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EXHIBIT 2
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT (this "Amendment")
is entered into as of October 31, 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 parties hereto have heretofore entered into that
certain Stock Purchase Agreement dated as of July 22, 1997 (the "Original
Agreement"); and
WHEREAS, the parties desire to amend the Original Agreement; and
WHEREAS, attached hereto is a copy of the Original Agreement, marked
to show revisions to which the parties have agreed (the "Revision");
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Amendment. The Original Agreement shall be, and it hereby is,
amended as indicated in this Amendment No. 1, including, without limitation, the
Revision. Except as indicated in this Amendment No. 1, including, without
limitation, the Revision, the Original Agreement shall continue in full force
and effect in the form in which it was originally executed and delivered.
2. Receipt of Pre-Closing Deliveries. The Purchaser hereby
acknowledges its receipt and acceptance of the Schedules, statements of cash
flows and other materials described in Sections 4.9, 4.20, 4.21, 4.22 and 4.23
of the Original Agreement.
3. Updated Disclosure Schedules. The Purchaser hereby acknowledges
its receipt and acceptance of the amended and restated Schedules 2.4, 2.6, 2.7,
2.9, 2.10(b), 2.19 and 2.20 to the Original Agreement, copies of each of which
are attached hereto. The amended and restated Schedules 2.4, 2.6, 2.7, 2.9,
2.10(b), 2.13, 2.15, 2.19 and 2.20 are hereby incorporated into the Agreement by
this reference in form attached hereto and shall supersede and replace Schedules
2.4, 2.6, 2.7, 2.9, 2.10(b), 2.13, 2.15 2.19 and 2.20 to the Original Agreement.
4. New Disclosure Schedules. The Purchaser hereby acknowledges its
receipt and acceptance of Schedule 1.11 and 4.24. Schedule 1.11 and 4.24 are
hereby incorporated into the Agreement by this reference.
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5. Counterparts. This Amendment may be executed in one or more
counterparts, all of which shall be one and the same Amendment.
6. Headings. The headings in this Amendment are for convenience
only and shall not affect the construction hereof.
7. Governance. This Amendment shall be governed by, and construed
and enforced in accordance with, the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by a duly authorized officer on the date first above written.
YOUTH AND FAMILY CENTERED
SERVICES, INC.
By:
------------------------------------
Title:
------------------------------------
YOUTH SERVICES INTERNATIONAL
HOLDINGS, INC.
By:
------------------------------------
Title:
------------------------------------
YOUTH SERVICES INTERNATIONAL, INC.
By:
------------------------------------
Title:
------------------------------------
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ATTACHMENTS
1. Revised Agreement, marked to show changes.
2. Amended and Restated Schedule 2.19.
3. Amended and Restated Schedule 2.20.
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MARKED CUMULATIVELY TO SHOW
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DATED 7/22/97
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
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TABLE OF CONTENTS
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.......................... 3
1.5 Determination of Purchase Price.............................. 3
1.6 Closing...................................................... 4
1.7 Closing Documents............................................ 5
1.8 Release from Corporate Obligations........................... 6
1.9 Change of Corporate Names; Use of Service Marks and
Trade Names.................................................. 6
1.10 Transfer Back of Accounts Receivable......................... 6
1.11 Contingent Additional Purchase Consideration................. 6
SECTION 2 JOINT AND SEVERAL REPRESENTATIONS AND
WARRANTIES OF YSI AND THE SELLER............................. 9
2.1 Ownership of Shares.......................................... 9
2.2 Capacity and Validity........................................ 10
2.3 Organization and Standing of the Seller Companies............ 10
2.4 Capital Stock................................................ 10
2.5 Subsidiaries and Investments................................. 11
2.6 No Violation................................................. 11
2.7 Financial Statements......................................... 12
2.8 Insurance.................................................... 13
2.9 Litigation................................................... 13
2.10 Compliance with Laws, Licenses, Accreditation and Third-
Party Payor.................................................. 14
2.11 Inventories.................................................. 14
2.12 Cost Reports, Third-Party Receivables and Conditions of
Participation................................................ 15
2.13 Medical Staff................................................ 15
2.14 Experimental Procedures...................................... 15
2.15 Wage Claims.................................................. 15
2.16 Employment Matters........................................... 15
2.17 Tax Returns and Liabilities.................................. 16
2.18 Employee Benefit Plans....................................... 16
2.19 Contracts and Commitments.................................... 19
2.20 Leases....................................................... 20
2.21 Real Property................................................ 20
2.22 Personal Property............................................ 22
2.23 Environmental................................................ 23
2.24 Brokers' and Finders' Fees................................... 23
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2.25 Accounts Receivable.......................................... 23
2.26 No Untrue or Inaccurate Representation or Warranty........... 24
SECTION 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER.................. 24
3.1 Organization; Good Standing.................................. 24
3.2 Capacity and Validity........................................ 24
3.3 No Violation................................................. 24
3.4 Purchase for Investment...................................... 25
3.5 Brokers' and Finders' Fees................................... 25
3.6 Absence of Certain Proceedings; No Required Consents......... 25
3.7 Adequacy of Available Funds.................................. 25
3.8 Due Diligence; Reliance on Representations and Warranties.... 25
3.9 Statements True and Correct.................................. 26
SECTION 4 COVENANTS AND AGREEMENTS..................................... 26
4.1 Pre-Closing Activities....................................... 26
4.2 Best Efforts of YSI and the Seller........................... 27
4.3 Purchaser's Best Efforts..................................... 28
4.4 Medicaid Change of Control................................... 28
4.5 Public Announcements......................................... 28
4.6 Notification; Disclosure Schedule Changes.................... 28
4.7 Purchaser Exclusive.......................................... 29
4.8 Antitrust.................................................... 29
4.9 Vacation and Holiday Pay, Etc................................ 29
4.10 Non-Competition and Non-Solicitation Covenants............... 30
4.11 Election Under Section 338(h)(10)............................ 31
4.12 Payment of Taxes and Tax Returns............................. 32
4.13 Confidentiality.............................................. 34
4.14 Financing by the Purchaser................................... 35
4.15 Reorganization of the Subsidiaries........................... 35
4.16 Florida Juvenile Justice Assets.............................. 35
4.17 Intentionally Omitted........................................ 35
4.18 "Tail Insurance" Policy...................................... 36
4.19 Transfer of 401(k) Plans..................................... 36
4.20 Employee List................................................ 36
4.21 List of Personal Property and Accounts, Deposits, etc........ 37
4.22 Tax Basis in Assets.......................................... 37
4.23 Cash Flow Statements......................................... 37
4.24 Assumption of Lease Obligations for Vehicles................. 37
4.25 Access to Information and Cooperation After Closing.......... 37
4.26 YSI of Texas Matters......................................... 38
4.27 YSI Guaranty................................................. 39
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SECTION 5 TERMINATION.................................................. 39
5.1 Grounds for Termination...................................... 39
5.2 Consequences of Termination.................................. 40
5.3 Risk of Loss................................................. 41
SECTION 6 AMENDMENT OF AGREEMENT....................................... 41
SECTION 7 CONDITIONS PRECEDENT TO PURCHASER'S
OBLIGATION TO CLOSE.......................................... 42
7.1 Representations and Warranties............................... 42
7.2 Good Standing................................................ 42
7.3 Litigation................................................... 42
7.4 Opinion of Counsel........................................... 42
7.5 Resolutions.................................................. 42
7.6 HSR Act .................................................... 42
7.7 Governmental Approvals....................................... 43
7.8 No Adverse Changes........................................... 43
7.9 Facility Licenses............................................ 43
7.10 Financing.................................................... 43
7.11 Transition Services Agreement................................ 43
7.12 YSI Exercise of Option to Purchase........................... 43
7.13 Lease of Tampa Property...................................... 43
7.14 Lease and Tax Matters Agreement.............................. 44
7.15 Management Agreement Amendment............................... 44
7.18 Release of Security Interests................................ 44
7.17 Liquidation, Dissolution and Transfer of Entities............ 44
7.18 Tail Insurance............................................... 44
7.19 Consents, Approvals, Waivers, Etc............................ 44
7.20 Other Agreements............................................. 44
SECTION 8 CONDITIONS PRECEDENT TO OBLIGATION OF YSI
AND THE SELLER TO CLOSE...................................... 45
8.1 Representations and Warranties............................... 45
8.2 Resolutions.................................................. 45
8.3 Good Standing and Existence.................................. 45
8.4 Opinion of Counsel........................................... 45
8.5 Litigation................................................... 45
8.6 HSR Act...................................................... 45
8.7 Other Agreements............................................. 45
SECTION 9 INDEMNIFICATION.............................................. 46
9.1 Definitions.................................................. 46
9.2 Agreement of YSI and the Seller to Indemnify................. 46
9.3 Agreement of Purchaser to Indemnify.......................... 48
9.4 Procedures for Indemnification............................... 48
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9.5 Third Party Claims........................................... 49
9.6 Exclusive Remedies........................................... 50
9.7 Survival .................................................... 50
9.8 Tax Effect and Insurance..................................... 50
9.9 Subrogation.................................................. 51
9.10 Basket Amounts............................................... 51
9.11 Limitation of Liability of the Seller and YSI................ 51
9.12 Limitation of Purchaser Liability............................ 51
SECTION 10 PAYMENT OF EXPENSES.......................................... 51
SECTION 11 ADDITIONAL DOCUMENTS......................................... 52
SECTION 12 NOTICES .................................................... 52
SECTION 13 MISCELLANEOUS................................................ 53
13.1 Counterparts................................................. 53
13.2 Representations and Survival................................. 53
13.3 Headings .................................................... 54
13.4 Assignability; Binding Terms and Provisions.................. 54
13.5 Entire Agreement............................................. 54
13.6 Governance................................................... 54
13.7 Waiver of Breach............................................. 54
13.8 Third Party Beneficiaries.................................... 54
13.9 Dispute Resolution........................................... 54
13.10 Knowledge.................................................... 55
13.11 Schedules.................................................... 55
13.12 Time Is of the Essence....................................... 55
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STOCK PURCHASE AGREEMENT
LIST OF SCHEDULES AND EXHIBITS
SCHEDULESTTTTTTT
1.2(c) Exceptions to GAAP for Purposes of Determining Net Working Capital
1.8 Release from Corporate Obligations
1.11 Exceptions to GAAP in Computation of Proforma APC
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
4.24 Vehicle Leases
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EXHIBITS
2.7 Financial Statements
4.26(c)(ii)(D)-1 Form of Put Option Agreement
4.26(c)(ii)(D)-1 Form of Right of First Refusal Agreement
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
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A&B DRAFT 10/30/97
MARKED CUMULATIVELY TO SHOW
CHANGES FROM EXECUTED AGREEMENT
DATED 7/22/97
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, subject to Section 4.26 hereof, 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, referred
to herein as the "Subsidiaries," provided, however, that, as the context herein
otherwise requires, and, in particular, in the event that Youth Services
International of Texas, Inc., a Texas corporation, referred to hereinafter as
"YSI Texas," is not acquired by YFCS, pursuant to the election provided for in
Section 4.26(c)(ii) of this Agreement, the term "Subsidiaries" shall exclude YSI
Texas; 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
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Purchaser and with all necessary transfer taxes paid or other revenue stamps
affixed thereto.
1.2 Consideration.
(a) Subject to Section 1.11 below, 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) $17,500,000.00 (the "Base
Purchase Price") subject to Section 4.26 hereof; 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, subject to Section 4.26 hereof,
$4,041,500.00 (the "Base Net Working Capital Figure").
(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
five (5) 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 provided in a format that includes (i) Net Working
Capital of the Company and the Subsidiaries under an assumption that the closing
will include YSI Texas as one of the Subsidiaries to be acquired pursuant to
this Agreement, as originally contemplated by the parties, and (ii) Net Working
Capital of the Company and the Subsidiaries under an
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assumption that the closing will be effected as provided in Section 4.26(c)(ii),
excluding YSI Texas. The Estimated Net Working Capital shall be determined in a
manner consistent with Section 1.5.
1.4 Payment of Consideration at Closing. Subject to Section 4.26
hereof, 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 $17,500,000.00, 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").
1.5 Determination of Purchase Price.
(a) (i) 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.
(ii) As to the foregoing in this Section 1.5(a), if, at
the date of preparation and delivery of the audited balance sheet and the
Schedule, YSI Texas has been acquired, directly or indirectly, by the Purchaser,
at the Closing, as originally contemplated by the parties, or pursuant to
exercise of the Put Option to which reference is made in Section 4.26(c)(ii)(D)
hereof, the audited balance sheet and the determination of the Purchase Price
based upon the Audited Net Working Capital shall include YSI Texas. If, at such
date, YSI Texas has not been so acquired, the audited balance sheet and
determination of the Purchase Price shall exclude YSI Texas.
(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
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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 and the Subsidiaries 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.
(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. (a) 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 October 31, 1997, or on such other date and
time as is mutually agreed upon by the parties, but in no event later than
October 31, 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.
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(b) Subject to the provisions of Section 5 hereof, failure to
consummate the transactions on or before October 31, 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;
(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;
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(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 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.
1.11 Contingent Additional Purchase Consideration. (a) Not later
than forty-five (45) days subsequent to the date when the books for the Company
and the Subsidiaries are closed for the month of November, but in no event later
than February 2, 1998, the Purchaser, (i) with the assistance of Purchaser's
Accountants, shall prepare a proforma computation of Aggregate Program
Contribution, hereinafter defined (presented as provided in interim monthly
financial statements for each of the Subsidiaries and for all of the
Subsidiaries, on a consolidated basis, for the month of July, 1997, provided by
YSI to the Purchaser), for the Company and the Subsidiaries on a consolidated
basis for the three-month period beginning September 1, 1997 and ending November
30, 1997 (the "September-November Proforma APC"), and (ii) shall provide such
computation to the
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Seller, together with a certification from the Purchaser to the effect that such
computation was prepared (A) solely from the books and records of the Company
and the Subsidiaries, which books and records have been maintained in the
ordinary course of business, and (B) in accordance with the terms of this
Agreement. As to the foregoing, and for all purposes in this Section 1.11,
anything in this Agreement to the contrary notwithstanding, "Subsidiaries" shall
exclude YSI Texas, whether or not YSI Texas has been acquired by the Purchaser.
Such proforma computation shall be prepared in accordance with GAAP,
consistently applied, except as indicated in Schedule 1.11 hereto, but shall
disregard (i) any operational changes effected by reason of the application of
the provisions of this Agreement, including, without limitation, the
requirements of Section 7.13 hereof and the requirements of the Lease and Tax
Matters Agreement described in Section 7.14 hereof (it being the intention of
the parties that the amount so determined shall be the amount of Aggregate
Program Contribution for the period September 1, 1997-November 30, 1997 that
would have obtained absent the occurrence of the transaction or transactions
contemplated in this Agreement); (ii) any accruals for or recognition of
vacation or holiday pay; (iii) any accruals for or recognition of obligations
relating to or arising out of the termination of any personnel at the written
direction of the Purchaser following the Closing; (iv) any reserves for bad
debts or uncollectible accounts not based upon methodology or assumptions
consistent with those made by or used by YSI prior to the Closing, provided,
however, as to the foregoing, the parties acknowledge that such methodology and
assumptions contemplate (A) a 2% reserve against the revenues of Introspect
HealthCare Corporation and Youth Services International of New Mexico, Inc.; (B)
a 5% reserve against all revenues derived from the operations of the Tampa Bay
Academy, except for revenues derived from the provision of educational services,
as to which no reserve is established; and (C) no reserve against the revenues
of the Subsidiaries not specifically mentioned in (A) or (B) above; or any
reversal or depletion of existing reserves made during such period; (v) any
reserve against IBNR; (vi) any allocation of selling, general or administrative
expenses, (vii) any expenses of whatever type relating to or incurred in
connection with any operations of the Purchaser or any of its affiliates other
than the operations of the Company and the Subsidiaries, (viii) any corporate
management fee or administrative fee, (ix) any other fees charges, expenses or
rents charged to the Company or any of the Subsidiaries by, or payable by the
Company or any of the Subsidiaries to, the Purchaser or any of its affiliates;
(x) any reserve or accrual for, or recognition of, any expenses incurred or any
reversal or depletion of reserves or accruals for expenses recorded during any
period other than the three months ended November 30, 1997; (xi) any amount of
expense for the Subsidiaries, taken as a whole, for the month of November, 1997,
that is intentionally incurred and materially in excess of the average monthly
expenses incurred by the Subsidiaries, taken as a whole, in the ordinary course,
for the months of April, May, June, July, August and September, 1997; (xii) any
recognition of or accrual for revenues derived from operations during any period
other than September 1, 1997 through November 30, 1997; or (xiii) any revenue or
expenses derived from any extraordinary event or occurrence, in each case
whether or not required by GAAP to be reflected on the books and records of the
Company or any of the Subsidiaries. For purposes of the foregoing, "Aggregate
Program Contribution" means
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income of the Company and the Subsidiaries on a consolidated basis before
interest, income taxes and expenses related to the Southwest business office.
("Expenses related to the Southwest business office" are such expenses of the
Subsidiaries' Southwest business office as have been heretofore reflected in
operations statements prepared by Seller and provided to Purchaser.)
(b) The Seller shall have fifteen (15) business days following
receipt of the Purchaser's determination of September-November Proforma APC to
agree or disagree with the Purchaser's calculation of such amount. If Seller
disagrees with the calculation of the September-November Proforma APC, 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 written notice of objection to the Purchaser within such
fifteen (15) business day period, the Seller shall be deemed to have accepted
the Purchaser's determination of the September-November Proforma APC. If the
Seller delivers a written notice of objection to the Purchaser within such
fifteen (15) business day period, the Seller and the Purchaser shall endeavor in
good faith to resolve the dispute within five (5) business days after the date
on which the Purchaser received the notice of objection. If the Purchaser and
the Seller do not agree as to the September-November Proforma APC within such
five (5) business day period, then Seller shall engage a nationally recognized
independent accounting firm of the Seller's choosing to make a determination of
the September-November Proforma APC, and the Purchaser shall allow reasonable
access to the books and records of the Company and the Subsidiaries for such
purpose. The costs and expenses associated with such independent accounting firm
shall be borne one-half by Seller and one-half by Purchaser. If the Seller's
independent accounting firm's determination of the September-November Proforma
APC differs from the Purchaser's determination of such amount, the parties agree
to negotiate in good faith to reach a final determination. If the parties cannot
agree on a final determination of the September-November Proforma APC within
thirty (30) days of the Purchaser's receipt of notice of the Seller's
independent accounting firm's determination thereof, the parties shall promptly
submit the matter to the Atlanta, Georgia office of Deloitte & Touche for such
firm's determination of September 1-November 30 Proforma APC, with direction
from Purchaser and Seller to the effect that such determination shall be
provided to Purchaser and Seller as soon as practicable, but in no event later
than twenty (20) business days subsequent to the date of submission to such
firm. The determination of September-November Proforma APC made by such firm
shall be final and conclusive and subject to no appeal. The costs and expenses
of such accounting firm shall be borne one-half by the Seller and one-half by
Purchaser.
(c) In the event that the September-November Proforma APC,
determined as provided above, is equal to or greater than $593,000.00, Seller
shall be entitled to payment from the Purchaser in the amount of $4,500,000.00
(the "Contingent Consideration Amount"). In the event that the
September-November Proforma APC is less than $593,000.00, Seller shall be
entitled to no payment from Purchaser under and
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pursuant to this Section 1.11. Purchaser shall pay the Contingent
Consideration Amount, if any, in immediately available funds to the account
designated by the Seller within ten (10) days of the final determination
thereof, whether by agreement or otherwise, in accordance with paragraph (b)
above.
(d) YSI and Seller acknowledge that Purchaser will be in control
of the operation of the Company and the Subsidiaries from and after the Closing.
The Purchaser covenants and agrees to use its reasonable best efforts to operate
the business of the Subsidiaries during the month of November, 1997, in a
businesslike and reasonably prudent manner. YSI and Seller agree that they shall
have no right of recovery against Purchaser in connection with this Section 1.11
unless it can be shown clearly and convincingly (which phrase "clearly and
convincingly" is intended by the parties to be a higher standard of proof than
"preponderance of the evidence") that Purchaser intentionally failed to operate
the Company and the Subsidiaries in the manner required in the immediately
preceding sentence for the purpose of adversely affecting the September-November
Proforma APC.
(e) In the event that the Purchaser fails to prepare the
computation of Aggregate Program Contribution and provide such computation to
the Seller by February 2, 1998, as required in paragraph (a) above, the
Purchaser shall be required to make payment to the Seller in the amount of
$5,000 multiplied by the number of days that end subsequent to February 2, 1998
and prior to the date on which such computation has been made and provided to
the Purchaser (the "Daily Payment Amount"). In the event that the Contingent
Consideration Amount becomes payable pursuant to and in accordance with this
Section 1.11, the amount of the Daily Payment Amount shall be applied against
the Contingent Consideration Amount. Otherwise, the Daily Payment Amount shall
be payable within ten (10) days of the final determination of the
September-November Proforma APC, whether by agreement, or otherwise, in
accordance with paragraph (b) above.
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,
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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 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
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21
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 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
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22
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.
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) other than (A) changes reflected in interim
monthly financial statements for the months of July, August and September, 1997,
provided by the Seller to the Purchaser, or (B) changes resulting from or which
may result from any other matter, event or occurrence of which the Purchaser has
knowledge, regardless of whether such matter, event or occurrence was reflected
in such interim monthly financial statements, provided, however, that the
foregoing references do not, and shall not, constitute an acknowledgment or
admission by YSI or the Seller to the effect that there has been any material
adverse change;
(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;
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(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 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
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24
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 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
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25
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 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.
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26
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 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
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27
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 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
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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.
(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).
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(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 stockownership, 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.
"ERISA" means Employee Retirement Income Security Act of 1974,
as amended.
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"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.1
"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 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
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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 presently being conducted. None of the
Subsidiaries has commenced, nor
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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
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encumbering any of the Property, or any portion thereof or interest therein, or
from any 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
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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 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
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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.
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.
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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 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
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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;
(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 or decrease 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;
(h) effect any reduction in the number of employees at
the Company or any of the Subsidiaries other than (i) in the ordinary course,
and (ii) reductions in the Company's Desert Hills New Mexico and Desert Hills
Tucson programs which have been approved by the Purchaser's Chief Executive
Officer.
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
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(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;
(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
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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 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. (a) 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,
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(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.
(b) In the event that YSI and the Seller make the election
provided for in Section 4.26(c)(ii) hereto, the Schedules shall be deemed to be
revised in the manner provided in such provision.
4.7 Purchaser Exclusive. YSI and the Seller agree that during the
period beginning on the date of this Agreement and ending October 31, 1997 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.
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
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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 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 Section338(h)(10)
of the Code and Section1.338(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
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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 Section338(h)(10) election in accordance
with Section338(h)(10) of the Code and Section1.338(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
Section338(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, any Contingent Consideration
Amount and all other items that comprise the "modified aggregate deemed sale
price" (as defined in, and required to be allocated pursuant to
Section338(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 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).
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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 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
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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 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
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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
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
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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, and, if applicable, the Contingent Consideration Amount provided for in
Section 1.11.
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 Intentionally Omitted.
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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.
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,
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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.
4.24 Assumption of Lease Obligations for Vehicles. Effective as of
the Closing, the Purchaser or one of its affiliates shall assume the obligations
of YSI under the master vehicle leases identified in Schedule 4.24 for the
vehicles described in such schedule, and from and after the date hereof, the
Purchaser and YSI shall each use their respective reasonable best efforts to
effect such assumption and the release of YSI from such obligations as of the
Closing.
4.25 Access to Information and Cooperation After Closing. Following
the Closing, the Purchaser shall, and shall cause the Company and each of the
Subsidiaries and their respective employees to, cooperate with YSI and the
Seller and their employees, counsel, and independent accountants and other
representatives, and provide to YSI and the Seller and their employees, counsel,
and independent accountants and other representatives full and complete access
upon reasonable notice during normal business hours, to all officers, employees,
offices, properties, agreements, records and affairs of the Company and the
Subsidiaries relating to periods prior to the Closing for all reasonable and
proper purposes or as may be reasonably necessary in order to enable YSI or the
Seller to prepare any tax returns or financial statements and in connection with
any judicial, quasi judicial, administrative, tax audit or arbitration
proceeding relating to or arising out of the operations of the Company and the
Subsidiaries prior to the Closing (including, without limitation, Third Party
Claims and the matters described in Schedules 2.9 and 2.17), and will, at the
Seller's reasonable expense, promptly provide copies of such information
concerning the Company and the Subsidiaries as YSI or the Seller may reasonably
request for any such purpose.
4.26 YSI of Texas Matters. (a) Reference is hereby made to that
certain Facility Lease and Security Agreement by and between Meditrust of
College Station, Inc., lessor ("Meditrust"), and Youth Services International of
Texas, Inc., lessee (the "College Station Lease"). The parties hereto
acknowledge that the transactions
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contemplated in this Agreement may require that one or more consents be obtained
from Meditrust (collectively, the "Meditrust Consent").
(b) In the event that the Meditrust Consent is obtained,
YSI Texas shall be included as one of the Subsidiaries to be acquired pursuant
to this Agreement, as originally contemplated by the parties. In such event, or
in the event that YSI is acquired as provided in Section 4.26(c)(i) below, the
parties agree that the acquisition of YSI Texas may be effected by means of a
merger of YSI Texas into a newly-formed, wholly-owned subsidiary of YFCS
pursuant to agreements in customary form that are reasonably satisfactory to the
parties, as more fully described in the Put Option Agreement referred to below,
it being the parties' intention that, in such event, such acquisition shall be
effected in such manner as to place the parties as nearly as practicable in the
same positions as would have resulted from an acquisition of YSI Texas as one of
the Subsidiaries under and pursuant to this Agreement without regard to this
Section 4.26.
(c) In the event that the Meditrust Consent is not
obtained, YSI and the Seller shall elect one of the following two alternatives
by means of a signed writing addressed to the Purchaser, which writing shall be
delivered at the Closing:
(i) A Closing that includes YSI Texas as one of
the Subsidiaries to be acquired pursuant to this Agreement, as
originally contemplated by the parties. In such event, the parties
shall, and do hereby, agree that damages and out-of-pocket expenses,
if any, incurred by any of the parties as a consequence of closing
without the Meditrust Consent by the Purchaser, on the one hand, or
the Seller and YSI, on the other hand, will be shared equally, fifty
percent (50%) by YSI and the Seller and fifty percent (50%) by the
Purchaser. However, the amount of such damages so paid or payable by
the Purchaser shall in no event exceed the sum of $100,000; in the
event that the total of such damages exceeds $200,000, YSI and the
Seller shall be responsible, jointly and severally, for one hundred
percent (100%) of the excess over $200,000.
(ii) A closing that excludes YSI Texas from
the transactions to be effected upon consummation of this Agreement.
In the event that this alternative (ii) is elected by YSI and the
Seller, the following changes shall be effected under and pursuant
to this Agreement:
(A) YSI Texas shall be excluded from the
transactions consummated on the Closing Date.
(B) The Schedules to this Agreement shall be
deemed to be revised to (I) eliminate YSI Texas as one of the
Subsidiaries, and (II) remove any content, descriptions or figures
from the schedules that have to do with YSI Texas.
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(C) The Base Purchase Price shall be reduced from
$17,500,000 to $16,000,000, and the Base Net Working Capital Figure
shall be increased to $4,072,685.
(D) The Purchaser and the Seller shall execute at
the Closing (I) a Put Option Agreement and (II) a Right of First
Refusal Agreement, each in substantially the form attached hereto
as Exhibit 4.26(c)(ii)(D)-1 and 4.26(c)(ii)(D)-2, respectively.
4.27 YSI Guaranty. In the event that YSI Texas is acquired by YFCS,
whether such acquisition is effected at the Closing, as originally contemplated
by the parties, or pursuant to exercise of the Put Option Agreement, as provided
in Section 4.26(c)(ii)(D), YSI agrees that it shall remain liable under the
terms of the Guaranty in favor of Meditrust of College Station of the
obligations of the "Tenant" under College Station Lease, so long as YSI Texas or
any other corporation or entity controlled by the Purchaser remains the Tenant
thereunder unless and until the Landlord thereunder shall agree to release YSI
from its obligations under such Guaranty without consideration of any kind
(other than the agreement contained in Section 9.3 hereof) in connection
therewith from the Purchaser or any other corporation or entity controlled by
the Purchaser.
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 October 31, 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 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.
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(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 October 31, 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 October 31, 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 on such
date in an amount equal to $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
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from the date of the execution and delivery hereof through such date (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 event or
condition or combination of events and conditions on or after October __, 1997
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 and
agreement to lend (collectively, the "Financing Undertaking") from one or more
lenders under terms reasonably satisfactory to Purchaser, which Financing
Undertaking, 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.
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
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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.
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 item 1 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, other than consents
under the Facility Lease and Security Agreement dated as of July 30, 1995 by and
between Meditrust of College Station, Inc. as Lessor and Youth Services
International of Texas, Inc. as Lessee, referred to in Section 4.26 of this
Agreement.
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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.
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.
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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.
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;
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(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;
(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;
(h) if and only if YSI Texas is acquired in the manner
provided in Section 4.26(c)(i) of this Agreement, failure of YSI and the
Purchaser to obtain the Meditrust Consent described in Section 4.6 of this
Agreement, to the extent that any Losses exceed $100,000;
(i) Introspect Healthcare Corporation having been the
owner, directly or indirectly, of Ocotillo Pediatric Services, Inc., or Youth
Services International of New Mexico, Inc. having been the owner, directly or
indirectly, of Desert Hills Alternative Programs, Inc.;
(j) the operations prior to the date hereof of
Everglades Academy, Cypress Creek Academy, and Hillsborough Academy;
(k) failure of YSI to have completed by the Closing the
assignment of that certain Contract dated July 1, 1997 between Dade County,
Florida and Youth Services International of Florida, Inc.
provided, however, that in no event shall YSI and the Seller be liable to
indemnify the Purchaser against losses, expenses or costs incurred by the
Purchaser or the Company or
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any of the Subsidiaries solely by reason of the dedication of managerial or
clerical time or resources to cooperating with YSI or the Seller in the defense
of any Third Party Claim or in connection with the matters described in Schedule
2.9 or 2.17 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.
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
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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 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
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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).
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.
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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 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
sum of (i) the Purchase Price and (ii) the Contingent Consideration Amount, if
any.
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
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the Seller, in the aggregate, in excess of the sum of (i) the Purchase Price and
(ii) the Contingent Consideration Amount, if any.
SECTION 10
PAYMENT OF EXPENSES
Except as hereinafter provided, 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. The Purchaser shall be liable for and shall pay when due the first
$10,000 of the actual costs and expenses incurred either by YSI or the Company
or by any Subsidiary in taking any action at the request of the Purchaser to
facilitate its financing of the Purchase Price or by any third party having
business dealings with any of the Subsidiaries (including, without limitation,
any of the landlords of any of the properties currently leased to any of the
Subsidiaries) who is requested by the Purchaser to take any action to facilitate
its financing of the Purchase Price if such party shall request that either the
Purchaser or YSI bear any such cost or expense or reimburse such party for the
same. To the extent that such costs or expenses shall exceed $10,000 in the
aggregate, the Purchaser and YSI shall each be liable for the payment of
one-half of any such costs or expenses in excess of $10,000, in the aggregate,
to facilitate the Purchaser's financing of the Purchase Price.
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:
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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
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
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Purchaser: Youth and Family Centered Services, Inc.
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 thereto may be
brought after the close of business on October 31, 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
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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. 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
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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,"
(i) 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 matter or
fact, (ii) with respect to YFCS, means and is deemed to exist as to a particular
matter or fact if any of Bart A. McLean, Richard L. Cravey, Jr., Kevin P.
Sheehan and J. Mack Nunn had knowledge of such matter or fact, and, (iii) 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 had knowledge of such matter or
fact.
13.11. Schedules. Each Schedule to this Agreement shall be
considered a part hereof as if set forth herein in full.
13.12 Time Is of the Essence. Time is of the essence with respect
to each and every term and provision of this Agreement.
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:
------------------------------
Title:
------------------------------
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YOUTH SERVICES INTERNATIONAL
HOLDINGS, INC.
By:
------------------------------
Title:
------------------------------
YOUTH SERVICES INTERNATIONAL, INC.
By:
------------------------------
Title:
------------------------------
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SCHEDULE 1.11
EXCEPTIONS TO GAAP IN COMPUTATION OF PROFORMA APC
1. The computation shall not include footnote and other disclosure information
required by GAAP.
2. 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 shall be eliminated.
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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
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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.
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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.
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SCHEDULE 4.19
TRANSFER OF 401(k) PLAN
Introspect Health Care Corporation 401(k) Plan
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EXHIBITS 4.26(B)(II)(D)-1 AND -2
PUT OPTION AND RIGHT OF FIRST REFUSAL AGREEMENT