unless the Purchaser shall have breached its
obligation under Section 4.14 thereof.
5.3 Risk of Loss. The Seller Companies shall bear all risk of
condemnation, destruction, loss or damage due to fire or other casualty from
the date of this Agreement through the Closing. If the condemnation,
destruction, loss or damage is such that the business of the Company and the
Subsidiaries (taken as a whole) is materially interrupted or curtailed, then
the Purchaser shall have the right to terminate this Agreement. If the
condemnation, destruction, loss or damage is such that the business is neither
interrupted nor curtailed materially and the assets are not materially
affected, or if the business of the Company is curtailed or interrupted or the
assets are materially affected, and the Purchaser nevertheless foregoes the
right to terminate this Agreement, then the consideration payable hereunder
shall be adjusted at Closing to reflect such condemnation, destruction, loss or
damage to the extent that insurance proceeds are not sufficient to cover such
destruction, loss or damage. If the Purchaser and the Seller are unable to
agree upon the amount of such adjustment, then the dispute shall be resolved
jointly by the independent accounting firms then employed by the Seller and the
Purchaser, and if said accounting firms do not agree, they shall appoint the
Independent Accountants to make such determination, whose determination of the
dispute shall be final and binding. The fees and expenses of the Independent
Accountants shall be borne one-half by the Purchaser and one-half by the Seller
if engaged pursuant to the provisions of this Section 5.3.
SECTION 6
AMENDMENT OF AGREEMENT
At any time on or prior to the Closing Date, Purchaser, YSI and the
Seller may, by written agreement:
(a) extend the time for performance of any of the obligations or
other actions of the parties hereto;
(b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant thereto;
(c) waive compliance with any of the covenants or conditions
contained in this Agreement; provided, however, that a party may waive any or
all of the conditions
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precedent to its obligation to close without a written amendment signed by both
parties; and
(d) amend this Agreement in any other respect. Any and all
amendments shall be effective only if made in writing by all parties.
SECTION 7
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The obligation of Purchaser to consummate the transactions
contemplated by this Agreement is subject to and contingent upon the
satisfaction on or before the Closing Date of the following express conditions
precedent:
7.1. Representations and Warranties. Each of the representations
and warranties of YSI and the Seller contained in this Agreement and the other
transaction documents required hereby shall be true and correct in all material
respects as of the date hereof and in all material respects as of the Closing
Date as though such representations and warranties had been made on and as of
the Closing Date, and YSI and/or the Seller shall have performed all covenants
and agreements in all material respects on their parts required to be performed
and shall not be in default under any of the provisions of this Agreement on
the Closing Date.
7.2. Good Standing. YSI and the Seller shall have delivered to the
Purchaser good standing certificates for the Company and each of the
Subsidiaries, issued by the Secretary of State of its state of incorporation,
in each case, and dated not more than thirty (30) days prior to the Closing.
7.3. Litigation. No action or proceeding shall have been
instituted and no order, decree or judgment of any court, agency, commission or
authority shall be subsisting questioning the validity of this Agreement or
seeking to restrain the consummation of the transactions contemplated hereby
which would in Purchaser's good faith opinion render it impossible or
inadvisable to consummate the transactions provided for in this Agreement.
7.4. Opinion of Counsel. YSI and the Seller shall have delivered
to Purchaser an opinion of counsel to YSI and the Seller reasonably
satisfactory to Purchaser substantially in the form of Exhibit 7.4 hereto,
subject to such qualifications, assumptions and limitations as may be
reasonably satisfactory to Purchaser.
7.5. Resolutions. Each of YSI and the Seller shall have delivered
to Purchaser copies, certified by its Secretary or Assistant Secretary of
resolutions adopted by its Board of Directors approving this Agreement and the
transactions contemplated hereby.
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7.6. HSR Act. The waiting period (and any extension thereof)
applicable to the transaction contemplated herein under the HSR Act shall have
expired or been terminated.
7.7. Governmental Approvals. Each of the Company and the
Subsidiaries shall have received or been granted, or otherwise have in effect
as of the Closing, all licenses, permits, and governmental approvals reasonably
necessary for the operation of their respective businesses from and after the
Closing, or shall have received assurances reasonably satisfactory to the
Purchaser that all such licenses, permits or approvals will be issued or
granted in due course.
7.8. No Adverse Changes. There shall not have occurred any other
event or condition or combination of events and conditions which has had or
which reasonably may be expected to have a material and adverse effect on the
results of operations, condition (financial or otherwise), assets, properties,
business or prospects of the Company and the Subsidiaries, taken as a whole.
7.9. Facility Licenses. All required healthcare facility licenses
for each healthcare provider facility owned or operated by the Company and each
of the Subsidiaries shall have been issued and shall be in effect and
unexpired.
7.10. Financing. Purchaser shall have consummated a borrowing from
one or more lenders under terms reasonably satisfactory to Purchaser, which
borrowing, when taken in the aggregate with other funds available to Purchaser,
including the funds that CGW Southeast Partners III, L.P. has committed to
provide to Purchaser pursuant to that certain letter of even date herewith and
addressed to YSI, shall be in an amount sufficient to pay the Purchase Price
and provide adequate working capital for the operation of the Business by
Purchaser (the "Financing").
7.11. Transition Services Agreement. The Seller and the Purchaser
shall have entered into a Transition Services Agreement in substantially the
form attached hereto as Exhibit 7.11.
7.12. YSI Exercise of Option to Purchase. YSI or an affiliate of
YSI shall have exercised its option to purchase that certain property known
generally as 12012 Bayette Road, Riverview, Florida, under that certain lease
agreement dated March 27, 1996 and entered into by and between YSI and The
Tampa Bay Academy, and YSI shall have provided to Purchaser evidence reasonably
satisfactory to Purchaser showing YSI to be the owner of the property that was
subject to such lease (the "Tampa Property").
7.13. Lease of Tampa Property. YSI or its affiliate (the "Tampa
Lessor") shall have entered into a Lease Agreement in commercially reasonable
form, to be negotiated in good faith by the parties hereto, providing for a
lease of the Tampa Property from the Tampa Lessor to Purchaser or its affiliate
on a triple net basis (the "Tampa Lessee"), such lease to provide for (i)
rental of $41,667 per month, and (ii) an initial five-year term, with option to
renew for another five years at the same rental.
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7.14. Lease and Tax Matters Agreement. The Purchaser and its
affiliates, or any of them, and YSI and its affiliates, or any of them, shall
have entered into a Lease and Tax Matters Agreement substantially in the form
of Exhibit 7.14 hereto.
7.15 Management Agreement Amendment. That certain Management
Agreement dated April 1, 1995 and entered into by and between Tampa Bay Academy
and The National Mental Health Institute on Deafness, Inc. (the "Manager")
shall have been amended in a manner reasonably satisfactory to the Purchaser to
provide for a flat fee payment arrangement with the Manager or in such other
manner as may be reasonably satisfactory to the Purchaser.
7.16 Release of Security Interests. The security interests
described in numbered paragraph 1 of Schedule 2.22 hereto and items under the
caption "FILINGS AFFECTING COLLATERAL" in Attachment 2.22 to Schedule 2.22
shall have been released and of no further force or effect. The security
interest described in paragraph 2 of Schedule 2.22 shall have been released and
of no further force or effect or other action shall have been taken with
respect to such security interests as shall be reasonably satisfactory to the
Purchaser.
7.17 Liquidation, Dissolution and Transfer of Entities. (a)
Ocotillo Pediatric Services, Inc., an Arizona corporation, and Desert Hills
Alternative Programs, Inc., an Arizona corporation, shall have been liquidated
and dissolved.
(b) Youth Services International of Florida, Inc. shall
have transferred any and all of its interest in HealthExpert Systems, Inc. and
Professional Education Services, Inc. to YSI or an affiliate thereof other than
the Company or any of the Subsidiaries.
7.18. Tail Insurance. The tail insurance policy provided for in
Section 4.18 hereof shall have been issued.
7.19 Consents, Approvals, Waivers, Etc. All of the consents,
approvals and waivers listed in Schedule 2.6 hereto shall have been obtained so
as to obviate any violation of the terms of any of the agreements, contracts,
instruments, licenses and permits listed in such Schedule.
7.20. Other Agreements. YSI and the Seller shall have executed and
delivered to Purchaser all of the other Closing Documents and all other
documents, instruments and certificates required to be delivered by YSI or the
Seller pursuant to any term or provision of this Agreement.
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SECTION 8
CONDITIONS PRECEDENT TO OBLIGATION OF
YSI AND THE SELLER TO CLOSE
The obligation of YSI and the Seller to consummate the transactions
contemplated by this Agreement is subject to and contingent upon the
satisfaction on or before the Closing Date of the following express conditions
precedent:
8.1. Representations and Warranties. Each of the representations
and warranties of Purchaser contained in this Agreement and the other
transaction documents required hereunder shall be true and correct in all
respects as of the date hereof and in all material respects as of the Closing
Date, and Purchaser shall have performed all covenants and agreements on its
part required to be performed in all material respects and shall not be in
default under any of the provisions of this Agreement at or prior to the
Closing Date.
8.2. Resolutions. Purchaser shall have delivered to YSI and the
Seller copies, certified by the Secretary or Assistant Secretary of Purchaser,
of resolutions adopted by the Board of Directors of Purchaser and approving
this Agreement and the consummation of the transactions contemplated hereby.
8.3. Good Standing and Existence. YSI and the Seller shall have
received a good standing certificate for Purchaser, issued by the Secretary of
State of the State of Georgia, and dated not more than thirty (30) days prior
to the Closing.
8.4. Opinion of Counsel. YSI and the Seller shall have received an
opinion of counsel to Purchaser in substantially the form of Exhibit 8.4 and
reasonably satisfactory to YSI and the Seller.
8.5. Litigation. No action or proceeding shall have been
instituted and no order, decree or judgment of any court, agency, commission or
authority shall be subsisting questioning the validity of this Agreement or
seeking to restrain the consummation thereof which would, in the Seller's good
faith opinion, render it impossible or inadvisable to consummate the
transactions provided for in this Agreement.
8.6. HSR Act. The waiting period (and any extension thereof)
applicable to the transaction contemplated herein under the Hart-Scott-Rodino
Act shall have expired or been terminated.
8.7. Other Agreements. Purchaser shall have executed and delivered
to YSI and the Seller all of the other Closing Documents and all other
documents, instruments, certificates required to be delivered by Purchaser.
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SECTION 9
INDEMNIFICATION
9.1 Definitions.
For the purposes of this Section 9:
(a) "Indemnification Claim" means a claim for
indemnification hereunder.
(b) "Indemnitor" means a party from whom indemnification
is sought hereunder.
(c) "Indemnitee" means the party seeking indemnification
hereunder.
(d) "Losses" means any and all demands, claims, actions
or causes of action, assessments, losses, diminution in value, damages,
liabilities, costs, and expenses, including without limitation, interest,
penalties, cost of investigation and defense, and reasonable attorneys' and
other professional fees and expenses.
(e) "Third Party Claim" means any claim, suit or
proceeding (including, without limitation, a binding arbitration or an audit by
any taxing authority) that is instituted against an Indemnitee by a person or
entity other than an Indemnitor and which, if prosecuted successfully, would
result in a Loss for which such Indemnitee is entitled to indemnification
hereunder.
9.2 Agreement of YSI and the Seller to Indemnify.
Subject to the terms and conditions of this Section 9, YSI and the
Seller agree, jointly and severally, to indemnify, defend, and hold harmless
Purchaser from, against, for and in respect of any and all Losses asserted
against, or paid, suffered or incurred by, Purchaser and resulting from, based
upon, or arising out of:
(a) the inaccuracy, incompleteness or breach of any
representation or warranty of YSI or the Seller contained in or made pursuant
to this Agreement or in any certificate, Schedule, or Exhibit furnished by YSI
or the Seller in connection herewith which survives the Closing by virtue of
Section 9.7 hereof;
(b) a breach of or failure to perform any covenant or
agreement of YSI or the Seller made in this Agreement;
(c) the operation of any juvenile detention center by the
Seller or any of the Subsidiaries at any time prior to the Closing;
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(d) termination of employment of Edward Hoefle for any
reason whatsoever, to the extent, but only to the extent, that such Losses
exceed the amount of $51,500.00, provided, however, that such termination of
employment shall have been effected in a manner that was reasonable in the
circumstances, and, provided further, that this Section 9.2(d) is not intended
to, and shall not be construed to, relieve the Purchaser or its affiliates from
the requirement to pay any earnout amount under terms of the "earn-out"
provisions of (i) Asset Purchase Agreement dated March 27, 1996 by and among
Tampa Bay Academy, Ltd., YSI and YSI-Florida, or (ii) Agreement dated March 27,
1996, by and among YSI, YSI-Florida and American Residential Centers, Inc.;
(e) any matter listed in Schedule 2.16 or 2.17 hereto;
(f) any act of professional or medical malpractice in the
Company or any of the Subsidiaries occurring at any time prior to the Closing,
whether known or unknown; or
(g) any lawsuit, proceeding, action, arbitration, claim
or governmental investigation, inquiry or proceeding listed in Schedule 2.9
hereto.
9.3 Agreement of Purchaser to Indemnify.
Subject to the terms and conditions of this Section 9, Purchaser
agrees to indemnify, defend, and hold harmless YSI and the Seller from,
against, for, and in respect of any and all Losses asserted against or paid,
suffered or incurred by YSI or the Seller and resulting from, based upon, or
arising out of:
(a) the inaccuracy, incompleteness or breach of any
representation or warranty of Purchaser contained in or made pursuant to this
Agreement or in any certificate, Schedule, or Exhibit furnished by Purchaser in
connection herewith which survives the Closing by virtue of Section 9.7 hereof;
(b) a breach or partial breach of or failure to perform
any covenant or agreement of Purchaser made in this Agreement;
(c) any of the guaranties provided by YSI prior to the
Closing in respect of any of the obligations, liabilities or duties of any of
the Subsidiaries;
(d) any failure of the Purchaser or Youth Services
International of Florida, Inc. ("YSI-Florida") to observe or comply with terms
of the "earn-out" provisions of (i) Asset Purchase Agreement dated March 27,
1996 by and among Tampa Bay Academy, Ltd., YSI and YSI-Florida, or (ii)
Agreement dated March 27, 1996, by and among YSI, YSI-Florida and American
Residential Centers, Inc.
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9.4 Procedures for Indemnification.
(a) An Indemnification Claim shall be made by an
Indemnitee by delivery of a written notice to the Indemnitor requesting
indemnification and specifying the basis on which indemnification is sought and
the amount of asserted Losses and, in the case of a Third Party Claim,
containing (by attachment or otherwise) such other information as such
Indemnitee shall have concerning such Third Party Claim.
(b) If the Indemnification Claim involves a Third Party
Claim the procedures set forth in Section 9.5 hereof shall be observed.
(c) If the Indemnification Claim involves a matter other
than a Third Party Claim, the Indemnitor shall have thirty (30) calendar days
to object to such Indemnification Claim by delivery of a written notice of such
objection to the Indemnitee specifying in reasonable detail the basis for such
objection. Failure to timely so object shall constitute a final and binding
acceptance of the Indemnification Claim by the Indemnitor, and the
Indemnification Claim shall be paid in accordance with subsection (d) hereof.
If an objection is timely interposed by the Indemnitor and the dispute is not
resolved by the Indemnitee and the Indemnitor within fifteen (15) business days
from the date the Indemnitee receives such objection, such dispute shall be
resolved by arbitration as provided in Section 13.9 of this Agreement.
(d) Upon determination of the amount of an
Indemnification Claim, whether by agreement between the Indemnitor and the
Indemnitee or by an arbitration award or by any other final adjudication, the
Indemnitor shall pay the amount of such Indemnification Claim within ten (10)
business days of the date such amount is determined.
9.5 Third Party Claims. The obligations and liabilities of the
parties hereunder with respect to a Third Party Claim shall be subject to the
following terms and conditions:
(a) The Indemnitee shall give the Indemnitor written
notice of a Third Party Claim promptly after receipt by the Indemnitee of
notice thereof, and the Indemnitor may undertake the defense, compromise and
settlement thereof by representatives of its own choosing reasonably acceptable
to the Indemnitee. The failure of the Indemnitee to notify the Indemnitor of
such claim shall not relieve the Indemnitor of any liability that it may have
with respect to such claim except to the extent the Indemnitor demonstrates
that the defense of such claim is prejudiced by such failure. The assumption
of the defense, compromise and settlement of any such Third Party Claim by the
Indemnitor shall be an acknowledgment of the obligation of the Indemnitor to
indemnify the Indemnitee with respect to such claim hereunder. If the
Indemnitee desires to participate in, the defense, compromise and settlement of
any claim being defended by the Indemnitor, it may do so at its sole cost and
expense. If, however, the Indemnitor fails or refuses to undertake the defense
of such Third Party Claim within ten (10) business days after written notice of
such claim has been given to the Indemnitor by the Indemnitee, the Indemnitee
shall have
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<PAGE> 50
the right to undertake the defense, compromise and settlement of such claim
with counsel of its own choosing. In the circumstances described in the
preceding sentence, the Indemnitee shall, promptly upon its assumption of the
defense of such claim, make an Indemnification Claim as specified in Section
9.4 which shall be deemed an Indemnification Claim that is not a Third Party
Claim for the purposes of the procedures set forth herein.
(b) If, in the reasonable opinion of the Indemnitee, any
Third Party Claim or the litigation or resolution thereof involves an issue or
matter which could have a material adverse effect on the business, operations,
assets, properties or prospects of the Indemnitee (including, without
limitation, the administration of the tax returns and responsibilities under
the tax laws of the Indemnitee), the Indemnitee shall have the right to control
the defense, compromise and settlement of such Third Party Claim undertaken by
the Indemnitor, and the costs and expenses of the Indemnitee in connection
therewith shall be included as part of the indemnification obligations of the
Indemnitor hereunder. If the Indemnitee shall elect to exercise such right,
the Indemnitor shall have the right to participate in, but not control, the
defense, compromise and settlement of such Third Party Claim at its sole cost
and expense.
(c) No settlement of a Third Party Claim involving the
asserted liability of the Indemnitor under this Section 9.5 shall be made
without the prior written consent by or on behalf of the Indemnitor, which
consent shall not be unreasonably withheld or delayed. Consent shall be
presumed in the case of settlements of $10,000 or less where the Indemnitor has
not responded within five (5) business days of notice of a proposed settlement.
If the Indemnitor assumes the defense of such a Third Party Claim, (a) no
compromise or settlement thereof may be effected by the Indemnitor without the
Indemnitee's consent unless (i) there is no finding or admission of any
violation of law or any violation of the rights of any person and no effect on
any other claim that may be made against the Indemnitee (ii) the sole relief
provided is monetary damages that are paid in full by the Indemnitor and (iii)
the compromise or settlement includes, as an unconditional term thereof, the
giving by the claimant or the plaintiff to the Indemnitee of a release, in form
and substance satisfactory to the Indemnitee, from all liability in respect of
such Third Party Claim, and (b) the Indemnitee shall have no liability with
respect to any compromise or settlement thereof effected without its consent.
(d) In connection with the defense, compromise or
settlement of any Third Party Claim, the parties to this Agreement shall
execute such powers of attorney as may reasonably be necessary or appropriate
to permit participation of counsel selected by any party hereto and, as may
reasonably be related to any such claim or action, shall provide access to the
counsel, accountants and other representatives of each party during normal
business hours to all properties, personnel, books, tax records, contracts,
commitments and all other business records of such other party and will furnish
to such other party copies of all such documents as may reasonably be requested
(certified, if requested).
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<PAGE> 51
9.6 Exclusive Remedies. Except to the extent that an Indemnitee
shall elect to pursue its equitable remedies in respect of the breach or
threatened breach of any of the provisions hereof for which such a remedy is
available, and except to the extent that an Indemnitee shall seek to recover
monetary damages in respect of a breach of any of the provisions of Section
4.10, following the Closing, the sole and exclusive remedy of each of the
parties hereto with respect to any misrepresentation or breach of any warranty,
covenant or agreement by the other party or parties hereto shall be an
Indemnification Claim under the provisions of this Section 9.
9.7 Survival. The representations and warranties in this
Agreement shall survive the Closing as indicated in Section 13.2 hereof.
9.8 Tax Effect and Insurance. The liability of the Indemnitor
with respect to any Indemnification Claim shall be reduced by the tax benefit
actually realized and any insurance proceeds received by the Indemnitee as a
result of any Losses upon which such Indemnification Claim is based, and shall
include any tax detriment actually suffered by the Indemnitee as a result of
such Losses. The amount of any such tax benefit or detriment shall be
determined by taking into account the effect, if any and to the extent
determinable, of timing differences resulting from the acceleration or deferral
of items of gain or loss resulting from such Losses and shall otherwise be
determined so that payment by the Indemnitor of the Indemnification Claim, as
adjusted to give effect to any such tax benefit or detriment, will make the
Indemnitee as economically whole as is reasonably practical with respect to the
Losses upon which the Indemnification Claim is based. Any dispute as to the
amount of such tax benefit or detriment shall be resolved by arbitration as
provided in Section 13.9 hereof.
9.9 Subrogation. Upon payment in full of any Indemnification
Claim, whether such payment is effected by set-off or otherwise, or the payment
of any judgment or settlement with respect to a Third Party Claim, the
Indemnitor shall be subrogated to the extent of such payment to the rights of
the Indemnitee against any person or entity with respect to the subject matter
of such Indemnification Claim or Third Party Claim.
9.10 Basket Amounts. Anything hereinabove to the contrary
notwithstanding, (i) YSI and the Seller shall not be liable for any Losses to
Purchaser except to the extent that such Losses exceed, in the aggregate,
$100,000.00, (ii) Purchaser shall not be liable for any Losses to YSI or the
Seller, except to the extent that such losses, damages or deficiencies exceed,
in the aggregate, $100,000.00, and, (iii) in addition to the foregoing, YSI and
the Seller shall not be liable for any Losses to Purchaser on account of the
breach of any representation or warranty in Section 2.18 except to the extent
that any such Losses exceed, in the aggregate, $10,000, provided that (A) the
limitations on the liability of the Purchaser provided for herein shall not
apply to any failure of the Purchaser to observe or comply with its obligations
under Sections 1.4, 1.5(d), 4.12 or 5.2(b) hereof or the indemnification
obligation under Section 9.3(d); and (B) the limitations on the liability of
YSI and the Seller provided for herein shall not apply to a breach of Section
2.17 hereof, any failure of YSI or the Seller to observe or comply with its or
their obligations
- 44 -
<PAGE> 52
under Sections 1.5(d) or 4.12 hereof or the indemnification obligation
reflected in Section 9.2(d), (e) and (f) hereof.
9.11 Limitation of Liability of the Seller and YSI.
Notwithstanding anything to the contrary herein, neither the Seller nor YSI
shall be liable for any Losses under Section 9.2 to Purchaser, in the
aggregate, in excess of the Purchase Price.
9.12 Limitation of Purchaser Liability. Notwithstanding anything
to the contrary herein, Purchaser shall not be liable for any Losses under
Section 9.3 to YSI or the Seller, in the aggregate, in excess of the Purchase
Price.
SECTION 10
PAYMENT OF EXPENSES
Legal, accounting and other expenses incident to this Agreement and
the transactions contemplated hereby incurred by YSI or the Seller shall be
paid by YSI or the Seller, and not by the Company; legal, accounting and other
expenses incurred by Purchaser shall be paid by Purchaser.
SECTION 11
ADDITIONAL DOCUMENTS
The parties hereto will, at any time, before, at or after the Closing
Date, sign, execute and deliver all such documents and instruments and do or
cause to be done all such other acts and things as may be reasonably necessary
to carry out the provisions of this Agreement.
SECTION 12
NOTICES
Any notice or other communications required or permitted hereunder
shall be sufficiently given if sent by registered or certified mail, postage
prepaid, or by Federal Express, UPS or similar service or by telecopy (if
delivered during normal business hours, Eastern Time), addressed as follows:
YSI: Youth Services International, Inc.
2 Park Center Court, Suite 200
Owings Mills, Maryland 21117
Fax No.: (410) 356-8634
Attention: Mark S. Demilio
Senior Vice President--Corporate
Development and General Counsel
- 45 -
<PAGE> 53
the Seller: c/o Youth Services International
2 Park Center Court, Suite 200
Owings Mills, Maryland 21117
Fax No.: (410) 356-8634
Attention: Mark S. Demilio
Purchaser: 1705 Capital of Texas Highway South
Suite 500
Austin, Texas 78746
Attention: Kevin P. Sheehan
With a copy (which shall c/o CGW Southeast Partners
not constitute notice) to: Suite 210, Twelve Piedmont Center
Atlanta, Georgia 30305
Fax No.: (404) 816-3258
Attention: Mr. Bart A. McLean
With a Copy (which shall Alston & Bird
not constitute notice) to: One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Fax No.: (404) 881-7777
Attention: Jonathan W. Lowe, Esq.
or to such other addresses as shall be furnished in writing by any of the
parties and any such notice or communication shall be deemed to have been given
as of the date so expressed or telecopied (if delivered during normal business
hours, Eastern Time, or on the next business day if delivered after normal
business hours, Eastern Time) and three business days after the date so mailed
(if mailed).
SECTION 13
MISCELLANEOUS
13.1 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be one and the same Agreement.
13.2 Representations and Survival. Except as otherwise provided in
this Agreement, and except for those covenants and agreements made herein which
by their terms are to be performed at and after the Closing during or for a
specified period following the Closing, all of the representations, warranties,
covenants and agreements of the parties contained in or made pursuant to this
Agreement, and the certifications made by the parties at the Closing, and the
indemnity obligations set forth in Section 9 hereof shall survive the Closing,
but shall terminate on, and no claim or action with respect
- 46 -
<PAGE> 54
thereto may be brought after the close of business on September 30, 1999;
provided, however, that (i) the representations and warranties contained in
Sections 2.1, 2.2, 2.10, 2.12, 2.18, 2.21 (as to title to real estate),
2.22(c), 2.23, 3.1 and 3.2, and the related indemnity obligations of the
parties under Section 9 hereof, shall survive the Closing and remain effective
until expiration of the period provided for in any applicable statute of
limitations.
13.3 Headings. The headings in this Agreement are for convenience
only and shall not affect the construction hereof.
13.4 Assignability; Binding Terms and Provisions. This Agreement
shall not be assignable by any of the parties hereto without the prior written
consent of the other parties hereto. All terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and assigns of the parties hereto.
13.5 Entire Agreement. This Agreement shall constitute the entire
agreement among the parties with respect to the foregoing and may not be
amended except as provided herein. Upon the execution and delivery of this
Agreement, the letter of intent dated May 29, 1997 and entered into by and
among Purchaser and YSI, as amended to date, shall expire and be of no further
force or effect.
13.6 Governance. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Georgia.
13.7 Waiver of Breach. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach of the same or other
provision hereof.
13.8 Third Party Beneficiaries. Except as expressly provided in
this Agreement, nothing in this Agreement, whether express or implied, is
intended to confer any rights or remedies under or by reason of this Agreement
on any persons other than the parties to it and their respective successors and
assigns, nor is anything in this Agreement intended to relieve or discharge the
obligation or liability of any third persons to any party to this Agreement,
nor shall any provision give any third persons any right of subrogation
or action over or against any party to this Agreement. Anything hereinabove to
the contrary notwithstanding, the parties acknowledge and agree that Purchaser
shall have the right to make a security assignment of its interest in this
Agreement to any financial institution that provides financing for the benefit
of Purchaser in connection with the acquisition of the Shares pursuant to this
Agreement.
13.9 Dispute Resolution. Except as otherwise provided in this
Agreement, all disputes arising under this Agreement (other than claims in
equity) shall be resolved by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Arbitration shall
be by a single arbitrator experienced in the matters at issue and selected by
the Seller and Purchaser in accordance with such Rules.
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<PAGE> 55
The arbitration shall be held in such place in Charlotte, North Carolina, as
may be specified by the arbitrator (or any place agreed to by the Seller,
Purchaser and the arbitrator). The decision of the arbitrator shall be final
and binding as to any matters submitted under this Agreement; provided,
however, if necessary, such decision and satisfaction procedure may be enforced
in any court of record having jurisdiction over the subject matter or over any
of the parties to this Agreement. All costs and expenses incurred in
connection with any such arbitration proceeding (including reasonable attorneys
fees) shall be borne by the party against which the decision is rendered, or,
if no decision is rendered, such costs and expenses shall be borne equally by
YSI and the Seller as one party and Purchaser as the other party. If the
arbitrator's decision is a compromise, the determination of which party or
parties bears the costs and expenses incurred in connection with any such
arbitration proceeding shall be made by the arbitrator on the basis of the
arbitrator's assessment of the relative merits of the parties' positions.
13.10 Knowledge. As used in this Agreement, the term "knowledge,"
with respect to an individual, means and is deemed to exist as to a particular
matter or fact if such individual is actually aware of such fact or other
matter, and, with respect to YSI and the Seller or the Seller Companies means
and is deemed to exist as to a particular matter of fact if any individual who
on and as of the date of this Agreement is serving as an officer of YSI or as
an officer or Executive Director of any of the Subsidiaries, at the time such
statement was made, had knowledge of such fact or other matter of the sort
described above in this Section 13.10.
13.11. Schedules. Each Schedule to this Agreement shall be
considered a part hereof as if set forth herein in full.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by a duly authorized officer on the date first above written.
YOUTH AND FAMILY CENTERED SERVICES, INC.
By: [SIG]
-----------------------------------
Title: President & CEO
-----------------------------------
YOUTH SERVICES INTERNATIONAL HOLDINGS, INC
By: [SIG]
-----------------------------------
Title: Vice President and Secretary
-----------------------------------
YOUTH SERVICES INTERNATIONAL, INC.
By: [SIG]
-----------------------------------
Title: Sr. V.P. Corporate Development and
-----------------------------------
General Counsel
-----------------------------------
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<PAGE> 57
SCHEDULES
TO
STOCK PURCHASE AGREEMENT
BY AND AMONG
YOUTH AND FAMILY CENTERED SERVICES, INC.,
YOUTH SERVICES INTERNATIONAL HOLDINGS, INC.
AND
YOUTH SERVICES INTERNATIONAL, INC.
DATED AS OF JULY 22, 1997
1
<PAGE> 58
SCHEDULE 1.2(c)
EXCEPTIONS TO GAAP FOR PURPOSES OF DETERMINING NET WORKING CAPITAL
For purposes of determining the Net Working Capital of the Company and
the Subsidiaries, the following procedures shall be used, regardless of whether
such procedures shall conform to GAAP:
1. The unpaid balances of all accounts receivable of the
Subsidiaries which are older than 120 days, as shown on the accounts receivable
aging report of the Subsidiaries, as of the date with respect to which Net
Working Capital shall be determined, shall be deducted in determining the book
value of the accounts receivable of the Company and the Subsidiaries as of such
date.
2. The balances of all of the following types of accounts
receivable of the Subsidiaries, as of the date with respect to which Net
Working Capital shall be determined, shall be deducted in determining the book
value of the accounts receivable of the Company and the Subsidiaries as of such
date:
(a) all accounts receivable reflected on the books of the
Subsidiaries which arose outside of the ordinary course of business or by
reason of the sale of goods or the provision of services by the Subsidiaries
other than behavioral health or educational services provided to patients or
students in any of the programs operated by the Subsidiaries;
(b) all accounts receivable reflected on the books of the
Subsidiaries (i) which arose from the provision of services by the Subsidiaries
to its "private" patients or students (i.e. those who are enrolled in the
Subsidiaries program otherwise than pursuant to an agreement or arrangement
with a governmental agency) for which the patient, student or their parents or
guardians are liable primarily and (ii) which constitute the private pay amount
associated with any third party receivable; and
(c) those accounts receivable reflected on the books of
Desert Hills Center for Youth and Families, Inc., the payment of which has been
denied by the third-party payor thereof.
3. No accrual shall be made for any federal, state or local
income taxes which may or will become payable by any of the Subsidiaries as a
result of the Section 338(h)(10) Election.
4. No reserve shall be established for "incurred but not
reported" professional or malpractice liability
<PAGE> 59
5. In the case of the preparation of Schedule 1.5(c) and for
purposes of determining the Final Net Working Capital, no reserve shall be
established for any contingent liabilities of any of the Subsidiaries with
respect to any matter as to which YSI and the Sellers have agreed, pursuant to
the terms of this Agreement, to indemnify the Purchaser or for the $100,000.00
"basket amount" against their liability to so indemnify the Purchaser which is
provided for in Section 9.10 of this Agreement.
6. No accrual shall be made for federal, state or local income
taxes arising from the operations of the business of the Subsidiaries except
for those state or local income taxes which are due and payable to
jurisdictions in which the Subsidiaries conduct business which do not permit
the filing of consolidated tax returns by members of an affiliated group.
- 2 -
<PAGE> 60
SCHEDULE 1.8
Guaranties by YSI of Obligations of Behavioral Health Subsidiaries
1. Pursuant to the terms of the Management Agreement dated June 30, 1995
by and between Youth Services International of Texas, Inc. ("YSI Texas") and
DHMG, Inc. (the "College Station Management Agreement"), YSI has guaranteed to
DHMG, Inc. all of the payment and performance obligations of YSI Texas under
the terms of the College Station Management Agreement.
2. Pursuant to the terms of a Guaranty dated as of June 30, 1995 in favor
of Meditrust of College Station, Inc. ("Meditrust"), YSI guaranteed to
Meditrust all payment and performance obligations of YSI Texas under the
College Station Management Agreement and the Facility Lease and Security
Agreement by and between Meditrust, as lessor, and Youth Services
International of Texas, Inc., as lessee (the "College Station Lease
Agreement").
3
<PAGE> 61
SCHEDULE 2.4
Capital Stock
<TABLE>
<CAPTION>
Par Value
Authorized Per Share Outstanding
---------- --------- -----------
<S> <C> <C> <C>
Developmental Behavioral Consultants, Inc. 10,000 No Par 1,000
Introspect HealthCare, Corporation 100,000,000 $1.00 55,000
Promise House, Inc. 100,000 $1.00 100,000
Southwestern Children's Health Services, Inc. 1,000 $0.10 100
Youth Services International of Florida, Inc. 100,000 $0.10 100
Youth Services International of New Mexico, Inc. 100,000 $0.10 1,000
Youth Services International of Texas, Inc. 100,000 $0.10 1,000
YSI of Utah, Inc. 1,000 $0.10 100
Desert Hills Center for Youth and Families, Inc. 1,000,000 $1.00 500
Desert Hills Center for Youth and Families
of New Mexico, Inc. 500,000 $1.00 500
</TABLE>
The authorized capital stock of the Company consists of 10,000 shares of
common stock, $.001 par value, none of which has been issued as of the date
hereof. The Seller has subscribed for 1000 shares of the common stock of the
Company.
4
<PAGE> 62
SCHEDULE 2.5
Subsidiaries and Investments
Developmental Behavioral Consultants, Inc.
Introspect HealthCare, Corporation
Desert Hills Center for Youth and Families, Inc.
Desert Hills Center for Youth and Families of New Mexico, Inc.
Promise House, Inc.
Southwestern Children's Health Services, Inc.
Youth Services International of Florida, Inc.
Youth Services International of New Mexico, Inc.
Youth Services International of Texas, Inc.
YSI of Utah, Inc.
Desert Hills Center for Youth and Families, Inc. is the holder of all of
the issued and outstanding capital stock of Ocotillo Pediatric Services, Inc.,
an Arizona corporation. Ocotillo Pediatric Services, Inc. is not in good
standing with the State of Arizona because it failed to file its annual
reports for 1996. The company is not an operating company and it does not
have any material assets or conduct any business.
Youth Services International of New Mexico, Inc. is the holder of all of
the issued and outstanding capital stock of Desert Hill Alternative Programs,
Inc., an Arizona corporation. Desert Hills Alternative Programs, Inc. is not
in good standing with the State of Arizona because it failed to file its
annual reports for 1996. The company is not an operating company and it does
not have any material assets or conduct any business.
Youth Services International of Florida, Inc. is the holder of
approximately 91% in common with American Residential Centers, Inc. of
HealthExpert Systems, Inc. and of 50% in common with American Residential
Centers, Inc. of Professional Education Services, Inc.
5
<PAGE> 63
SCHEDULE 2.6
Violations -- Required Consents, Approvals, Waivers, Etc.
Unless certain consents, approvals or waivers shall be obtained by YSI or
one or more of the Subsidiaries, consummation by YSI and the Seller of the
transactions contemplated by this Agreement will violate the terms of the
following agreements, contracts, instruments, licenses and permits:
1. Facility Lease and Security Agreement dated as of June 30, 1995 by
and between Meditrust of College Station, Inc., as lessor, and Youth Services
International of Texas, Inc., as lessee. Pursuant to Section 21 thereof,
consent of the lessor is required prior to any transfer of capital stock of
Youth Services International of Texas, Inc.
2. Loan and Security Agreement dated as of June 20, 1995 by and
between Signet Bank/Maryland (predecessor in interest to Signet Bank) and the
Original Borrowers named therein, as amended by First Amendment to Loan and
Security Agreement dated as of December 12, 1996 by and among Signet Bank,
YSI, 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. and Southwestern Children's Health Services, Inc.
3. Assumption Agreement dated as of July 25, 1995 by Youth Services
International of New Mexico, Inc., YSI and Signet Bank.
4. Assumption Agreement dated as of December 12, 1996 by 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, Desert Hills
Center for Youth and Families, Inc., YSI and Signet Bank.
5. Lease for 5128 E. Thomas Road, Phoenix, AZ 85018, first floor, by
and between Sal and Catherine Fusco and Parc Place Realty Holdings, Inc.,
expiring October 31, 1997.
6. Lease for 5128 E. Thomas Road, Phoenix, AZ 85018, second
floor, by and between Sal and Catherine Fusco and Southwestern Children's
Health Services, Inc. expiring June 30, 1999.
7. Employment Agreement dated March 25, 1996 by and between YSI,
Youth Services International of Florida, Inc. and Edward Hoefle provides Mr.
Hoefle with right, among other things, to participate in the employee benefit
programs of YSI. Following the Closing, Mr. Hoefle will not be entitled to
participate in those programs.
6
<PAGE> 64
8. Participation Agreement for a Residential Treatment Center between
Youth Services International of New Mexico, Inc. and the U.S. Department of
Defense, stamped as received on April 29, 1996, for 5310 Sequoia NW,
Albuquerque, New Mexico 87120.
9. Participation Agreement for a Psychiatric Partial Hospitalization
Program between Desert Hills Center for Youth and Families and the U.S.
Department of Defense for 5310 Sequoia NW, Albuquerque, New Mexico 87120.
10. Participation Agreement for Substance Use Disorder Rehabilitation
Facility Services for CHAMPUS Beneficiaries between Southwestern Children's
Health Services d/b/a Parc Place and the U.S. Department of Defense for 5116 E.
Thomas Rd., Phoenix, AZ 85018.
11. Participation Agreement for a Residential Treatment Center
between Desert Hills Center for Youth and Families and the U.S. Department of
Defense for 2797 North Introspect Drive, Tucson, Arizona 85745.
12. Subcontract Agreement dated July 8, 1996 between Southeastern
Arizona Behavioral Health Services, Inc. and Introspect HealthCare Corporation
(dba Desert Hills).
13. Participation Agreement for a Residential Treatment Center
between Tampa Bay Academy and the U.S. Department of Defense for 12012 Boyette
Road, Riverview, Florida 33569.
14. Participation Agreement for a Psychiatric Partial Hospitalization
Program between Tampa Bay Academy and the U.S. Department of Defense for 12012
Boyette Road, Riverview, Florida 33569.
15. Subcontract Agreement between Northern Arizona Behavioral
Health Authority and Desert Hills Hospital effective 7/1/95 to 6/30/97.
[RENEWED]
16. Certain of the Licenses and Permits (as defined herein) improperly
name YSI as the licensee thereunder and will need to be signed or transferred
to the appropriate Subsidiaries prior to the Closing or appropriate licenses
or permits obtained for the Subsidiaries prior to the Closing. In addition,
various state licensing agencies require notice of the proposed transaction
prior to the consummation thereof. See Schedule 2.10(b).
17. The following leases at which YSI of Utah, Inc. conducts certain
of its operations improperly named YSI as the tenant thereunder. The right of
YSI thereunder will need to be assigned to YSI of Utah prior to the Closing.
7
<PAGE> 65
17.1 Commercial Lease Agreement for 130 S. Main, Logan, Utah
between Mountain States Property Management, Inc. (lessor) and Youth Services
International, (lessee) for 3/17/97 to 3/17/98.
17.2 Office Building Lease dated 2/24/93 between Mountain
States - 24th Street, Ltd. and Interstate Youth Services; Amendment to Lease
for 289 24th Street, Suite 300, Ogden Utah 84401 between Mountain States-24th
Street, Ltd. (lessor) and Youth Services International, Inc. (lessee).
17.3 Lease for 199 West Center Street, Orem, Utah 84059 between
Hammond Company, Suzanne Hammond, general partner (lessor) and Youth Services
International (lessee) for 5/1/94 to 4/30/96; Letter extending lease to 4/98.
8
<PAGE> 66
SCHEDULE 2.7
EXCEPTIONS TO GAAP IN FINANCIAL STATEMENTS
1. The reserve for uncollectible accounts receivable provided in balance
sheets may be inadequate.
2. No reserve has been established in any of the balance sheets for any
matters which may have occurred prior to June 30, 1997 which would
give rise to "incurred but not reported" liabilities.
3. The Financial Statements do not include footnote and other disclosure
information required by GAAP.
4. All account balances relating to intercompany accounts receivable and
accounts payable from or to any of the Subsidiaries or from or to YSI
(or any of its affiliates) or any of the Subsidiaries have been
eliminated.
<PAGE> 67
SCHEDULE 2.8
Insurance
[See Attachment 2.8 ]
8
<PAGE> 68
SCHEDULE 2.9
Litigation
1. Hintze (Suh) v. Developmental Behavioral Consultants, Inc., Case
No. 96-00716, Superior Ct., Maricopa County, AZ, (filed 7/29/96). Plaintiff's
complaint alleges negligent administration of an improper medication to a
developmentally disabled boy, Donald Suh. This matter was settled on July 16,
1997.
2. Machiz v. Developmental Behavioral Consultants, Inc., Case No.
CV-03136, Superior Ct., Maricopa County, AZ, (filed April 3, 1997).
Plaintiff's complaint alleges that on 2/21/95, she was struck by Deron Houser,
a member of one of DBC's group homes. On 2/20/97, a Certificate for
Compulsory Arbitration and a Complaint were filed by the Plaintiffs' attorney.
A letter from defendant's attorney dated 5/2/97 was sent to K. Mahoney
requesting copies of all documentation regarding this litigation, Deron
Houser, and any communications pertaining to him in order to prepare an
accurate answer to the complaint. This case was settled for $7,500 and
dismissed with prejudice on July 2, 1997.
3. Timmering-Corley v. State of Arizona, Desert Hills Center for Youth
and Families, Inc. et al., Case No. CV 97-147 TUC FRZ, Dist. Ct., AZ, (filed
3/21/97). Plaintiff filed an Amended Complaint and Motion for Leave to
Proceed in Forma Pauperis. Her Amended Complaint is substantially similar in
substance and form to the previous complaint filed in Court, alleging
violation of her rights under the 5th and 14th Amendments of the Constitution
and claims under 42 U.S.C. Section 1983. An ex parte hearing was held on
Plaintiff's motion for a temporary restraining order on March 4, 1997. That
motion was denied and the Court expressed serious reservations about the basis
for jurisdiction, noting among other things, that there was no allegation in
the complaint that Defendant Ronald Corley, an employee of the Arizona
Department of Economic Security, Child Protective Services Administration, had
acted under color of state law. The amended complaint includes allegations
that Defendant Corley had acted as an agent of the State of Arizona, DES, and
CPS, and acted deliberately and with malice under color of state law including
custodial interference, fraud, intentional infliction of emotional distress,
invasion of privacy, and unlawful imprisonment. The Amended Complaint was
filed 3/20/97. Defendant's Amended Answer was filed on April 28, 1997. An
Application of Default was filed by Ronald Corley on May 4, 1997 and entered
by the clerk on May 13, 1997. Health Partners, Inc. filed a Motion to Dismiss
on May 16, 1997 and is set for a hearing on July 28, 1997. A default judgment
was entered against Desert Hills Center for Youth and Families of New Mexico,
Inc. on July 1, 1997. Desert Hills Center for Youth and Families of New
Mexico, Inc. filed a Motion to Set Aside Judgment on July 18, 1997. Richard
Crenshaw represents Desert Hills Center for Youth and Families of New Mexico,
Inc.
4. Claim of the Estate of David Hull against Desert Hills Center
for Youth and Family of New Mexico, Inc. By initial letter dated January 21,
1997, estate alleges wrongful death due to negligence on the part of Desert
Hills of New Mexico; namely,
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inadequate maintenance of a playground. David Hull was an elementary school
student who sustained fatal injuries as a result of a fall from a piece of
playground equipment at Ann Parish Elementary School on 8/22/96.
5. Shawn McGrew, individually, and as Parent and Next Friend of
David McGrew v. Youth Services International of New Mexico, Inc., Cause No.
CV-97 00173, 2nd Jud. Dist. Ct., County of Bernalillo, NM (filed January 9,
1997). Plaintiff's complaint alleges that David McGrew was allegedly sexually
assaulted by other patients of Desert Hills of New Mexico on 9/15/96. The
Complaint was filed on January 9, 1997, the Discovery Schedule Order was filed
on June 30, 1997, and the plaintiff's most recent Discovery Request was made
on June 30, 1997. Bill Gralon is defending Youth Services International of
New Mexico, Inc.
6. Daniela Morzos v. Desert Hills of New Mexico, New Mexico HRD#
97-04-28-0130 (filed 4/28/97). Charge of discrimination based on sex (female)
gender/pregnancy which was filed with the EEOC and the New Mexico Human Rights
Division on 4/28/97. On 5/6/97, a letter from the New Mexico Department of
Labor was sent to Youth Services International of New Mexico stating that it
had determined that the complaint is jurisdictional and will conduct an
investigation. A letter dated 5/16/97 to Reliance National indicates that N.
Simutis is in the process of compiling the response to the allegations.
7. Beverly A. Keith v. Desert Hills of Texas, Charge #
360-970-575,(filed 2/5/97). Complainant claims that she was discriminated
against because of her age, 52, in violation of the Age Discrimination in
Employment Act of 1967. This charge is in reference to her being discharged
on 12/5/96 from her Youth Counselor position for "allegedly" sleeping on the
job. A letter dated 4/16/97 from J. Van Duyn, Jr. was sent to EEOC stating
that Keith was not disputing whether or not she had been sleeping on the job.
This letter further submits that sleeping on the job is a child safety and
security issue and unacceptable and that Keith's claim is without merit and
should be dismissed.
8. Youth Services International, Inc. and Southwestern Children's
Health Services, Inc. v. Parc Place Limited Partnership, Bertram Trobman, et
al. On February 15, 1995, YSI and its subsidiary, Southwestern Children's
Health Services, Inc. initiated a civil action against Parc Place Limited
Partnership, certain assets of which YSI acquired in August of 1994. The
action sought specific performance of covenants in the purchase and sale
agreement which required Parc Place to provide audited financial statements to
YSI, as well as injunctive relief, declaratory relief and damages for breach
of contract. Parc Place and its principals, including Bertram Trobman, filed
counterclaims against YSI claiming breach of contract, interference with
contractual relations, and defamation. As of June 9, 1997, defendants planned
to depose eight people in Phoenix between July 7 and July 18, 1997. This
matter is being handled by the law firm of Miles & Stockbridge, a Professional
Corporation.
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9. Derrick Stinson v. Desert Hills of New Mexico, Case No. CV 97 0715
SC, EEOC Charge No. 390960950, Dist. Ct., NM, filed 5/22/97. On May 22, 1997,
a former employee of Desert Hills of New Mexico, Derrick Stinson, filed suit
against Desert Hills of New Mexico and YSI, in the United States District Court
for the District of New Mexico. The complaint contains two counts alleging
race and sex discrimination and harassment in violation of Title VII of the
Civil Rights Act of 1964 and 42 U.S.C. Section 1981 as well as a common count
of breach of an implied contract. Desert Hills of New Mexico is represented by
Miles & Stockbridge, a Professional Corporation.
10. John Jones v. Tampa Bay Academy. Pursuant to a Demand Letter
dated May 5, 1997, counsel to John Michael Jones and John Paul Jones, his
father, have made a demand against American International Group, YSI's
liability insurer, for damages in the amount of $1,000,000 arising out of the
claim of alleged negligence on the part of Youth Services International of
Florida, Inc. relating to incidences of alleged sexual misconduct occurring at
the Tampa Bay Academy in 1996. AIG currently is investigating this matter and
formulating a response. AIG has not yet engaged legal counsel to defend Youth
Services International of Florida in this matter.
11. Christopher D. Price v. Youth Services International, State of
Utah Industrial Commission, Charge No. 97-0563, EEOC Charge No. 35C-97-0663.
Claimant, a former employee of YSI of Utah, Inc., alleges discrimination based
on race (Asian) and sex (male). Price claims that he was denied privileges,
given unpleasant work assignments, denied promotions, retaliated against for
complaining about discrimination and ultimately terminated from his position
as Counselor. This matter has been referred to Reliance National Insurance
Company for a determination as to coverage under YSI's Employment Practices
insurance policy. YSI of Utah currently is investigating the charges and
formulating a response to the charge. The charge erroneously names "Youth
Services International" as a defendant.
12. Scott Anderson v. TBA Partnership, Ltd., formerly known as Youth
Services International of Florida, Inc., dba Tampa Bay Academy, Case No.
96-6496, Cir. Ct., County of Hillsborough, FL, filed 10/16/96. Plaintiff, a
former employee of Tampa Bay Academy, alleges that Tampa Bay discriminated
against him by terminating him on 2/16/95. He attributes his termination to
discrimination against his disability and retaliation for filing a worker's
compensation claim. The complaint erroneously identifies the proper defendant
in the matter. The termination occurred prior to the date on which Youth
Services International of Florida, Inc. acquired the assets of The Tampa Bay
Academy. Liability for these types of matters was not assumed by Youth
Services International of Florida in connection with the acquisition of the
assets of The Tampa Bay Academy. The complaint does not allege that Youth
Services International of Florida would be liable therefor as a "successor" to
TBA Partnership, Ltd. Reliance National has denied coverage for this matter.
13. Toni Branch v. Desert Hills Center, Nevada Equal Rights Commission
Charge No. 0306-96-032L, EEOC No. 34B-96-0453, filed 3/6/96. The Plaintiff's
allegations in
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the EEOC action include failure to promote and constructive discharge based on
age discrimination. The charge has been closed without a determination
although Ms. Branch has the right to appeal.
14. Worker's Compensation Claims:
See listing dated June 30 General Accident Insurance Commercial Risk
Experience provided to Purchaser on July 21, 1997.
15. Following his termination in June from his position of Vice
President of YSI, Inc., Michael L. McKee has made claims, through demand
letters, against YSI and Southwestern Children's Health Services, Inc. for
past wages and accrued vacation time. He also made claims related to his
severance and the change of control agreement. YSI believes that Mr. McKee's
claims are without merit and have referred the matter to the law firms of
Fennemore Craig and Miles & Stockbridge for defense.
16. Parc Place CHAMPUS Reimbursement Dispute. On or about June 24,
1997, YSI received a letter from the United States Attorney for the District
of Arizona seeking a proposal for the resolution of dispute between "Parc
Place, Inc." and its payment intermediary for payments made to Parc Place
under the CHAMPUS program. The dispute involves alleged improper
reimbursements to Parc Place in the aggregate amount of approximately $19,000
for services rendered in late 1991 to Amity B. Thompson. Under federal law,
penalties accrue on such amounts from the date reimbursed to the provider
until repaid at the annual rate of 6% of the amount to be repaid. SWCHS
purchased the assets of Parc Place Limited Partnership in August of 1994, at
which time the existence of this dispute was not disclosed to SWCHS. SWCHS
did not assume liability for this amount as part of the purchase transaction
and intends to seek indemnification from Parc Place Limited Partnership for
any damages it may incur as a result of such dispute.
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SCHEDULE 2.10(a)
Compliance with Laws
The Texas Department of Protective and Regulatory Services has informed
Youth Services International of Texas, Inc., through a series of letters
written between September 1996 and May 1997, that Youth Services International
of Texas, Inc. has failed to comply with standards (i) requiring that staff
working with children be trained in crisis management, the appropriate use of
restraining measures and other disciplinary practices, (ii) requiring that
information about treatment plans and reviews be shared with children,
parents, or managing conservators, (iii) relating to hygiene, (iv) relating to
the training and supervision of staff, and (v) relating to the proper feeding
of children, maintenance of kitchen and food storage. Corrective action plans
have been formulated and communicated in writing by Youth Services
International of Texas, Inc. to the Texas Department of Protective and
Regulatory Services.
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SCHEDULE 2.10(b)
Licenses, Permits and Accreditations of the Subsidiaries
The following is a true and correct list of each of the Licenses and
Permits held by the Subsidiaries. The Company does not hold any licenses or
permits.
Arizona Department of Health Services, Behavioral Health Service Agency:
1. Health Care Institution License, for Level I Behavioral Health
Facility, Level II Behavioral Health Facility and Outpatient Clinic issued to
Youth Services International, Inc. d/b/a Desert Hills Center for Youth and
Families for 5245 N. Camino De Oeste, Tucson, Arizona effective 8/1/96 to
7/31/97.
2. Health Care Institution License, for Level I Behavioral Health
Facility and Level II Behavioral Health Facility issued to Youth Services
International, Inc. d/b/a Desert Hills Center for Youth and Families for 2797
N. Introspect Dr., Tucson, Arizona 85745 effective 10/1/96 to 9/30/97.
3. Health Care Institution License, for Level I Behavioral Health
Facility, Outpatient Clinic, Court Ordered Services and Other Services issued
to Youth Services International, Inc. d/b/a Desert Hills Center for Youth and
Families for 2797 N. Introspect Dr., Tucson, Arizona 85745 effective 10/1/96
to 9/30/97.
4. Health Care Institution License, for Special Hospital issued to Youth
Services International. Inc. d/b/a Desert Hills Center for Youth and Families
for 2797 N. Introspect Dr., Tucson, Arizona 85745 effective 9/12/96 to
9/30/97.
5. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 1801 E.
Wincomb, Phoenix, Arizona 85022 effective 12/1/96 to 11/30/97.
6. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 2706 W.
Warner Road, Chandler, Arizona 85224 effective 7/1/97 to 6/30/98.
7. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 3192 W.
Thude Dr., Chandler, Arizona 85226 effective 5/1/97 to 4/30/98.
8. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 800 E.
Southern, Tempe, Arizona 85283 effective 11/1/96 to 10/31/97.
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9. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 4515 W.
Mercury Way, Chandler, Arizona 85226 effective 11/1/96 to 10/31/97.
10. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 1900 E.
Libra Dr., Tempe, Arizona 85283 effective 7/1/97 to 6/30/98.
11. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 5917 S.
Kenwood, Tempe, Arizona 85283 effective 12/1/96 to 11/30/97.
12. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 5934 S.
Juniper Street, Tempe, Arizona 85283 effective 6/1/96 to 5/31/97. [RENEWED]
13. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 5811 S.
Hazelton Ln., Tempe, Arizona 85283 effective 5/1/97 to 4/30/98.
14. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 2010 E.
Diamond Dr., Tempe, Arizona 85283 effective 3/1/97 to 2/28/98.
15. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 718 E.
Manhattan, Tempe, Arizona 85282 effective 5/21/97 to 4/30/98.
16. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 2405 E.
Southern Ave., Ste. 9, Tempe, Arizona 85282 effective 12/1/96 to 11/30/97.
17. Health Care Institution License, for Level II Behavioral Health
Facility issued to Developmental Behavioral Consultants, Inc. for 1201 E. Todd
Dr., Tempe, Arizona 85283 effective 1/1/97 to 12/31/97.
18. Health Care Institution License for Level I Behavioral Health
Facility and Outpatient Clinic issued to Southwestern Children Health
Services, Inc., Parc Place for 5116 E. Thomas Rd., Phoenix, Arizona 85018
effective 10/1/96 to 9/30/97.
Arizona Department of Economic Security, Division of Developmental
Disabilities:
1. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 4652 W. Whitten Street,
Chandler, Arizona 85364 expiring 2/22/98.
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2. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 1801 E. Wincomb, Phoenix,
Arizona 85022 expiring 8/3/97.
3. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 2706 W. Warner Rd., Chandler,
Arizona 85224 expiring 8/3/97.
4. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 1201 E. Todd Dr., Tempe,
Arizona 85283 expiring 11/22/97.
5. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 3192 W. Thude Dr., Chandler,
Arizona expiring 2/16/98.
6. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 5309 S. River, Tempe, Arizona
85283 expiring 9/26/98.
7. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 800 E. Stephens, Tempe, Arizona
85282 expiring 9/26/98.
8. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 4515 W. Mercury Way, Chandler,
Arizona 85226 expiring 8/3/97.
9. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 718 E. Manhatten, Tempe,
Arizona 85283 expiring 1/7/99.
10. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 1900 E. Libra, Tempe, Arizona
85283 expiring 2/26/98.
11. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 955 Southern, Apt. #285, Tempe,
Arizona 85282 expiring 12/11/98.
12. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 3409 S. Rural Rd. #210, Tempe,
Arizona 85282 expiring 9/27/98.
13. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 5917 S. Kenwood, Tempe, Arizona
85283 expiring 11/22/98.
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14. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 5934 S. Juniper, Tempe, Arizona
85283 expiring 9/27/98.
15. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 5811 S. Hazelton, Tempe,
Arizona 85283 expiring 9/26/98.
16. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 1101 W. Erie #A, Chandler,
Arizona 85224 expiring 7/31/98.
17. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 1101 W. Erie #B, Chandler,
Arizona 85224 expiring 7/31/98.
18. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 1101 W. Erie #C, Chandler,
Arizona 85224 expiring 8/16/98.
19. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 1101 W. Erie #D, Chandler,
Arizona 85224 expiring 8/29/98.
20. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 1101 W. Erie #E, Chandler,
Arizona 85224 expiring 8/29/98.
21. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 1101 W. Erie #F, Chandler,
Arizona 85224 expiring 8/29/98.
22. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 2010 E. Diamond, Tempe, Arizona
85283 expiring 8/3/97.
23. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 10010 N. 29th Street, Phoenix,
Arizona 85028 expiring 8/14/97.
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24. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 3706 S. Dorsey Lane, Tempe,
Arizona 85282 [IN APPLICATION]
25. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants, Inc. for 2123 West Cheyenne, Chandler,
Arizona 85224 effective 5/19/97 to 5/19/99.
26. Regular License for a Community Residential Setting issued to
Developmental Behavioral Consultants for 14045 E. Williams, Gilbert, Arizona
85296 effective 6/2/97 to 6/2/99.
Arizona Department of Economic Security:
1. License for a Group Care Agency issued to Westwind Children's Services
for 4150 West Peoria, Phoenix, Arizona 85029 effective 3/28/97 to 3/27/98.
2. License for a Satellite Home issued to Westwind Children's Services
for 7137 W. Libby Street, Glendale, Arizona 85308 effective 3/28/97 to
3/27/98.
3.. License for a Satellite Home issued to Westwind Children's
Services for 6509 W. Sunnyside Drive, Glendale, Arizona 85308 effective
3/28/97 to 3/27/98.
4. License for a Satellite Home issued to Westwind Children's Services
for 105 E. Missouri, Phoenix, Arizona 85012 effective 3/28/97 to 3/27/98.
5. License for a Satellite Home issued to Westwind Children's Services
for 5323 W. Westwind Dr., Glendale, Arizona 85023 effective 3/28/97 to
3/27/98.
6. License for a Satellite Home issued to Westwind Children's Services
for 13113 N. 24th Avenue, Phoenix, Arizona 85029 effective 3/28/97 to 3/27/98.
7. License for a Satellite Home issued to Westwind Children's Services
for 15828 N. 29th Avenue, Phoenix, Arizona 85023 effective 3/28/97 to 3/27/98.
8. License for a Satellite Home issued to Westwind Children's Services
for 23848 N. 40th Drive, Glendale, Arizona 85310 effective 3/28/97 to 3/27/98.
9. License for a Satellite Home issued to Westwind Children's Services
for 5038 W. Acoma, Phoenix, Arizona 85306 effective 3/28/97 to 3/27/98.
10. License for a Satellite Home issued to Westwind Children's
Services for 15210 North 5th Avenue, Phoenix, Arizona 85023 effective 3/28/97
to 3/27/98.
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[Note: Promise House, Inc. provides services to Westwind Children's Services,
an Arizona non-profit corporation, for the operation of the programs covered
by the foregoing licenses pursuant to a Provider Service Agreement dated March
29, 1996 by and between Promise House and Westwind Children's Services.]
New Mexico Children, Youth & Families Department, Prevention & Intervention
Division:
1. Certification Certificate for a Treatment Foster Care Program issued
to Desert Hills for 4900 Sequoia, NW, Albuquerque, New Mexico 87120.
2. Certification Certificate for Behavioral Management Skills Development
Services issued to Desert Hills for 5310 Sequoia, NW, Albuquerque, New Mexico
87120.
3. Operator's License for Children's Residential Treatment Facility
issued to Youth Services International of New Mexico, Inc. d/b/a Desert Hills
Center for Youth and Families of New Mexico for 5310 Sequoia, NW, Albuquerque,
New Mexico 87120.
4. Operator's License for Children's Residential Treatment Facility
issued to Youth Services International of New Mexico, Inc. d/b/a Desert Hills
Center for Youth and Families of New Mexico for 4900 Sequoia, NW, Albuquerque,
New Mexico 87120.
New Mexico Department of Health, Public Health Division:
1. Operator's License for a Special Hospital issued to Youth Services
International of New Mexico, Inc. d/b/a Desert Hills Center for Youth and
Families of New Mexico for 5310 Sequoia, NW, Albuquerque, New Mexico 87120
effective 11/1/96 to 10/31/97.
New Mexico Children, Youth and Families Department, Protective Services
Division:
1. Child Placement Agency License issued to Desert Hills for child
placement, foster care effective 12/1/96 to 12/1/97.
State of Florida Department of Health and Rehabilitative Services:
1. Certificate of License for Child Caring Agency issued to Tampa Bay
Academy for 12012 Boyette Rd., Riverview, FL 33569 effective 6/1/97 to
5/31/98.
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2. License for Level II Residential Programs and Day or Night Treatment
Nonresidential Programs issued to Tampa Bay Academy for 12012 Boyette Rd.,
Riverview, FL 33569 effective 3/20/97 to 3/19/98.
[Note: Pursuant to a Management Agreement dated September 1, 1995 by and
between Brazos Valley Youth Corporation and Youth Services International of
Texas, Inc. ("YSI Texas"), YSI Texas provides services for the operation of
the programs covered by the foregoing licenses.]
Texas Department of Protective and Regulatory Services:
1. License to operate a Residential Treatment Center issued to Brazos
Valley Youth Corporation for 4201 Texas Avenue South, College Station, Texas
77845 issued 7/31/96.
2. License to operate a Residential Treatment Center issued to Brazos
Valley Youth Corporation for 6955 Broach Rd., Bryan, Texas 77803 issued
2/1/97.
State of Arizona Department of Education:
1. Letter of Conditional Approval for Desert Hills Residential School to
provide Emotional Disability, Specific Learning Disability and Non-special
Education vouchers to teachers located at 2797 N. Introspect Drive - Tucson,
Girls Unit effective 8/19/96.
Hillsborough County Occupational License:
1. License for Boarding Home issued to Tampa Bay Academy- Residential
Child Care Facility for 12012 Boyette Rd., Riverview, FL 33569
Puma County, Arizona Planning & Development Services:
1. Certificate of Occupancy for Desert Hills Hospital- Children's
Psychiatric issued to Introspect Healthcare Corp. for 2797 N. Introspect
Drive, Tucson, Arizona 85745 dated 9/28/90.
Puma County, Arizona Building Code Department:
1. Certificate of Occupancy for Desert Hills-Dormitory issued to Desert
Hills for 5245 N. Camino de Oeste, Tucson, Arizona.
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CHAMPUS:
1. Renewal Certification under Civilian Health and Medical Program of the
Uniformed Services (CHAMPUS) criteria as a 100 bed psychiatric residential
treatment center for children ages 4 to 17 issued to Tampa Bay Academy dated
February 2, 1993; Recertification dated 1996.
Accreditations:
1. Certification as Accredited School issued to Tampa Bay Academy from
the Commission on Secondary and Middle Schools Southern Association of
Colleges and Schools for 1996 - 1997.
2. Letter of Accreditation for 1996-97 school year issued to Desert Hills
School by North Central Association, Commission on Schools effective April 8,
1997.
3. Letter of Accreditation issued to Parc Place from the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") effective
for three years from 5/15/97.
4. Letter of Accreditation from JCAHO issued to Tampa Bay Academy for
Mental Health, Chemical Dependency, and Mental Retardation/Developmental
Disabilities Services effective as of June 30, 1994.
5. Accreditation from JCAHO for all sites of care for Desert Hills Center
for Youth and Families under Accreditation Manual for MHM by Behavioral Health
Accreditation Services effective 12/96; accreditation for all surveyed
services offered by Desert Hills Center for Youth and Families by Behavioral
Health Accreditation Services effective 12/5/96 to 12/5/99.
6. Letter of Accreditation from JCAHO to Desert Hills Center for Youth
and Families of New Mexico for Mental Health, Chemical Dependency, and Mental
Retardation/Developmental Disabilities Services effective as of June 27, 1996.
State of Utah Department of Human Services, Office of Licensing:
1. License for Child Placing Services issued to Youth Services
International for 199 West Center, P.O. Box 986, Orem, Utah 84057 effective
February 1, 1997 to October 31, 1997.
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2. License for Residential Treatment Services issued to Youth Services
International for Provo Girls Home, 235 North 2420 West, Provo, Utah 84057
effective November 1, 1996 to October 31, 1997.
3. License for Residential Treatment Services issued to Youth Services
International for Clearfield Group Home, 430 East 450 South, Clearfield, Utah
84015 effective February 1, 1997 to October 31, 1997.
4. License for Residential Treatment Services issued to Youth Services
International for Madison Group Home, 2604 Madison, Utah 84401 effective
January 1, 1997 to October 31, 1997.
5. License for Residential Treatment Services issued to Youth Services
International for Lehi Group Home, 177 North 500 East, Lehi, Utah 84043
effective July 1, 1997 to August 31, 1997.
6. License for Residential Treatment Services issued to Youth
Services International for Ogden Boys Group Home, 606 23rd Street, Ogden,
Utah, 84401 effective January 1, 1997 to October 31, 1997.
7. License for Residential Treatment Services issued to Youth
Services International for Linden Group Home, 200 North Anderson Lane, Linden,
Utah 84042 effective February 1, 1997 to October 31, 1997.
Business Licenses for the State of Utah:
1. License issued to YSI of Utah for 200 North Anderson Lane, Lindon
City, Utah effective 1/1/97 to 12/31/97.
2. License issued to YSI of Utah for Residential Home for Youth with
Disabilities located at 177 North 500 East, Lehi, Utah effective 2/24/97 to
12/31/97.
3. License issued to Clearfield Groupe Home d/b/a YSI of Utah, Inc. for
430 East 450 South, P.O. Box 986, City of Clearfield, Orem, Utah effective
1/22/97 to 1/1/98.
4. Certificate of License issued to YSI of Utah for Home Health Care
Services located at 606 E. 2300 South St., Ogden City, Utah effective 1/8/97
to 12/31/97.
5. Commercial Business License issued to Y.S.I. of Utah, Inc. for 199 W.
Center Street, City of Orem, Utah effective 11/20/96 to 12/31/97.
6. License issued to YSI of Utah for Foster Care located at 739 W. 200
North, Vernal City, Utah effective 1/1/97 to 12/31/97.
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7. Business License issued to Youth Services International of Utah, 3809
S. West Temple St. 1-D for Miscellaneous Business Services effective 8/5/97 to
12/31/97.
8. Certificate of License issued to Timothy Welch of Youth Services
International of Utah, Inc. for 26045 Madison Ave., Ogden City, Utah effective
2/6/97 to 12/31/97.
9. Certificate of License issued to Youth Services International of Utah
for 235 North 2420 West, Provo City, Utah effective 12/5/96 to 12/31/97.
Required Notices to State Licensing Agencies Regarding a Change of Control
of Subsidiaries:
Arizona: The Arizona Department of Economic Security requires each
licensee to send written notification of any planned change in the licensee's
ownership, governing board member, chief executive officer, or program
director at least one month before the change. If the change occurs without
sufficient time for prior written notice, the licensee must orally notify the
licensing authority as soon as the change is known, and then send written
confirmation within 48 hours of giving oral notice. The Arizona Department of
Education requires that written notice of any change in control of the
licensee be sent to the Secretary for Education Vouchers for Private Schools.
Florida: Notice must be given to the Florida Department of Health and
Rehabilitative Services regarding the change in ownership interests in Youth
Services International of Florida, Inc. and the corresponding need to initiate
a new license application. Moreover, with respect to the certificate of need,
notice of the sale must be given.
New Mexico: Notice must be given to all relevant state agencies in
New Mexico regarding the change in ownership of Youth Services International
of New Mexico, Inc.
Texas: Notice must be given to the Texas Department of Protective and
Regulatory Services regarding changes in the membership of the Board of
Directors, if any, of Youth Services International of Texas, Inc.
Utah: Notice must be given to the Utah Department of Human Services
of any change of ownership of YSI of Utah, Inc.
23
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SCHEDULE 2.12
Cost Reports, Third Party Receivables and Conditions of Participation
Youth Services International of New Mexico, Inc. is the only Subsidiary
which files Medicaid cost reports.
An audit of its cost reports for the years 1991 through 1996 currently is
being conducted by Myers & Stauffer, LLC.
None of the Subsidiaries currently is involved in any disputes involving
amounts in excess of $25,000.00 in the aggregate with any governmental
authorities or any Medicaid fiscal intermediaries regarding cost reports.
YSI of Utah recently reached a settlement with the Utah Department of
Human Services concerning alleged overpayments by the Utah Department of Human
Services to YSI of Utah, Inc. through the fiscal year ended June 30, 1996
which is memorialized in a letter of May 16, 1997 from Vaughn Emett of the
Utah Department of Human Services of Youth Services International, Inc. The
Utah Department of Human Services alleged that, during the fiscal year ended
June 30, 1996, YSI of Utah had failed to document treatment services
sufficiently to support payments for services rendered in the approximate
amount of $121,715 (as identified in the Department's report, "Youth Services
International, Inc. of Utah--Limited Review," dated April 2, 1997). Following
negotiations, the parties agreed to the following: (i) Y.S.I. of Utah, Inc.
will repay a total of $121,715 in four installments of $30,428.75, the first
of which is due on July 31, 1997; and (ii) the Department will not charge
interest during the repayment period, provided the repayment schedule is
adhered to and the entire repayment is made prior to May 1, 1998.
On or about June 24, 1997, YSI received a letter from the United States
Attorney for the District of Arizona seeking a proposal for the resolution of
dispute between "Parc Place, Inc." and its payment intermediary for payments
made to Parc Place under the CHAMPUS program. The dispute involves alleged
improper reimbursements to Parc Place in the aggregate amount of approximately
$19,000 for services rendered in late 1991 to Amity B. Thompson. Under
federal law, penalties accrue on such amounts from the date reimbursed to the
provider until repaid at the annual rate of 6% of the amount to be repaid.
SWCHS purchased the assets of Parc Place Limited Partnership in August of
1994, at which time the existence of this dispute was not disclosed to SWCHS.
SWCHS did not assume liability for this amount as part of the purchase
transaction and intends to seek indemnification from Parc Place Limited
Partnership for any damages it may incur as a result of such dispute.
25
<PAGE> 84
SCHEDULE 2.13
Medical Staff
The following is a listing, by Subsidiary, of all physicians, physicians
groups, and psychologists currently engaged to provide services to the
Subsidiaries:
Developmental Behavioral Consultants, Inc.:
Kurt D. Mahoney, Ph.D.
Eric Benjamin, M.D.
Manual Mota, M.D.
Jill Zweig, D.O.
Laurie Ramsbacher, M.D.
Mark Rubin, M.D.
Introspect Healthcare Corporation:
Eliud Faz M.D.
Herbert Grossman M.D.
Steven Shaw M.D.
Michael W. Cohen M.D., P.C.
Philip Balch Ph.D.
James Manshardt M.D.
Howard Toff M.D.
Scott McKenzie D.M.D.
Stanley Kolker D.D.S.
Promise House:
NONE
Southwestern Children's Health Services, Inc.:
Robert Shapiro M.D. - Medical Director
25
<PAGE> 85
Youth Services International of Florida, Inc.:
Heather Roher M.D.
Susan Mike M.D.
Gary L. Wood Psy. D.
Youth Services International of New Mexico:
Richard Smith M.D.
David Friar M.D.
Leah Rudnick M.D.
Lisa Forrest M.D.
Michael Dudelczyk M.D.
Judith Pentz M.D.
Daniel Rifkin M.D.
Youth Services International of Texas, Inc.:
Bevan Steadman M.D.
James Hinkle M.D.
Annabelle Arteaga Candidate for Psychologist License
YSI of Utah, Inc.:
NONE
To the knowledge of the Seller Companies, there are no professional
liability litigation or claims pending against any of the above people.
26
<PAGE> 86
SCHEDULE 2.14
Experimental Procedures
NONE
27
<PAGE> 87
SCHEDULE 2.15
Wage Claims
Following his termination in June from his position of Vice President of YSI,
Michael L. McKee has made claims, through demand letters, against YSI and
Southwestern Children's Health Services, Inc. for past wages and accrued
vacation time. He also made claims related to his severance and the change of
control agreement. YSI believes that Mr. McKee's claims are without merit and
have referred the matter to the law firms of Fennemore Craig and Miles &
Stockbridge for defense.
28
<PAGE> 88
SCHEDULE 2.16
Employment Matters
No Exceptions
29
<PAGE> 89
SCHEDULE 2.17
Tax Matters
Prior to September 11, 1996, Introspect HealthCare, Corporation
("Introspect"), and its subsidiaries were members of an affiliated group, of
which Diversification Association, Inc. ("DAI") was the common parent, that
filed federal income tax returns on a consolidated basis. As part of the
transaction pursuant to which Southwestern Children's Health Services, Inc.
("SWCHS") acquired all of the issued and outstanding capital stock of
Introspect, YSI and SWCHS learned, based upon its due diligence review, that
the sale of the stock of Introspect to SWCHS likely would cause such
affiliated group to be required to recognize certain "deferred intercompany
gains" in the approximate amount of $4,000,000 to $5,000,000 in the year of
the sale. Because Introspect and its subsidiaries were members of the
affiliated group during the year of the sale, and because all members of an
affiliated group that files a consolidated return are, under federal law,
jointly and severally liable for the payment of the consolidated tax
obligations of the affiliated group, Introspect and its subsidiaries is
liable jointly and severally with the other members of the group for the
payment of taxes on such deferred intercompany gains. Therefore, if and to
the extent that DAI fails to pay such taxes in full, Introspect and its
subsidiaries may be liable for the payment thereof.
YSI has been advised by its tax advisors that, although Introspect and its
subsidiaries are jointly and severally liable for the payment of such taxes
with the other members of the affiliated group, the IRS has not typically
pursued former members of affiliated groups for payment of taxes which arise
as a result of the sale of such former members. Nevertheless, there can be no
assurance that the IRS would not so pursue Introspect or it subsidiaries for
payment of these taxes if DAI fails to pay them in full.
30
<PAGE> 90
SCHEDULE 2.18(a)
Employee Benefit Plans
1. YSI Cafeteria Plan
2. YSI Group Health Plan
3. YSI Life Insurance, Accidental Death & Disability, Long Term
Disability Plan
4. YSI 401(k) Plan
5. YSI Top Hat Plan
6. Medical Plan for employees of Desert Hills Center for Youth and
Families, Inc
7. Introspect Health Care Corporation Cafeteria Plan
8. Introspect Health Care Corporation 401(k) Plan
9. Medical Plan for Employees of YSI of New Mexico
10. Cafeteria Plan for Employees of YSI of New Mexico
11. Vacation Pay, Holiday Pay, Sick Pay
12. YSI Stock Option Plan
31
<PAGE> 91
SCHEDULE 2.18(b)
Compliance with ERISA
NONE
32
<PAGE> 92
SCHEDULE 2.18(c)
Representations Concerning Employee Benefit Plans
NONE
33
<PAGE> 93
SCHEDULE 2.18(d)
Compliance with Plan Reporting Obligations
No Exceptions
34
<PAGE> 94
SCHEDULE 2.18(h)
Change in Control Agreements
Pursuant to a letter agreement dated May 27, 1997 by and between YSI and
Katherine Wade, Ms. Wade received a cash payment in the amount of $20,000 from
YSI upon execution of the letter of intent with the Purchaser, and is entitled
to receive additional cash payments in the aggregate amount of $40,000 upon
closing of the transaction contemplated hereby in consideration of her
assistance to YSI in facilitating the transaction contemplated hereby. In
addition, at the closing of the transaction contemplated hereby, all of Ms.
Wade's unvested options to purchase shares of YSI stock shall become vested
and exercisable and those options and all other vested options shall remain
exercisable for a period of one year following the closing notwithstanding the
terms of YSI's stock option plans.
35
<PAGE> 95
SCHEDULE 2.18(i)
Non-Common Law Employee Participants in Benefit Plans
NONE
36
<PAGE> 96
SCHEDULE 2.19
Material Contracts and Commitments
The following is a list of all (i) material contracts and agreements
which require either the Company or any of the Subsidiaries to pay to any
other person or entity more than $10,000 per year, and (ii) employment or
consulting agreements to which any of the Subsidiaries is a party and
agreements pursuant to which any of the Subsidiaries have engaged
professionals for the provision of professional services to any of the
Subsidiaries:
1. Loan and Security Agreement dated as of June 20, 1995 by and between
Signet Bank/Maryland (predecessor in interest to Signet Bank) and the Original
Borrowers named therein, as amended by First Amendment to Loan and Security
Agreement dated as of December 12, 1996 by and among Signet Bank, YSI, 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. and Southwestern Children's Health Services, Inc.
2. Assumption Agreement dated as of July 25, 1995 by Youth Services
International of New Mexico, Inc., YSI and Signet Bank.
3. Assumption Agreement dated as of December 12, 1996 by 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, Desert Hills Center for
Youth and Families, Inc., YSI and Signet Bank.
4. $20,000,000 Amended and Restated Master Revolving Promissory Note
dated December 12, 1996 payable to the order of Signet Bank by YSI, 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. and Southwestern Children's Health Services, 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, Desert Hills
Center for Youth and Families, Inc. Youth Services International of New
Mexico, Inc. and Youth Services International of Mammoth, Inc.
5. Agreement to Provide Psychiatric Services to Residents of DBC
between Eric Benjamin, M.D. and Developmental Behavioral Consultants, Inc.
dated 1/16/97.
37
<PAGE> 97
6. Agreement to Provide Psychiatric Services to Residents of DBC
between Manual Mota, M.D. and Developmental Behavioral Consultants, Inc.
dated 2/9/97.
7. Agreement to Provide Psychiatric Services to Residents of DBC
between Jill Zweig, D.O. and Developmental Behavioral Consultants, Inc. dated
1/27/94.
8. Agreement to Provide Psychiatric Services to Residents of DBC
between Laurie Ramsbacher, M.D. and Developmental Behavioral Consultants, Inc.
dated 1/31/97.
9. Agreement to Provide Psychiatric Services to Residents of DBC
between Mark Rubin M.D. and Developmental Behavioral Consultants, Inc. dated
1/13/97.
10. Contract for Professional Services of 5/16/97 to 11/16/97 between
Introspect Healthcare Corporation, Inc. d/b/a Desert Hills Center for Youth
and Families and Philip Balch, Ph.D.
11. Professional Services Contract of 6/15/97 to 6/14/98 between
Introspect Healthcare Corporation, Inc. d/b/a Desert Hills Center for Youth
and Families and Michael W. Cohen, M.D., D.C.
12. Contract for Professional Services of 6/15/97 to 6/14/98 between
Introspect Healthcare Corporation d/b/a Desert Hills Center for Youth and
Families and Dawnco, LLC (Dawn Apperson, RN, PNP).
13. Contract for Professional Services of 1/15/97 to 12/31/97 between
Youth Services International, Inc. d/b/a Desert Hills Center for Youth and
Families and Eliud Faz, M.D. and Amendment No. Two dated 5/7/97; Contract for
Professional Services of 5/15/97 to 6/1/98 between Introspect Healthcare
Corporation d/b/a Desert Hills Center for Youth and Families and Eliud Faz,
M.D.
14. Contract for Professional Services of 1/15/97 to 12/31/97 between
Youth Services International, Inc. d/b/a Desert Hills Center for Youth and
Families and Herbert Grossman, M.D.; Amendment No. Two dated 1/28/97 and
Amendment No. Three dated 5/6/97.
15. Introspect Children's Services Professional Services Contract with
Intermountain Center for Human Development of 7/1/96.
16. Agreement for Professional Services of 4/26/95 to be renewed yearly
between Introspect Healthcare Corporation, Inc. d/b/a Desert Hills Center for
Youth and Families and Curtis Kekahbah as "Native American Liason".
38
<PAGE> 98
17. Contract for Professional Services of 1/15/97 to 12/31/97 between
Introspect Healthcare Corporation, Inc. d/b/a Desert Hills center for Youth
and Families and James Manshardt, M.D.
18. Contract of 2/1/97 to 10/15/97 between Desert Hills Center for Youth
and Families, Ocotillo Clinic, Ft Huachuca Outpatient Services, and
Practitioner's Billing Specialist.
19. Contract for Professional Services between Introspect and Howard
Toff, M.D.; Amendment One effective 11/15/96 to Contract for Professional
Services dated 7/1/96 between Introspect Children's Services and Howard Toff,
M.D.
20. Contract for Professional Services of 10/1/95 to 6/30/97 between
Introspect Healthcare Corporation d/b/a Desert Hills Center for Youth and
Families and University Physicians, Inc.
21. Contract for Professional Services of 5/27/97 to 5/26/98 between
Introspect Healthcare Corporation d/b/a Desert Hills Center for Youth and
Families and Michele Way.
22. Non-Emergency Ambulance Transfer Agreement dated 8/18/95 between
Desert Hills Center for Youth and Families and Rural/Metro Corporation
23. Agreement dated 3/17/95 between Scott Mckenzie, D.M.D. and Stanley
Kolker, D.D.S. and Desert Hills Center for Youth and Families.
24. Agreement for Operation of Water and Distribution System dated as of
6/4/95 between Desert Hills and Frank Bowyer.
25. Memorandum of Understanding Customer Service Agreement dated 3/96
between Harvard Medical Ltd. and Desert Hills whereby Desert Hills agrees to
retain HML as its duly authorized representative in Europe.
26. Agreement dated as of 12/1/95 between Introspect Children's Services
Network and La Paloma Family Services, Inc.
27. Level II Behavioral Health Facility Contract effective 1/2/96
between Introspect Healthcare Corporation, Inc. d/b/a Desert Hills Center for
Youth and Families and La Paloma Family Services.
28. Agreement dated 2/1/96 between Desert Hills Center for Youth and
Families and University Physicians, Inc.
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<PAGE> 99
29. Agreement effective 1/1/95 between Desert Hills Hospital and
Catholic Community Services of Southern Arizona, Inc. d/b/a Community Outreach
Program for the Deaf.
30. Agreement between Parc Place - Phoenix and Arizona Guidance &
Counseling Center, Inc. for services of Robert Shapiro, M.D. effective
11/15/89.
31. Agreement between Parc Place and Robert Shapiro, M.D. as Medical
Director dated 6/97.
32. Employment Agreement between Kurt Mahoney, Ph.D. and the
Developmental Consultants Division of Southwestern Children's Health Services,
Inc. effective 6/22/95 to 8/31/97, and after the original term, from month to
month.
33. Agreement between Tampa Bay Academy and Heather Rohrer, M.D. for
services as Medical Director dated 4/18/96 .
34. Employment Agreement among Youth Services International, Inc.,
Youth Services International of Florida, Inc. and Edward C. Hoefle dated
3/27/96.
35. Collaborative Affiliation and Medical Services Agreement between
the University of South Florida and Tampa Bay Academy, Ltd. effective 7/1/93;
Renewal and Modification to Collaborative Affiliation and Medical Services
Agreement between the University of South Florida and Tampa Bay Academy, Ltd.
effective 7/21/94.
36. Contract for services between Youth Services International of
Florida, Inc. d/b/a Tampa Bay Academy and Cindy Adams effective 4/30/97 to
4/30/98.
37. Consultation Agreement between Tampa Bay Academy and Susan Mike,
M.D. for services as Medical Director effective 7/15/97.
38. Service Rate Agreement between Tampa Bay Academy and Gary L. Wood,
Psy. D. Dated June 30, 1994.
39. Contract of 5/30/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Georgia Meyer-Hayes for classroom coverage
effective 6/1/97 to 8/30/97.
40. Contract of 5/12/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Clinton Hill Carter for classroom coverage
effective 6/1/97 to 8/30/97.
41. Contract of 5/12/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Mike Trujillo for classroom coverage
effective 6/1/97 to 8/30/97.
40
<PAGE> 100
42. Contract of 5/12/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Yvonne Madrid for classroom coverage
effective 6/1/97 to 8/30/97.
43. Contract of 5/12/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Michelle Trexler for classroom coverage
effective 6/1/97 to 8/30/97.
44. Contract of 5/12/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Trudy Tavarez for classroom coverage
effective 6/1/97 to 8/30/97.
45. Contract of 5/12/97 between Desert Hills Center for Youth and
Families of New Mexico Inc. and Charles Russell for classroom coverage
effective 6/1/97 to 8/30/97.
46. Contract of 5/12/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Paula Hunt for classroom coverage effective
6/1/97 to 8/30/97.
47. Contract of 10/24/95 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Bonnie Hanson, ART for professional services.
48. Agreement dated 12/14/95 between Albuquerque Employee Assistance
and Desert Hills.
49. Contract of 4/4/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and David Friar, M.D. for professional services.
50. Contract of 4/23/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Leah Rudnick, M.D. for professional services.
51. Contract of 6/10/96 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Lisa Forrest, M.D. for professional services.
52. Contact of 6/10/96 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Michael Dudelczyk, M.D. for professional
services.
53. Contract of 6/10/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Judith Pentz, M.D. for professional services.
54. Contract of 6/19/95 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Daniel Rifkin, M.D. for professional
services.
55. Contract for Professional Services between Desert Hills Center for
Youth and Families of New Mexico, Inc. and Susan McLees, M.A. effective 4/4/97
to 9/30/97.
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56. Contract for Professional Services between Desert Hills Center for
Youth and Families of New Mexico, Inc. and Jewel Osco SW, Inc.
57. Contract of 6/10/97 between Desert Hills Center for Youth and
Families of New Mexico, Inc. and Linda Reineke for professional services.
58. BioMedical Waste Service Agreement dated 6/96 between Medical
Compliance Services, Inc. and Desert Hills Center for Youth and Families of
New Mexico, Inc.
59. Draft of Letter of Agreement between Bryan ISD and Desert Hills
Ranch (Los Hermanos Boys' Ranch).
60. Revised Cooperative Agreement between Desert Hills Center and the
College Station Independent School District effective 8/14/96 to 7/31/97.
61. Contract for Professional Services between Desert Hills of Texas
and Bevan Steadman, M.D. effective 12/1/96 to 11/30/97.
62. Service Agreement between Bryan Medical Laboratories and Desert
Hills Center for Youth and Families dated 7/1/93.
63. Equipment Lease between Desert Hills and Lanier for copier and fax
services dated 11/14/96 ($1017.80 per month).
64. Contract for Professional Services between Los Hermanos and James
Hinkle, M.D. effective 3/97.
65. Software Maintenance Agreement dated 1/1/97 to 12/31/97 between Echo
Management Group and Tampa Bay Academy.
66. Contract for Professional Services between Introspect HealthCare
Corporation d/b/a Desert Hills Center for Youth and Families and Mary Boothe
effective 7/3/97 to 7/2/98.
67. Contract for Professional Services between Introspect HealthCare
Corporation d/b/a Desert Hills Center for Youth and Families and Steven Shaw,
M.D. effective 7/7/97 to 7/6/98.
68. Contract for Professional Services between Introspect HealthCare
Corporation d/b/a Desert Hills Center for Youth and Families and Laura
Steiniger effective 5/1/97 to 4/30/98.
69. Contract for Professional Services between Desert Hills Center for
Youth and Families of New Mexico and K-Regent Drugs effective 7/1/97 to
6/30/98.
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70. Pursuant to a settlement with the Utah Department of Human
Services concerning an alleged overpayment of $121,715 by the Utah Department
of Human Services to YSI of Utah, Inc. which is memorialized in a letter of
May 16, 1997 from Vaughn Emett of the Utah Department of Human Services to
David Dolch of Youth Services International, Inc., YSI of Utah, Inc. is
obligated to repay a total of $121,715 in four installments of $30,428.75, the
first of which is due on July 31, 1997. (See description on Schedule 2.12).
Except as provided in the foregoing listing, none of the Subsidiaries nor
the Company is a party to any employment contract with any officer,
consultant, director or employee thereof.
Pursuant to the terms of the YSI Stock Option Plans, as in effect from
time to time, the following current employees of the Subsidiaries have been
granted options to purchase common stock of YSI:
Kurt Mahoney
Nicholas J. Mavrolas
James Oleson
Katherine B. Wade
Except as provided for above, neither the Company nor any of the
Subsidiaries is a party to any plan, arrangement or contract with any of the
employees thereof providing for options, bonuses, stock purchases, deferred
compensation or the like, it being understood that YSI has entered into a
special bonus arrangement with Katherine Wade which is described generally in
Schedule 2.24.
The following is a list of material contracts and agreements through
which the Company or any of the Subsidiaries provides to any other person or
entity services or goods and, in return, receives more than $10,000 per year:
1. Single Purchase of Care Contract among Regional Behavioral Health
Authority (on behalf of the Arizona Department of Health Services, the Arizona
Department of Economic Security, the Arizona Department of Juvenile
Corrections and the Administrative Office of the Arizona Supreme Court) and
Developmental Behavioral Consultants, Inc. dated July 8, 1996; Amendment No. 2
of Contract dated May 20, 1997.
2. Contract between the Arizona Department of Economic Security and
Developmental Behavioral Consultants, Inc. dated December 8, 1992; Contract
Amendment dated May 15, 1995; Contract Amendment dated May 15, 1997.
3. Provider Subcontract Agreement between the Navajo Nation and
Desert Hills Center for Youth and Families effective 7/1/95 to 6/30/96;
Subcontract Amendment effective 7/1/96 to 6/30/97. [RENEWED]
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4. Subcontract Agreement between Northern Arizona Behavioral Health
Authority and Desert Hills Hospital effective 7/1/95 to 6/30/97. [RENEWED]
5. Subcontract Agreement between Desert Hills Center for Youth and
Families and Pascua Yaqui Tribe effective 7/1/96.
6. Amendment to Contract between Desert Hills Center for Youth and
Families and Pinal Gila Behavioral Health Association, Inc. effective 7/1/96.
7. Preferred Facility Agreement between Desert Hills Center for Youth
and Families and Private Healthcare Systems, Inc. effective 5/1/97 to 4/30/98.
8. Single Purchase of Care Contract among Regional Behavioral Health
Authority (on behalf of the Arizona Department of Health Services, the Arizona
Department of Economic Security, the Arizona Department of Juvenile
Corrections and the Administrative Office of the Arizona Supreme Court) and
Desert Hills Center for Youth and Families effective 7/1/96 to 6/30/97.
[RENEWED 7/1/97]
9. Subcontract Agreement between Southeastern Arizona Behavioral
Health Services, Inc. and Introspect Healthcare Corporation d/b/a Desert Hills
effective 7/1/95.
10. Contract for Services of Independent Contractor between the State
of Nevada, acting by and through its Nevada Department of Education, and
Desert Hills Center effective 7/1/96.
11. Contract for Out-of-State Residential Treatment Services between
the State of Montana Department of Corrections and Desert Hills, Tucson
effective 1/1/97 to 12/31/97.
12. Contract with Sunnyside School District effective 6/1/95 to
6/30/96. [RENEWED]
13. Facility Agreement between Value Behavioral Health, Inc. and
Desert Hills Center for Youth and Families effective 2/15/96.
14. Managed Care System Agreement between U.S. Behavioral Health, a
wholly owned subsidiary of The Travelers Insurance Company, and Desert Hills
Center for Youth and Families effective 5/31/95.
15. Single Purchase of Care Subcontract Agreement between Community
Partnership of Southern Arizona and Desert Hills Center for Youth and Families
effective 7/1/96 to 6/30/97. [RENEWED]
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16. Contract between the Arizona Department of Juvenile Corrections
and Introspect Healthcare Corporation d/b/a Desert Hills Center for Youth and
Families effective 5/1/97 to 7/31/97.
17. Standard Institution Participation Agreement between Blue Cross
and Blue Shield of Arizona, Inc. and Desert Hills Center for Youth and
Families effective 4/1/95.
18. Preferred Provider Agreement between Desert Hills and Carondelet
Health Care Corporation of Arizona d/b/a Carondelet Behavioral Health signed
2/10/97.
19. Assignment Letter of Agreement between Arizona Children's Home
Association and Desert Hills Center for Youth and Families assigning
subcontract to Southern Arizona Children's Consortium effective 2/1/97.
20. Subrecipient Subcontract Agreement between CODAC Behavioral Health
Services, Inc. and Desert Hills Hospital effective 7/1/96; Assignment Letter
of Agreement dated 2/25/97.
21. Agreement between La Frontera Center, Inc. and Desert Hills Center
for Youth and Families effective 7/1/96.
22. Subrecipient Subcontract Agreement between The Providence Service
Corporation and Desert Hills Center for Youth and Families effective 2/1/97.
23. Agreement for the Provision of Managed Care Services between
CONTACT, a division of Samaritan Health System, and Introspect Healthcare
Corporation d/b/a Desert Hills Center for Youth and Families effective 3/1/96.
24. Participating Facility Services Agreement between Corphealth, Inc.
and Desert Hills Center for Youth and Families dated 2/1/95; Addendum to
Agreement effective 4/2/97.
25. Participating Provider Agreement between Foundation Health
PsychCare Services, Inc. and Desert Hills Center for Youth and Families
effective 4/11/96.
26. Service Contract between Hopi Tribe, Social Services Program, and
Desert Hills Center for Youth and Families effective 1/1/97 to 12/30/97.
27. Behavioral Health Service Facility Agreement among Introspect
HealthCare Corporation d/b/a Desert Hills Center for Youth and Families, Human
Affairs International Incorporated and Aetna Health Plans of Arizona, Inc.
effective 9/1/96.
28. Contract between Indian Health Services and Desert Hills Center
for Youth and Families, Inc. effective 7/1/92 to 2/14/98.
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30. Subcontract between Carondelet Healthcare Corporation and Youth
Services International d/b/a Desert Hills Center for Youth and Families
effective 8/1/95 to 7/31/00; Amendment One to Subcontract Agreement dated
3/97.
31. Health Facility Participation Agreement between Merit Behavioral
Care Systems Corporation and Desert Hills Center for Youth and Families of
N.M., Inc. effective 1/1/97.
32. Amendment to the Participating Provider Agreement between
Foundation Health PsychCare Services, Inc. d/b/a Catalina Behavioral Health
Services and Carondelet Health Care Corporation effective 8/1/95 to 7/31/00.
33. Affiliation Agreement Purchase of Services Contract Memorandum of
Understanding between Carondelet Health Care Corporation and Introspect
Healthcare Corporation dated 9/1/94.
34. Agreement between Desert Hills Center for Youth and Families and
University Physicians, Incorporated effective 2/1/96.
35. Contract between the Arizona Department of Economic Security and
Westwind Children's Services, Inc. dated October 10, 1996 and Contract
Amendment No. 1 dated November 27, 1996.
36. Contract between the Arizona Department of Economic Security and
Westwind Children's Services, Inc. dated October 25, 1996 (for the provision
of shelter care) and Contract Amendment No. 1 dated April 14, 1997.
37. Provider Service Agreement by and between Westwind Children's
Services, Inc. and Promise House, Inc. dated March 29, 1996.
38. Chemical Dependency Treatment Referral Relationship and Discount
Agreement between Parc Place and American Airlines, Inc. effective 1/24/95.
39. Preferred Provider Network Hospital Agreement with Beech Street of
California, Inc.
40. Standard Institution Participation Agreement between Blue Cross
and Blue Shield of Arizona, Inc. and Phoenix Adolescent Recovery Center d/b/a
Parc Place effective 4/1/95.
41. Facility Service Agreement between Capp Care, Inc. and
Southwestern Children's Health Services, Inc. d/b/a Parc Place effective
9/25/94.
42. Provider Contract for Chemical Dependency Services between CCN,
Inc. and Phoenix Adolescent Recovery Center, Inc. effective 5/1/92;
Notification of
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Assignment of Contract dated 8/12/94 advising CCN, Inc. that contract has been
assigned by Parc Place to Southwestern Children's Health Services, Inc.
43. Participation Agreement for Substance Use Disorder Rehabilitation
Facility Services for CHAMPUS Beneficiaries dated 4/28/95.
44. Amendment to Institutional Services Agreement between MCC
Behavioral Care, Inc, and Parc Place, Inc. dated 2/18/97.
45. Facility Agreement dated 8/1/94 between CNR Health, Inc. and Parc
Place and Agreement Amendment effective 1/1/96.
46. Inpatient/Alternate Care Facility Letter of Agreement between Parc
Place and Health Management Center, Inc. dated 1/26/94.
47. Service Agreement between Health Risk Management, Inc. and Parc
Place dated 10/1/91; Notification of Assignment dated 7/31/94 advising Health
Risk Management, Inc. that contract has been assigned by Parc Place to
Southwestern Children's Health Services, Inc.
48. Facility Participation Agreement between Southwestern Children's
Health Services d/b/a Parc Place and Aetna Health Management, Inc. effective
4/1/95
49. Residential Treatment Services Agreement dated 12/7/94 between
Holman Family Counseling, Inc. and Southwestern Children's Health Services.
50. Facility Provider Agreement between Managed Health Network, Inc.
and Parc Place dated 12/7/90; Notification of Assignment dated 8/17/94
advising Managed Health Network, Inc. that contract has been assigned by Parc
Place to Southwestern Children's Health Services, Inc.
51. Facility Agreement between Pacificare Behavioral Health, Inc. and
Parc Place effective 1/1/91.
52. Facility Provider Agreement between Preferred Mental Health, Inc.
and Parc Place effective 1/94.
53. Mental Health Preferred Hospital Agreement between Parc Place and
Private Healthcare Systems, Inc. effective 10/1/95.
54. Mental Health Care Service Facility Agreement dated 7/1/91 between
Parc Place and USA Healthnet, Inc.; Amendment to Agreement dated 4/94.
55. Revised Travelers Managed Care System Agreement between Parc Place
and U.S. Behavioral Health dated 4/94 and First Amendment dated 11/94.
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56. Contract between Parc Place and the Arizona Department of Juvenile
Corrections for Residential Treatment Services for Substance Abuse dated April
28, 1995; Amendment effective 7/1/96.
57. Single Purchase of Care Contract among the Arizona Department of
Health Services, the Arizona Department of Economic Security, the Arizona
Department of Juvenile Corrections and the Administrative Office of the
Arizona Supreme Court and Southwestern Children's Health Services d/b/a Parc
Place for 5116 East Thomas Rd. effective 7/1/97 to 6/30/98.
58. Subcontract Agreement between Pinal Gila Behavioral Health
Association, Inc. and Southwestern Children's Health Services d/b/a Parc Place
effective 7/1/95 to 6/30/98.
59. Memorandum of Agreement between Tampa Bay Academy and Green Spring
Health Services, Inc. effective July 17, 1993.
60. EAP Network Participating Provider Agreement between
Anheuser-Busch Companies, Inc. and Tampa Bay Academy effective 4/7/93.
61. Facility Contract between Preferred Health Management, Inc. and
Tampa Bay Academy effective June 23, 1992.
62. Participating Facility Agreement between US Behavioral Health
Plan, California and Tampa Bay Academy effective 8/1/91.
63. Facility Agreement between Tampa Bay Academy and Value Behavioral
Health, Inc. dated November 8, 1995.
64. Participating Facility Agreement between Integrated Behavioral
Health and Tampa Bay Academy effective 4/1/94.
65. Facility Provider Agreement between Managed Health Network, Inc.
and Tampa Bay Academy effective 2/29/93.
66. Mental Hospital Provider Agreement between Medical Card System,
Inc. and Tampa Bay Academy effective 7/1/95.
67. PPO Participating Facility Agreement between MultiPlan, Inc. and
Tampa Bay Academy, Ltd. dated 11/93.
68. Mental Health Preferred Hospital Agreement between Private
Healthcare Systems, Inc. and Tampa Bay Academy dated July 20, 1995.
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69. Program Provider Agreement between Professional Psychological
Services and Tampa Bay Academy dated September 16, 1994.
70. Provider Agreement Mental Health/Substance Abuse between
Connecticut General Life Insurance Company ("CIGNA"), acting on behalf of
General Motors Corporation and Tampa Bay Academy effective 10/1/95.
71. Standard Rate Agreement between State of Florida, Department of
Health and Rehabilitative Services and Tampa Bay Academy, Ltd. effective
9/1/93.
72. Letter of Agreement for Participating Provider between American
Mental Health Care, Inc. and Tampa Bay Academy dated February 22, 1993.
73. Outpatient/Inpatient Facility Service Agreement between Choice
Behavioral Health Partnership and Tampa Bay Academy effective 3/26/97.
74. Agreement Number 97CSA.159 between Tampa Bay Academy and the
County Board of Arlington, Virginia effective 11/1/96.
75. Amendment to Contract between Affordable Health Care Concepts and
Tampa Bay Academy effective 1/1/95.
76. Facility Agreement between ComPsych Employee Assistance Program,
Inc. and Tampa Bay Academy effective 9/1/95.
77. Facility Participation Agreement between Comprehensive Behavioral
Care, Inc. and Tampa Bay Academy.
78. Mental Health Care Service Facility Agreement between USA
Healthnet, Inc. and Tampa Bay Academy dated August 8, 1991.
79. Amendment to Agreement effective 7/1/93 between Blue Cross and
Blue Shield of Florida, Inc. and Tampa Bay Academy amending the Participating
Psychiatric and Substance Abuse Facility Services Agreement dated 5/1/92.
80. FY 1997 Agreement for Purchase of Services between Tampa Bay
Academy and Fairfax-Falls Church Community Policy and Management Team
effective 1/1/97 to 6/30/98.
81. Contract for Competency Restoration Services between the Brown
Schools of Florida and Tampa Bay Academy effective 6/3/97. [DRAFT]
82. Standard Contract between the Florida Department of Children and
Families and Youth Services International of Florida d/b/a Tampa Bay Academy
effective 7/1/97 to 6/30/98.
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83. Agreement between the Oklahoma Department of Human Resources and
Tampa Bay Academy as a medical provider under programs administered by the
Oklahoma Health Care Authority expiring 3/31/98.
84. Pursuant to the terms of an Agreement dated as of March 27, 1996
by and among YSI, Youth Services International of Florida, Inc. and American
Residential Centers, Inc. ("ARC"), Youth Services International of Florida,
Inc. is obligated to make "earn-out" payments to ARC in scheduled amounts as
part of the purchase price for the rights of ARC under its Management
Agreement with The Tampa Bay Academy (which were acquired in connection with
the assets of The Tampa Bay Academy) if the EBITDA of Youth Services
International of Florida exceeds certain thresholds as of the June 30, 1997
and June 30, 1998.
85. Pursuant to the terms of an Asset Purchase Agreement dated as of
March 27, 1996 by and among YSI, Youth Services International of Florida, Inc.
and The Tampa Bay Academy, Ltd., Youth Services International of Florida, Inc.
is obligated to make "earn-out" payments to TBA Partnership, Ltd. (f/k/a The
Tampa Bay Academy, Ltd.) in scheduled amounts as part of the purchase price
for the assets of The Tampa Bay Academy if the EBITDA of Youth Services
International of Florida exceeds certain thresholds as of the June 30, 1997
and June 30, 1998.
86. Health Facility Participation Agreement between Merit Behavioral
Care Systems Corporation and Desert Hills Center for Youth and Families of New
Mexico, Inc. dated December 18, 1996.
87. Participation Agreement for RTC between CHAMPUS Mental Health
Program Branch and Desert Hills Center for Youth and Families dated April 30,
1996.
88. Participation Agreement for Psychiatric Partial Hospitalization
Program between CHAMPUS Mental Health Program Branch and Desert Hills Center
for Youth and Families dated April 30, 1996.
89. Facility Services Agreement between PRO Behavioral Health, Inc.
and Desert Hills Center for Youth and Families of New Mexico, Inc. dated
February 1, 1997.
90. PPO Participating Facility Agreement between MultiPlan Managed
Care, Inc. and Desert Hills Center for Youth & Families of New Mexico, Inc.
effective 6/8/93.
91. Facility and Program Participation Agreement between Green Spring
Health Services, Inc. and Desert Hills Center dated 6/2/93 and 9/8/93.
92. Letter of Agreement between Psychology Systems, Inc. and Desert
Hills Hospital dated March 29, 1996.
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93. Participating Hospital Agreement between Health Management Network
and Desert Hills Center for Youth and Families of New Mexico, Inc. effective
12/1/96.
94. Contract Award No. ###-##-#### providing Adolescent Residential
Treatment and Partial Hospitalization Treatment Services between The Indian
Health Services and Desert Hills effective 9/35/90.
95. Letter of Agreement for Participating Provider Organization
between AcuCare Group, L.L.P. and Desert Hills Center dated effective 1/18/95.
96. Participating Specialty Hospital Agreement between New Mexico Blue
Cross and Blue Shield, Inc. and Desert Hills effective 8/1/94.
97. Preferred Provider Agreement between American Airlines Employee
Assistance Program and Desert Hills Centers for Youth and Families effective
3/1/93.
98. Institutional Services Agreement between MCC Managed Behavioral
Care, Inc. and Desert Hills Center for Youth and Families effective 1/1/92;
Amendment effective 7/31/95.
99. Network Provider Agreement, and amendment thereto, between Medical
Network, Inc. and Desert Hills Center for Youth and Families of New Mexico
effective December 1, 1994.
100. Facility Services Agreement between Mental Health Services and
Desert Hills effective 6/15/94.
101. The Travelers Managed Care System Agreement between U.S. Behavioral
Health and Desert Hills - New Mexico effective 4/1/94.
102. [Draft] Member Agreement between Behavioral Healthcare
Corporation, Inc, and Desert Hills Center for Youth and Families of New
Mexico, Inc.
103. Letter Agreement dated 4/22/97 between Desert Hills Center for
Youth and Families of New Mexico, Inc. and National Mental Health Institute
for the Deaf.
104. Management Agreement between Tampa Bay Academy and the National
Mental Health Institute on Deafness, Inc. dated April 1, 1995 (and letter
dated March 26, 1997 regarding rates thereunder).
105. Contract for Residential Services between Guadalupe County Juvenile
Probation Department and Desert Hills of Texas effective 6/5/97 to 12/31/97.
106. Contract for Residential Services between the 36th Judicial District
Juvenile Probation Department and Brazos Valley Youth Corporation effective
5/1/97 to
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5/1/98. (This contract includes the counties of Aransas, Bee, Live Oak,
McMullen and San Patricio).
107. Contract for Residential Services between Criminal Justice Division
Grant, Jefferson County and Los Hermanos effective 4/23/97 to 8/31/97.
108. Contract for Residential Services for between Criminal Justice
Division Grant, Wichita County and Los Hermanos effective 1/1/97 to 12/31/97.
109. Contract for Residential Services between Tarrant County, Texas and
Los Hermanos Ranch (Level 5 care) effective 9/96 to 9/30/97.
110. Contract for Residential Services between Tarrant County, Texas and
Los Hermanos Ranch (Level 4 care) effective 9/96 to 9/30/97.
111. Contract for Residential Services between Brazos County Juvenile
Services Dept. and Los Hermanos Ranch effective 1/1/95.
112. Purchased Child Protective Services Contract No. 200267 (Provisional
Contract) between Texas Department of Protective and Regulatory Services and
Los Hermanos Ranch effective 12/1/96.
113. Purchased Child Protective Services Contract No. 200277 between
Texas Department of Protective and Regulatory Services and Brazos Valley Youth
Corporation dba Desert Hills of Texas effective 9/1/96 to 8/31/97.
114. Contract for Out-of-State Residential Treatment Services between
Montana Department of Corrections and Brazos Valley Youth Corporation
effective 1/1/97 to 12/31/97.
115. Contract for Services between Bell County, acting through its
Probation Department and the Desert Hills Academy effective 11/17/95.
116. Residential Services Agreement between County of Bexar, Texas and
Brazos Valley Youth Corporation effective 10/1/96 to 9/30/97.
117. Contract for Residential Services between Brazoria County Juvenile
Probation Department and Brazos Valley Youth Corporation dba Desert Hills of
Texas effective 3/16/97 to 12/31/97.
118. Contract for Residential Services of 1/1/97 and 12/31/97 between
Brazos County Juvenile Services Department and Brazos Valley Youth Corporation
dba Desert Hills of Texas.
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119. Contract for Residential Services between Comal Co. Juvenile
Probation and Desert Hills effective 10/3/95.
120. Contract for Residential Services between the County of Cameron and
Brazos Valley Youth Corporation dba Desert Hills of Texas effective 1/13/97 to
9/30/97.
121. Contract for Residential Services between the Dallas County Juvenile
Department and Brazos Valley Youth Corp effective 12/1/96 to 9/30/97.
122. Contract and Agreement between Denton County Court Services and
Desert Hills Brazos Valley Youth Corp effective 3/12/97 to 9/11/97.
123. Contract for Residential Services between the County of El Pasos and
Brazos Valley Youth Corporation dba Desert Hills of Texas effective 9/25/95.
124. Agreement for Residential Services between Fort Bend County and
Desert Hills of Texas effective 11/96 to 12/31/97.
125. Agreement for Residential Services between Harris County Juvenile
Board and Brazos Valley Youth Corp dba Desert Hills of Texas effective 9/1/96
to 8/31/97.
126. Contract for Residential Services between Harrison County Texas
Juvenile Board and Desert Hills effective 5/23/96.
127. Contract for Residential Services between Hays County Juvenile
Probation Department and Desert Hills effective 2/95.
128. Contract for Residential Services between Hidalgo County and Brazos
Valley Youth Corporation effective 1/1/97 to 12/31/97.
129. Contract for Residential Services between Criminal Justice Division
Grant, Jefferson County and Desert Hills of Texas effective 10/96 to 8/31/97.
130. Contract for Foster Care Services between Lubbock County
Texas--Lubbock County Youth Center and Brazos Valley Youth Corp. dba Desert
Hills of Texas effective 10/1/96 to 9/30/97.
131. Professional Services Agreement between Lutheran Social Services of
the South, Inc. and Desert Hills of Texas effective 12/19/96.
132. Contract for Residential Services (unsigned and undated) between the
County of Matagorda and Brazos Valley Youth Corporation dba Desert Hills of
Texas.
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133. Contract for Residential Services and beyond between Orange County
and Brazos Valley Youth Corporation ( authorized to do business in the State
of Texas and operating the residential treatment programs known as Desert
Hills of Texas, Inc. and Los Hermanos Ranch, Inc.) effective 1/1/97 to
12/31/97.
134. Contract for Residential Services (Level 4) between Tarrant County,
Texas and Desert Hills of Texas effective 9/30/97.
135. Contract for Residential Services between Tom Green County and
Desert Hills of Texas dated 9/23/96.
136. Contract for Residential Treatment Services and beyond between
Travis County and Brazos Valley Youth Corporation d/b/a Desert Hills of Texas
effective 9/16/96.
137. Contract for Residential Services between Wichita County
Commissioners' Court and Brazos Valley Youth Corporation / Desert Hills of
Texas effective 1/1/97 to 12/31/97.
138. Contract for Residential Services between the County of Williamson
and Desert Hills effective 11/19/96 to 10/4/97.
139. Cooperative Program Agreement between College Station Independent
School District and Desert Hills of Texas effective 4/14/96 to 7/31/97.
140. Contract between Tucson and Arizona Office of the Courts effective
1/1/97.
141. Contract of 3/14/97 between Tucson and BHP (Magma Copper Co.).
142. DHS Contract between Utah Division of Youth Corrections and Youth
Services International of Utah, Inc. effective 7/1/95 to 6/30/98.
143. DHS Contract between Utah Division of Child and Family Services and
Western Region and YSI of Utah effective 7/1/96 to 6/30/98.
144. Contract between Community Care Network, Inc. and Desert Hills
Center for Youth and Families effective 12/15/92.
145. Contract between Green Spring Health Services, Inc. and Desert Hills
Center for Youth and Families effective 9/1/93.
146. Contract between Health Care Incorporated and Desert Hills Center
for Youth and Families effective 5/1/95.
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147. Contract between Holman Professional Counseling Centers and
Introspect Healthcare Corporation effective 4/3/96.
148. Contract between Multiplan Managed Care, Inc. and Desert Hills
Center for Youth and Families effective 5/6/93.
149. Contract between Preferred Mental Health Management and Desert Hills
Center for Youth and Families effective 4/20/93.
150. Contract between United Behavioral Health Systems and Desert Hills
effective 7/1/96.
151. Contract between The School Board of Hillsborough County Florida and
The Charter School of Tampa Bay Academy, Inc. effective 7/1/97 to 6/30/00.
152. Single Purchase of Care Subcontract Agreement between Community
Partnership of Southern Arizona and Desert Hills Center for Youth and Families
effective 7/1/96.
153. Management Agreement between Brazos Valley Youth Corporation and
Youth Services International of Texas, Inc. dated 9/1/95.
154. Participation Agreement for a Residential Treatment Center
between Tampa Bay Academy and the U.S. Department of Defense for 12012 Boyette
Road, Riverview, Florida 33569.
155. Participation Agreement for a Psychiatric Partial Hospitalization
Program between Tampa Bay Academy and the U.S. Department of Defense for 12012
Boyette Road, Riverview, Florida 33569.
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SCHEDULE 2.20
Material Real Property and Personal Property Leases
Developmental Behavioral Consultants, Inc.
1. Lease for 4652 W. Whitten St., Chandler, AZ 85226, by and between
Kurt Mahoney and Patricia Mahoney, Lessors and Developmental
Behavioral Consultants, Inc, Lessee, expiring January 31, 1998.
2. Lease for 1801 E. Winchomb Dr., Phoenix, Az 85022, by and between
John Hall & Associates, Broker, and Developmental Behavioral
Consultants, Inc., Lessee, expiring June 30, 1997.
3. Lease for 2706 W. Warner Rd., Chandler, AZ 85224, by and between Al
Silberman, Steve Sharon Trust and Anita Aratow, Lessor, and
Developmental Behavioral Consultants, Inc., Lessee, expiring March
31, 1998.
4. Lease for 1201 E. Todd Dr., Tempe, AZ 85283, by and between Kurt
Mahoney and Patricia Mahoney, Lessors and Developmental Behavioral
Consultants, Inc., Lessee, expiring November 30, 1997.
5. Lease for 3192 W. Thude Dr., Chandler, AZ 85226, by and between Kurt
and Patricia Mahoney, Lessors, and Developmental Behavioral
Consultants, Inc., Lessee, expiring January 31, 1998.
6. Lease for 800 E. Stephens, Tempe, AZ 85283, by and between Al and
Marcia Silberman, Lessors, and Developmental Behavioral Consultants,
Inc., Lessee, expiring July 31,1998.
7. Lease for 4515 W. Mercury Way Chandler, AZ 85226, by and between
Robert J. Mattus and Mary Louis Delaney, Lessors and Developmental
Behavioral Consultants, Inc., Lessee, expiring September 30, 1997.
8. Lease for 718 E. Manhattan, Tempe, AZ 85282, by and between Steve
Sharpe Trust, Lessor and Developmental Behavioral Consultants, Inc.,
Lessee, expiring November 30, 1997.
9. Lease for 1900 E. Libra Dr., Tempe, AZ 85183, by and between Steve
Sharpe Trust, Lessor and Developmental Behavioral Consultants, Inc.,
Lessee, expiring December 31, 1997.
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<PAGE> 116
10. Lease for 5917 S. Kenwood La., Tempe, AZ 85283, by and between Kuana
Nan and Mai Lei Nan, Lessors and Developmental Behavioral
Consultants, Inc., Lessee, expiring May 31, 1998.
11. Lease for 5934 S. Juniper, Tempe, AZ 85284, by and between Kurt and
Patricia Mahoney, Lessors and Developmental Behavioral Consultants,
Inc., Lessee, expiring June 30, 1998.
12. Lease for 5811 S. Hazelton La., Tempe, AZ 85283, by and between
Steve Sharpe Trust, Lessor and Developmental Behavioral Consultants,
Inc., Lessee, expiring March 31, 1998.
13. Lease for 1101 W. Erie St., Apartments A, B, C, D, E, and F,
Chandler, AZ 85224, by and between Kurt and Patricia Mahoney,
Lessor, and Developmental Behavioral Consultants, Inc., Lessee,
expiring July 31, 1997.
14. Lease for 2010 E. Diamond Dr., Tempe, AZ 85283, by and between
Realty Executives, Broker and Developmental Behavioral Consultants,
Inc., Lessee, expiring July 31, 1997.
15. Lease for 11010 N. 29th St., Phoenix, AZ 85028, by and between John
Hall & Associates, Broker and Developmental Behavioral Consultants,
Inc., Lessee, expiring August 31, 1997.
16. Lease for 2405 E. Southern, Tempe, AZ 85282, by and between Sunny
Mesa Realty, Broker and Developmental Behavioral Consultants, Inc.,
Lessee, expiring May 31, 1999.
17. Lease for 2123 W. Cheyenne, Chandler, AZ 85224, by and between Kurt
and Patricia Mahoney, Lessor and Developmental Behavioral
Consultants, Inc., Lessee, expiring April 30, 1998.
18. Lease for 1405 E. Williams Field Rd., Gilbert, AZ 85296, by and
between Kurt and Patricia Mahoney, Lessor and Developmental
Behavioral Consultants, Inc., Lessee, expiring May 31, 1998.
19. Lease for 3706 S. Dorsey Lane, Tempe, AZ 85282, by and between Mary
Czaikowski, Lessor and Developmental Behavioral Consultants, Inc.,
expiring May 31, 1998.
Introspect HealthCare, Corporation
NONE
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Promise House, Inc.
1. Lease for Residential Property at 105 East Missouri, Phoenix, AZ
85012 by and between L. Dwain Hoover and Beva J. Hoover and Westwind
Children's Services, Inc. dated July 1, 1996 (Promise House
reimburses Westwind for the payments under this lease pursuant to
the Provider Service Agreement between the parties).
2. General Gross Lease at Paseo Verde Plaza, 4150 W. Peoria Avenue,
Phoenix, AZ 85029, Suites 116 and 117 between Paseo Verde Partners
L.P. and Promise House, Inc. dated January 6, 1997.
3. Lease dated October 1, 1994 between Nicholas J. and Susan N.
Mavrolas, Lessor and Promise House, Inc., Lessee, for 7137 W. Libby
Street, Glendale, AZ 85308, and Amendment to Lease dated 4/1/97
between Nicholas J. Mavrolas and Susan N. Mavrolas and Promise
House, Inc. for 7137 W. Libby, Glendale, AZ 85308.
4. Lease dated October 1, 1994 between Nicholas J. and Susan N.
Mavrolas and Promise House, Inc. for 6509 W. Sunnyside Drive,
Glendale, AZ 85304.
5. Oral Lease for 5323 W. Westwind Dr., Glendale, AZ 85023, by and
between Promise House, Inc. and Nicholas J. Mavrolas.
6. Oral Lease for 13113 N. 24th Avenue, Phoenix, AZ 85029, by and
between Promise House, Inc. and Nicholas J. Mavrolas.
7. Oral Lease for 15824 N. 29th Street, Phoenix, AZ 85023, by and
between Promise House, Inc. and Nicholas J. Mavrolas.
8. Oral Lease for 5038 W. Acoma Dr., Phoenix, AZ 85308, by and between
Promise House, Inc. and Nicholas J. Mavrolas.
9. Oral Lease for 15210 N. 5th Avenue, Phoenix, AZ 85023, by and
between Promise House, Inc. and Nicholas J. Mavrolas.
10. Oral Lease for 23848 N. 40th Dr., Glendale, AZ 85310, by and between
Promise House, Inc. and Nicholas J. Mavrolas.
Southwestern Children's Health Services, Inc.
1. Lease for 5128 E. Thomas Road, Phoenix, AZ 85018, first floor, by
and between Sal and Catherine Fusco and Parc Place Realty Holdings,
Inc.,
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expiring October 31, 1997. Assigned to SWCHS on July 31, 1994
pursuant to the Assignment of Lease dated July 31, 1994 by Parc
Place Realty Holdings, Inc. (Assignor) to Southwestern Children's
Health Services, Inc. (Assignee).
2. Lease for 5128 E. Thomas Road, Phoenix, AZ 85018, second floor, by
and between Sal and Catherine Fusco and Southwestern Children's
Health Services, expiring June 30, 1999.
3. Lease for First Prince Plaza, 3640 North First Avenue, Tucson, AZ
85719 by and between Paul E. Rossier and Lee M. Rossier and
Southwestern Children's Health Services, expiring May 1, 1999.
4. Office Lease for 5540 W. Glendale Avenue, Suite C-106, Glendale,
AZ between Area Enterprises, Ltd., and Cheryl Manor, Partnerships
dba Glendale Office Plaza and SWCHS dba Parc Place expiring
September 30, 1997.
5. Lease for 5116 East Thomas Road, Phoenix, Arizona 85018 between
National Century Financial Enterprises, Inc. and Southwestern
Children's Health Services, Inc., effective December 12, 1996.
Youth Services International of Florida, Inc.
1. Lease Agreement for The Tampa Bay Academy, 12012 Boyette Road,
Riverview, Florida 33569 by and between The Tampa Bay Academy, Ltd.
(n/k/a TBA, Ltd.) and Youth Services International of Florida, Inc.,
expiring February 28, 2006.
Youth Services International of New Mexico, Inc.
1. Lease for 4900 Sequoia N.W., Albuquerque, NM 87120 by and between
Emiliano Saiz and Theresa Saiz and Desert Hills Center for Youth and
Families of New Mexico, Inc. expiring January 31, 2010
Youth Services International of Texas, Inc.
1. Facility Lease and Security Agreement dated as of June 30, 1996 for
15 acre tract in Brazos County Texas between Meditrust of College
Station, Inc. (Lessor) and Youth Services International of Texas,
Inc. (Lessee). [College Station, 4201 Texas Avenue South, College
Station, TX 77845]
2. Equipment Lease between Desert Hills and Lanier for copier and fax
services dated 11/14/96 ($1017.80 per month).
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YSI of Utah, Inc.
1. Commercial Lease Agreement for 130 S. Main, Logan, Utah between
Mountain States Property Management, Inc. (lessor) and Youth
Services International, (lessee) for 3/17/97 to 3/17/98.
2. Lease Agreement for 3809 South West Temple, Suite 1-D dated as of
9/5/91 between Highline V Realty Trust and Gary E. Burton, dba
Interstate Youth Services; Lease Abstract for 3809 South West
Temple, Suite 1-D, Salt Lake City, Utah 84115 between Highline V
Realty Trust (lessor) and Gary E. Burton dba Interstate Youth
Services (lessee) for 10/7/91 to 9/30/97 as assigned May 30, 1997 to
YSI of Utah, Inc..
3. Office Building Lease dated 2/24/93 between Mountain States - 24th
Street, Ltd. and Interstate Youth Services; Amendment to Lease for
289 24th Street, Suite 300, Ogden Utah 84401 between Mountain
States-24th Street, Ltd. (lessor) and Youth Services International,
Inc. (lessee).
4. Lease Agreement for 430 East 450 South, Clearfield, Utah 84015
between. Richard M. Webber (lessor) and Youth Services International
of Utah, Inc. (lessee) for 9/21/94 to 1/14/00.
5. Facility Lease for 2604 Madison Avenue, Ogden, Utah 84401 between
G.H. Froerer LTD Partnership (lessor) and YSI of Utah, Inc. (lessee)
for 3/15/95 (or 10 days after substantial completion of remodeling,
whichever is later) to 3/15/00.
6. Commercial Lease and Deposit Receipt for 200 North Anderson Lane ,
Linden, Utah 84042 between Davis Brothers L.C. d/b/a Valley Square
(lessor) and YSI of Utah, Inc. (lessee) for 7/28/94 to 7/31/97.
7. Lease for 35 S. Main between Russell Westward, Duane Chase, and Alan
Wade (lessors) and YSI of Utah (lessee) for 9/21/95 to 9/21/98.
8. Lease for 199 West Center Street, Orem, Utah 84059 between Hammond
Company, Suzanne Hammond, general partner (lessor) and Youth
Services International (lessee) for 5/1/94 to 4/30/96; Letter
extending lease to 4/98.
9. Lease and Addendum to Facility Lease for 606 23rd Street, Ogden,
Utah 84401 between Thomas Dysart (lessor) and YSI of Utah, Inc.
(lessee) for 8/29/94 to 10/1/94.
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10. Commercial Lease for 177 North 500 East, Lehi, Utah 84043 between
Marty Hallam (lessor) and YSI of Utah, Inc. (lessee) for 1/15/97 to
12/31/02.
11. Lease Agreement for Blackhawk Property (Santaquin, Utah) and Orem
Office (560 S. State Street, Orem, Utah) between Punky, L.C.
(lessor) and YSI of Utah, Inc. (lessee) for 7/1/96 to 7/1/03.
Agreement for property located at 560 S. State Street, Orem, Utah
84058 between Dynamic Realty Group as agent and O.F.F.A. for 4/1/97
to 3/31/98.
YSI of Utah entered into the lease which covers both the Blackhawk
Property and the Orem Office as part of its acquisition of Youth
Quest, Inc. in July 1996. The lease was to expire in 2003. The
obligations of YSI of Utah with respect to the Blackhawk Property
were terminated, however, pursuant to an oral agreement reached with
Punky, L.C. in March 1997. On March 20, 1997, YSI of Utah, acting
through the Dynamic Realty Group, subleased the Orem Office to
O.F.F.A. for a term commencing April 1, 1997 and ending on March 31,
1998.
12. Agreement for Office Rental dated January 1, 1997 between Youth
Services International of Utah and Ronald Bond for the use of his
home as an office at 739 West 200 North, Vernal City, Utah.
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SCHEDULE 2.21.1
Real Property
Developmental Behavioral Consultants, Inc.
1. 4652 W. Whitten St., Chandler, AZ 85226
2. 1801 E. Winchomb Dr., Phoenix, AZ 85022
3. 2706 W. Warner Rd., Chandler, AZ 85224
4. 1201 E. Todd Dr., Tempe, AZ 85283
5. 3192 W. Thude Dr., Chandler, AZ 85226
6. 800 E. Stephens, Tempe, AZ 85283
7. 4515 W. Mercury Way, Chandler, AZ 85226
8. 718 E. Manhattan, Tempe, AZ 85282
9. 1900 E. Libra Dr., Tempe, AZ 85183
10. 5917 S. Kenwood La., Tempe, AZ 85283
11. 5934 S. Juniper, Tempe, AZ 85284
12. 5811 S. Hazelton La., Tempe, AZ 85283
13. 1101 W. Erie St., Apartments A, B, C, D, E and F, Chandler, AZ
85224
14. 2010 E. Diamond Dr., Tempe, AZ 85283
15. 11010 N. 29th St., Phoenix, AZ 85028
16. 2405 E. Southern, Tempe, AZ 85282
17. 2123 W. Cheyenne, Chandler, AZ 85224
18. 1405 E. Williams Field Rd., Gilbert, AZ 85296
19. 3706 S. Dorsey Lane, Tempe, AZ 85282
Introspect HealthCare, Corporation
1. 5245 North Camino do Oeste, Tucson, AZ 85745
2. 2797 N. Introspect Drive, Tucson, AZ 85745
Promise House, Inc.
1. 105 East Missouri, Phoenix, AZ 85012
2. 4150 W. Peoria Avenue, Suites 116 and 117, Phoenix, AZ 85029
3. 7137 W. Libby Street, Glendale, AZ 85308
4. 6509 W. Sunnyside Drive, Glendale, AZ 85304.
5. 5323 W. Westwind Dr., Glendale, AZ 85023
6. 13113 N. 24th Avenue, Phoenix, AZ 85029
7. 15824 N. 29th Street, Phoenix, AZ 85023
8. 5038 W. Acoma Dr., Phoenix, AZ 85308
9. 15210 N. 5th Avenue, Phoenix, AZ 85023
10. 23848 N. 40th Dr., Glendale, AZ 85310
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<PAGE> 122
Southwestern Children's Health Services, Inc.
1. 5128 E. Thomas Road, first floor, Phoenix, AZ 85018
2. 5128 E. Thomas Road, second floor, Phoenix, AZ 85018
3. First Prince Plaza, 3640 North First Avenue, Tucson, AZ 85719
4. 5116 E. Thomas Road, Phoenix, AZ 85018
Youth Services International of Florida, Inc.
1. 12012 Boyette Road, Riverview, Florida 33569
Youth Services International of New Mexico, Inc.
1. 4900 Sequoia N.W., Albuquerque, NM 87120 (leasehold title)
2. 5310 Sequoia N.W., Albuquerque, NM 87120 (fee title)
Youth Services International of Texas, Inc.
1. Los Hermanos Ranch, 6955 Broach Road, Bryan, TX 77845 (fee title)
2. 15 acre tract of land in Brazos County Texas (A.K.A College Station,
4201 Texas Avenue South, College Station, TX 77845 (leasehold title)
YSI of Utah, Inc.
1. 130 S. Main, Logan, Utah 84321
2. 3809 South West Temple, Suite 1-D, Salt Lake City, Utah 84115
3. 289 24th Street Suite 300, Ogden, Utah 84401
4. 430 East 450 South, Clearfield, Utah 84015
5. 2604 Madison Avenue, Ogden, Utah 84401
6. 200 North Anderson Lane, Linden, Utah 84042
7. 35 S. Main
8. 199 West Center St., Orem, Utah 84059
9. 177 North 500 East, Lehi, Utah 84043
10. 560 South State Street, Orem, Utah
11. Ronald Bond's Home, 739 West 200 North, Vernal City, Utah
12. 606 23rd Street, Ogden, Utah 84401
13. 235 North 2420 West, Provo, Utah 84057
63
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SCHEDULE 2.21.2
Other Permitted Encumbrances on Real Property
1. 12012 Boyette Road, Riverview, Florida 33569 -- Pipeline right-of-way
easement granted by The Tampa Bay Academy, Ltd. to the Central Florida
Pipeline Corporation on 6/7/95
2. Pursuant to a Sublease Agreement dated March 20, 1997, YSI of Utah,
Inc. subleased Suite B in the office building located at 560 South State
Street, Orem, Utah (the "Orem Office") to O.F.F.A. for the period beginning
April 1, 1997 through March 31, 1998.
64
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SCHEDULE 2.21.3
Contributions of Property or Money
NONE
65
<PAGE> 125
SCHEDULE 2.21.4
Property Reassessments
NONE
66
<PAGE> 126
SCHEDULE 2.22
Security Interests and Encumbrances on Personal Property
1. Pursuant to (a) the Loan and Security Agreement dated as of June 20,
1995 by and between Signet Bank/Maryland (predecessor in interest to Signet
Bank) and the Original Borrowers named therein, as amended by First Amendment
to Loan and Security Agreement dated as of December 12, 1996 by and among
Signet Bank, YSI, 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. and Southwestern Children's Health Services,
Inc.; (b) the Assumption Agreement dated as of July 25, 1995 by Youth Services
International of New Mexico, Inc., YSI and Signet Bank; and (c) the Assumption
Agreement dated as of December 12, 1996 by 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, Desert Hills Center for Youth and
Families, Inc., YSI and Signet Bank, each of the Behavioral Health
Subsidiaries granted security interests in, and liens on, substantially all of
their assets in order to secure to Signet Bank their respective obligations
thereunder.
2. Pursuant to the terms of the Facility Lease and Security Agreement
dated as of June 30, 1995 by and between Meditrust of College Station, Inc.
("Meditrust"), as lessor, and Youth Services International of Texas, Inc.,
("YSI of Texas"), as lessee, YSI of Texas granted to Meditrust a security
interest in and a lien on substantially all of its assets, whether then owned
or thereafter acquired, in order to secure to Meditrust the prompt payment and
performance of its obligations under the Facility Lease and Security
Agreement.
3. Please see chart entitled "Liens on Personal Property" attached hereto
as Attachment 2.22.
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SCHEDULE 2.23
Environmental
No Exceptions
68
<PAGE> 128
SCHEDULE 2.24
Company Broker Arrangements
Pursuant to a letter agreement dated April 14, 1997, YSI engaged Equitable
Securities Corporation to provide certain financial advisory and investment
banking services to YSI in connection with the proposed sale of its behavioral
health businesses and the transactions contemplated hereby. A portion of
Equitable's fees for such services are contingent upon the occurrence of the
closing of the transaction contemplated hereby.
69
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SCHEDULE 3.5
Broker's and Finder's Fees
Investment banking fee to an affiliate of CGW Southeast Partners III, L.P. not
to exceed 1.5% of the total capital contribution necessary to close the
acquisition of all the outstanding stock of YSI Holdings - Georgia, Inc.
<PAGE> 130
SCHEDULE 3.6
Required Consents
Pursuant to Section 4.2.7 of the Credit Agreement dated as of April 24,
1997 among Youth and Family Centered Services, Inc., Various Lenders and ING
(U.S.) Capital Corporation, ING (U.S.) Capital Corporation must receive written
approval from each lender having 66 2/3% or more of the aggregate loan
commitment prior to making an acquisition loan to the Purchaser.
<PAGE> 131
SCHEDULE 4.9
VACATION AND HOLIDAY PAY
To be provided prior to Closing.
<PAGE> 132
SCHEDULE 4.19
TRANSFER OF 401(k) PLAN
Introspect Health Care Corporation 401(k) Plan
