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                                                                    EXHIBIT 10.3


                        SETTLEMENT AND RELEASE AGREEMENT

         THIS SETTLEMENT AND RELEASE AGREEMENT (this "Agreement") is made and
entered into as of the 31st day of December, 1996, by and between YOUTH
SERVICES INTERNATIONAL, INC., a Maryland corporation ("YSI") and EVERGREEN
NATIONAL DEVELOPMENT, INC., a Maryland corporation ("Evergreen").

                              W I T N E S S E T H

         WHEREAS, YSI and Evergreen are parties to that certain Agreement dated
as of February 1, 1996 (the "Original Agreement"), pursuant to which YSI
engaged Evergreen to perform certain services in connection with the business
of YSI;

         WHEREAS, by letter dated September 20, 1996 from YSI to Evergreen, YSI
terminated the Original Agreement effective December 20, 1996, pursuant to the
terms of Section 6C of the Original Agreement; and

         WHEREAS, the parties desire to settle all amounts due under the
Original Agreement, and each party desires to release the other party from any
future obligation under the Original Agreement, as more fully set forth herein.

         NOW, THEREFORE, in consideration of these premises and of the mutual
covenants set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follow:

         1.      No Further Liability.

                 (a)      YSI hereby acknowledges and agrees that, as of the
date of this Agreement, except as set forth herein, Evergreen has no further
liability or obligation to YSI or any of its subsidiaries or affiliates arising
out of, or based upon, the Original Agreement or any other agreement (written
or oral) related thereto.

                 (b)      Evergreen hereby acknowledges and agrees that, as of
the date of this Agreement, except as set forth herein, neither YSI nor any of
its subsidiaries or affiliates has any further liability or obligation to
Evergreen arising out of, or based upon, the Original Agreement or any other
agreement (written or oral) related thereto), including without limitation any
liability or obligation with respect to the payment of any fees (in respect of
any services provided by Evergreen to YSI or otherwise) to Evergreen.

         2.      Waiver of Insurance Requirement.  YSI agrees that,
notwithstanding the provisions of Section 2F of the Original Agreement,
Evergreen is not, and shall not be, required to maintain any errors and
omissions insurance coverage for any period of time following the effective
date of the termination of the Original Agreement.  Notwithstanding the
foregoing, the requirement set forth in Section 2F of the Original Agreement
that Evergreen





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maintain comprehensive liability insurance in an aggregate amount of $2.0
million and with a limit of not less than $500,000 per occurrence remains in
full force and effect.

         3.      Settlement of Funds Due.  Within 120 days of the date hereof,
Evergreen shall pay to YSI the sum of Six Hundred Forty-Eight Dollars
($648,000) in the form of a company check made payable to YSI.  YSI and
Evergreen agree that such sum represents all amounts due from Evergreen to YSI
in connection with the Original Agreement, and takes into account all monetary
obligations of Evergreen to YSI and all overpayments made by YSI to Evergreen.
YSI and Evergreen agree that, following such payment, no further sums of money
shall be due to YSI or Evergreen from the other party under and pursuant to the
Original Agreement.

         4.      Mutual Release.

                 (a)      In consideration of the release set forth in Section
4(b) below, YSI, on behalf of itself, its subsidiaries and affiliates, and all
directors, officers, employees, agents, and representatives of YSI and its
subsidiaries and affiliates, and the heirs, successors and assigns of the
foregoing parties, hereby releases Evergreen, and its subsidiaries and
affiliates, and all directors, officers, employees, agents, and representatives
of Evergreen and its subsidiaries and affiliates, and the heirs, successors and
assigns of the foregoing parties, from and against any and all claims, actions,
proceedings, damages, costs, expenses, judgments, fines, liabilities or losses
(collectively, "Losses"), now existing or in the future arising, as a result of
or related to the Original Agreement, whether known or unknown, pending or
threatened, fixed or contingent, direct or indirect (it being understood that
the release set forth in this Section 4(a) shall not apply to any Loss arising
as a result of or related to the terms and provisions of this Agreement).

                 (b)      In consideration of the release set forth in Section
4(a) above, Evergreen, on behalf of itself, its subsidiaries and affiliates,
and all directors, officers, employees, agents, and representatives of
Evergreen and its subsidiaries and affiliates, and the heirs, successors and
assigns of the foregoing parties, hereby releases YSI and its subsidiaries and
affiliates, and all directors, officers, employees, agents, and representatives
of YSI and its subsidiaries and affiliates, and the heirs, successors and
assigns of the foregoing parties, from and against any and all Losses, now
existing or in the future arising, as a result of or related to the Original
Agreement, whether known or unknown, pending or threatened, fixed or
contingent, direct or indirect (it being understood that the release set forth
in this Section 4(b) shall not apply to any Loss arising as a result of or
related to the terms and provisions of this Agreement).





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         5.      No Disruptive Actions.

                 (a)      Each of Evergreen and YSI agrees not to take any 
action or to say anything that would have an adverse effect or disruptive 
impact on the community standing or economic condition of the other party or 
any of its subsidiaries or affiliates or any of their respective relationships 
with employees, providers, clients, governmental agencies or other revenue 
sources.

                 (b)      Evergreen and YSI acknowledge that the other party 
would suffer substantial damage in the event of a breach by Evergreen or YSI, 
as the case may be, of the covenants and agreements contained in this Section 
5 and that it would be difficult to compute the amount of such damage.  
Therefore, either party shall be entitled to enforce the provisions of this 
section by injunction or other equitable relief as well as claim damages or 
exercise any other remedy under law or equity for any such breach.  The 
existence and exercise of the right to equitable relief shall not preclude the 
exercise of any other rights and remedies that the such party may have in law, 
equity or otherwise.

         6.      Miscellaneous.

                 (a)      Governing Law.  This Agreement shall be construed,
interpreted and enforced in accordance with the substantive laws of the State
of Maryland, exclusive of its conflicts of laws principles.

                 (b)      Entire Agreement; Amendment; Waiver.  This Agreement
constitutes the entire agreement of the parties regarding the subject matter
hereof, and all other prior agreements and representations of the parties with
respect to the subject matter hereof, whether written, or oral, are merged
herein.  This Agreement may be amended only by a written instrument signed by
both parties hereto.  Any of the terms or conditions of this Agreement may be
waived but only in writing by the party entitled to the benefit thereof.

                 (c)      Notices.  All notices or other communications
required or permitted to be given hereunder shall be in writing and shall be
effective upon delivery in person or transmittal by facsimile or three days
after mailing, certified or registered mail, postage prepaid, addressed:

                          (i)     If to YSI, to:

                                  Youth Services International, Inc.
                                  2 Park Center Court, Suite 200
                                  Owings Mills, Maryland  21117
                                  Attention:  Timothy P. Cole
                                  Facsimile Number:  (410) 356-8634





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                                        with a copy to:
                                        John B. Frisch, Esquire
                                        Miles & Stockbridge,
                                        a Professional Corporation
                                        10 Light Street
                                        Baltimore, Maryland  21202
                                        Facsimile Number:  (410) 385-3700

                          (ii)    If to Evergreen, to:
                                  Evergreen National Development, Inc.
                                  2 Park Center Court, Suite 400
                                  Owings Mills, Maryland  21117
                                  Attention:  V. Joel Nicholson
                                  Facsimile Number:  (410) 356-0137

                 (d)      Section Headings.  The section headings throughout
this Agreement are for convenience and reference only, and the words contained
therein shall not in any way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Agreement.

                 (e)      Binding Effect; Assignment.  This Agreement shall be
binding on and inure to the benefit of each party and such party's permitted
successors and assigns.  Neither party to this Agreement may assign this
Agreement or any rights or obligations hereunder, in whole or in party, without
the prior written consent of the other party hereto; provided, however, that
YSI shall be entitled to assign the benefit of this Agreement and to delegate
its duties hereunder to any subsidiary or affiliate of YSI without the consent
of Evergreen.

                 (f)      Severability.  In the event that any provision hereof
shall be modified or held ineffective by any court in any respect, such
adjudication shall not invalidate or render ineffective the balance of the
provisions of this Agreement.

                 (g)      Counterparts.  This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
shall constitute one and the same instrument.

                 (h)      Interpretation.  The parties agree that each and
every term and condition of this Agreement has been mutually negotiated,
prepared and drafted, and that if at any time the parties hereto desire or are
required to interpret or construe any of the terms or conditions hereof, no
consideration shall be give to the issue of which party hereto actually
prepared, drafted or requested any term or condition hereof.





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         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

ATTEST:                                    YOUTH SERVICES INTERNATIONAL, INC.


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

                                           EVERGREEN NATIONAL DEVELOPMENT, INC.


----------------------                     By: /s/ JOEL V. NICHOLSON       
                                              -----------------------------
                                              Name:  Joel V. Nicholson
                                              Title: President





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