Exhibit 10.4
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is entered into as of
_________ __, 200_ between PSYCHIATRIC SOLUTIONS, INC., a Delaware corporation
(the "Corporation"), and _______________ ("Indemnitee").
RECITALS
A. The Corporation believes that it is essential to its best interests
to attract and retain highly capable persons to serve as directors, officers,
and agents.
B. Indemnitee is or has been selected to be a director, officer, or
agent of the Corporation.
C. The Corporation and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors, officers, and
other agents of the Corporation.
D. In recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's service to the
Corporation, and in order to induce Indemnitee to provide or continue to provide
services to the Corporation as a director, officer, or agent, the Corporation
wishes to provide in this Agreement for the indemnification and the advancing of
expenses to Indemnitee to the fullest extent permitted by law and as set forth
in this Agreement and, to the extent applicable, insurance is maintained for the
coverage of Indemnitee under the Corporation's policies of directors' and
officers' liability insurance.
IN CONSIDERATION of the foregoing and of Indemnitee's providing
services to the Corporation directly or, at its request, with another
enterprise, the parties agree as follows:
1. Definitions.
1.1 Board: The board of directors of the Corporation.
1.2 Change in Control: A state of affairs that shall be deemed
to have occurred if:
(a) Any person becomes the "beneficial owner" (as that term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), directly or indirectly, of securities
representing fifty percent (50%) or more of the total voting power of
the Corporation's then-outstanding voting securities, other than
pursuant to an Excluded Change in Control Event;
(b) During any period of two (2) consecutive years,
individuals who, at the beginning of such period constitute the board,
together with any new director whose election by the board or
nomination for election by the Corporation's shareholders was approved
by a vote of at least two-thirds (2/3) of the directors then in office
either who were directors at the beginning of the two-year period, or
whose election or nomination was previously so approved, cease for any
reason to constitute a majority of the board;
(c) The shareholders of the Corporation approve a merger or
consolidation of the Corporation with any other Corporation, other than
a merger or consolidation that would result in
the voting securities of the Corporation outstanding immediately before
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty-one percent (51%) of the total
voting power represented by the voting securities of the Corporation or
such surviving entity outstanding immediately after such merger or
consolidation; or
(d) The shareholders of the Corporation approve a plan of
complete liquidation of the Corporation, or an agreement for the sale
or disposition by the Corporation (whether in one transaction or a
series of transactions) of all or substantially all of the
Corporation's assets.
1.3 Excluded Change in Control Events: Any of the following
events, which notwithstanding any other provision of this Agreement shall not
constitute a "Change in Control" or a "Potential Change in Control:"
(a) The issuance or exercise of any options, warrants or
convertible securities held by the Corporation's senior lender or its
successor, assigns or affiliates, including any shares that may be
issued in respect of any of the foregoing (including shares issued in a
Stock split, stock dividend, recapitalization or similar event, and
incremental shares that may be issued pursuant to anti-dilution
adjustments);
(b) The issuance or exercise of any options, warrants or
convertible securities held by The 1818 Mezzanine Fund II, L.P., or its
successor, assigns or affiliates, including any shares that may be
issued in respect of any of the foregoing (including shares issued in a
stock split, stock dividend, recapitalization or similar event, and
incremental shares that may be issued pursuant to anti-dilution
adjustments); or
(c) The transactions described in, and consummated pursuant
to, that Stock Purchase Agreement dated as of January 6, 2003, by and
among the Corporation and the "Purchasers" named therein, including
affiliates of Indemnitee (the "STOCK PURCHASE AGREEMENT") related to
the issuance by the Corporation of Series A Preferred Stock (as defined
in the Stock Purchase Agreement) at the time of the fundings under the
Stock Purchase Agreement, and any Conversion Shares (as defined in the
Stock Purchase Agreement) that are issued upon conversion of the Series
A Preferred Stock, any accumulating shares due to cumulative dividends,
any incremental shares that may be issued pursuant to anti-dilution
adjustments, and all shares in respect of any of the foregoing
(including shares issued in a stock split, stock dividend,
recapitalization or similar event).
Affiliates of Indemnitee and any member of the Salix Ventures, L.P. family of
funds or The 1818 Mezzanine Fund II, L.P. family of funds will not be deemed to
be part of the same group for determining whether there has been a Change in
Control or Potential Change in Control under this Agreement.
1.4 Expenses:
(a) Any expense, liability, or loss, including attorneys'
fees, judgments, fines, ERISA excise taxes and penalties, or amounts
paid or to be paid in settlement;
(b) Any interest, assessments, or other charges imposed on any
of the items in subparagraph (a) above; and
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(c) Any federal, state, local, or foreign taxes imposed as a
result of the actual or deemed receipt of any payments under this
Agreement paid or incurred in connection with investigating, defending,
being a witness in, participating in (including on appeal), or
preparing for any of the foregoing in, any proceeding relating to any
Indemnifiable Event.
1.5 Indemnifiable Event: Any event or occurrence that takes
place either before or after the execution of this Agreement, related to the
fact that Indemnitee is or was a director or an officer of the Corporation; or
while a director or officer is or was serving at the request of the Corporation
as a director, officer, employee, trustee, agent, or fiduciary of another
foreign or domestic corporation, partnership, joint venture, employee benefit
plan, trust, or other enterprise; or was a director, officer, employee, or agent
of a foreign or domestic corporation that was a predecessor corporation of the
Corporation or another enterprise at the request of such predecessor
corporation; or related to anything done or not done by Indemnitee in any such
capacity, whether the basis of the proceeding is an alleged action in an
official capacity as a director, officer, employee, or agent, or in any other
capacity while serving as a director, officer, employee, or agent of the
Corporation, as described in this paragraph.
1.6 Independent Counsel: The person or body appointed in
connection with Section 3.
1.7 Person: "Person" (as that term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation acting in such
capacity or a Corporation owned, directly or indirectly, by the shareholders of
the Corporation in substantially the same proportions as their ownership of
shares of the Corporation at the date of this Agreement.
1.8 Participant: A person who is a party to, or witness or
participant (including on appeal) in, a Proceeding.
1.9 Potential Change in Control: A state of affairs that shall
be deemed to exist if:
(a) The Corporation enters into an agreement or arrangement,
the consummation of which would result in the occurrence of a Change in
Control;
(b) Any Person (including the Corporation) announces publicly
an intention to take or to consider taking actions that, if
consummated, would constitute a Change in Control;
(c) Any Person who is or becomes the beneficial owner,
directly or indirectly, of securities of the Corporation representing
ten percent (10%) or more of the combined voting power of the
Corporation's then-outstanding voting securities, increases his or her
beneficial ownership of such securities by five percent (5%) or more
over the percentage owned by such person on the date of this Agreement,
other than pursuant to an Excluded Change in Control Event; or
(d) The Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
1.10 Proceeding: Any threatened, pending, or completed action,
suit, or proceeding, or any inquiry, hearing or investigation, whether conducted
by the Corporation or any other party, that Indemnitee in good faith believes
might lead to the institution of any such action, suit, or proceeding, whether
civil, criminal, administrative, investigative, or other.
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1.11 Reviewing Party: The person or body appointed in
accordance with Section 3.
1.12 Voting Securities: Any securities of the Corporation that
have the right to vote generally in the election of directors.
2. Agreement to Indemnify.
2.1 General Agreement. In the event Indemnitee was, is, or
becomes a participant in, or is threatened to be made a participant in, a
Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the
Corporation shall indemnify the Indemnitee from and against any and all Expenses
to the fullest extent permitted by law, as the same exists or may hereafter be
amended or interpreted (but in the case of any such amendment or interpretation,
only to the extent that such amendment or interpretation permits the Corporation
to provide broader indemnification rights than were permitted before this
Agreement). The parties to this Agreement intend indemnification in excess of
that expressly permitted by statute, including, without limitation, any
indemnification provided by the Corporation's articles of incorporation, its
bylaws, a vote of its shareholders or disinterested directors, or applicable
law.
2.2 Initiation of Proceeding. Notwithstanding anything in this
Agreement to the contrary, Indemnitee shall not be entitled to indemnification
under this Agreement in connection with any Proceeding initiated by Indemnitee
against the Corporation or any director or officer of the Corporation unless (i)
the Corporation has joined in or the Board has consented to the initiation of
such Proceeding; (ii) the Proceeding is one to enforce indemnification rights
under Section 5; or (iii) the Proceeding is instituted after a Change in Control
and Independent Counsel has approved its initiation.
2.3 Expense Advances. If so requested by Indemnitee, the
Corporation shall within ten (10) business days of such request, advance all
Expenses to Indemnitee (an "EXPENSE ADVANCE"). Notwithstanding the foregoing, to
the extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Corporation shall be
entitled to be reimbursed by Indemnitee for all such amounts, and Indemnitee
hereby agrees to reimburse the Corporation promptly for the same. If Indemnitee
has commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law as
provided in Section 4, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding, and Indemnitee shall not be required to reimburse the
Corporation for any Expense Advance until a final judicial determination is made
(as to which all rights of appeal have been exhausted or have lapsed).
Indemnitee's obligation to reimburse the Corporation for Expense Advances shall
be unsecured and no interest shall be charged thereon.
2.4 Mandatory Indemnification. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits in defense of any Proceeding relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter in such Proceeding,
Indemnitee shall be indemnified against all Expenses incurred in connection with
such issue, matter, or event.
2.5 Partial Indemnification. If Indemnitee is entitled under
any provision of this Agreement to indemnification by the Corporation for a
portion of Expenses, but not for the total amount of Expenses, the Corporation
shall indemnify the Indemnitee for the portion to which Indemnitee is entitled.
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2.6 Prohibited Indemnification. No indemnification under this
Agreement shall be paid by the Corporation on account of any Proceeding in which
judgment is rendered against Indemnitee for an accounting of profits made from
the purchase or sale by Indemnitee of securities of the Corporation under the
provisions of Section 16(b) of the Exchange Act or similar provisions of any
federal, state, or local laws.
3. Reviewing Party. Before any Change in Control, the Reviewing Party
shall be any appropriate person or body consisting of a member or members of the
Board or any other person or body appointed by the Board who is not a party to
the Proceeding with respect to which Indemnitee is seeking indemnification;
after a Change in Control, the reviewing party shall be the Independent Counsel.
With respect to all matters arising after a Change in Control concerning the
rights of Indemnitee to indemnity payments and Expense Advances under this
Agreement or any other agreement or under applicable law or the Corporation's
articles of incorporation or bylaws now or hereafter in effect relating to
indemnification for Indemnifiable Events, the Corporation shall seek legal
advice only from Independent Counsel selected by Indemnitee and approved by the
Corporation, the approval of whom shall not be unreasonably withheld, and who
has not otherwise performed services for the Corporation or Indemnitee (other
than in connection with indemnification matters) within the last five (5) years.
The Independent Counsel shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Corporation or Indemnitee in an action to
determine Indemnitee's rights under this Agreement. The counsel, among other
things, shall render a written opinion to the Corporation and Indemnitee as to
whether and to what extent Indemnitee should be permitted to be indemnified
under applicable law. The Corporation agrees to pay the reasonable fees of the
Independent Counsel and to indemnify fully such counsel against any and all
expenses, including attorneys' fees, claims, liabilities, loss, and damages
arising out of or relating to this Agreement or the engagement of Independent
Counsel under this Agreement.
4. Indemnification Process and Appeal.
4.1 Indemnification Payment. Indemnitee shall receive
indemnification of Expenses from the Corporation in accordance with this
Agreement as soon as practicable after Indemnitee has made written demand on the
Corporation for indemnification, unless the Reviewing Party has given a written
opinion to the Corporation that Indemnitee is not entitled to indemnification
under this Agreement or applicable law.
4.2 Suit to Enforce Rights. Regardless of any action by the
Reviewing Party, if Indemnitee has not received full indemnification within
thirty (30) days after making a demand in accordance with Section 4.1 above,
Indemnitee shall have the right to enforce its indemnification rights under this
Agreement by commencing litigation in any court in which the Corporation has an
office seeking an initial determination by the court or challenging any
determination by the Reviewing Party or any aspect of the Agreement. The
Corporation hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party not challenged by
Indemnitee shall be binding on the Corporation and Indemnitee. The remedy
provided in this Section 4.2 shall be in addition to any other remedies
available to Indemnitee in law or equity.
4.3 Defense to Indemnification, Burden of Proof, and
Presumptions. It shall be a defense to any action brought by Indemnitee against
the Corporation to enforce this Agreement (other than an action brought to
enforce a claim for Expenses incurred in defending a proceeding in advance of
its final disposition when the required undertaking has been tendered to the
Corporation) that it is not permissible under this Agreement or applicable law
for the Corporation to indemnify the Indemnitee for the amount claimed. In
connection with any such action or any determination by the Reviewing Party or
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otherwise as to whether Indemnitee is entitled to be indemnified under this
Agreement, the burden of proving such a defense or determination shall be on the
Corporation. Neither the failure of the Reviewing Party or the Corporation
(including its Board, Independent Counsel, or its shareholders) to have made a
determination prior to the commencement of such action by Indemnitee that
indemnification is proper under the circumstances because Indemnitee has met the
standard of conduct set forth in applicable law, nor an actual determination by
the Reviewing Party or Corporation (including its Board, Independent Counsel, or
its shareholders) that Indemnitee had not met such applicable standard of
conduct shall be a defense to the action or create a presumption that Indemnitee
has not met the applicable standard of conduct. For purposes of this Agreement,
the termination of any claim, action, suit, or proceeding, by judgment, order,
settlement (whether with or without court approval), conviction, or on a plea of
nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief, or that a court has determined that indemnification is not
permitted by applicable law.
5. Indemnification for Expenses Incurred in Enforcing Rights. The
Corporation shall indemnify the Indemnitee against, and if requested by
Indemnitee, the Corporation shall, within ten (10) business days of such
request, advance to Indemnitee, all Expenses as are incurred by Indemnitee in
connection with any claim asserted against or action brought by Indemnitee for:
(a) Indemnification of Expenses or an Expense Advance by the
Corporation under this Agreement or any other agreement or under
applicable law or the Corporation's articles of incorporation or bylaws
now or hereafter in effect relating to indemnification for
Indemnifiable Events, or
(b) Recovery under directors' and officers' liability
insurance policies maintained by the Corporation for amounts paid in
settlement if the Independent Counsel has approved the settlement.
The Corporation shall not settle any Proceeding in any manner that would impose
any penalty or limitation on Indemnitee without Indemnitee's written consent.
Neither the Corporation nor Indemnitee will unreasonably withhold its consent to
any proposed settlement. The Corporation shall not be liable to indemnify the
Indemnitee under this Agreement with regard to any judicial award if the
Corporation was not given a reasonable and timely opportunity, at its expense,
to participate in the defense of such action; however, the Corporation's
liability under this Agreement shall not be excused if its participation in the
Proceeding was barred by this Agreement.
6. Establishment of Trust. In the event of a Change in Control or a
Potential Change in Control, the Corporation shall, upon written request by
Indemnitee, create a trust for the benefit of the Indemnitee ("the Trust") and
from time to time, upon written request of Indemnitee, shall fund the Trust in
an amount sufficient to satisfy any and all Expenses reasonably anticipated at
the time of each such request to be incurred in connection with investigating,
preparing for, participating in, and/or defending any Proceeding relating to an
Indemnifiable Event. The amount or amounts to be deposited in the Trust under
the foregoing funding obligation shall be determined by the Reviewing Party. The
terms of the Trust shall provide that on a Change in Control, (i) the Trust
shall not be revoked or the principal invaded without the written consent of the
Indemnitee, (ii) the Trustee shall advance, within ten (10) business days of a
request by the Indemnitee, all Expenses to the Indemnitee (provided that the
Indemnitee hereby agrees to reimburse the Trust under the same circumstances for
which the Indemnitee would be required to reimburse the Corporation under
Section 2.3 above), (iii) the Trust shall continue to be funded by the
Corporation in accordance with the funding obligation set forth in this Section
6, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which
the Indemnitee shall be entitled to indemnification
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under this Agreement or otherwise, and (v) all unexpended funds in the Trust
shall revert to the Corporation on a final determination by the Reviewing Party
or a court of competent jurisdiction, as the case may be, that the Indemnitee
has been fully indemnified under the terms of this Agreement. The Trustee shall
be chosen by the Indemnitee. Nothing in this Section 6 shall relieve the
Corporation of any of its obligations under this Agreement. All income earned on
the assets held in the Trust shall be reported as income by the Corporation for
federal, state, local, and foreign tax purposes. The Corporation shall pay all
costs of establishing and maintaining the Trust, and shall indemnify the Trustee
against any and all expenses (including attorneys' fees), claims, liabilities,
loss, and damages arising out of or relating to this Agreement or the
establishment and maintenance of the Trust.
7. Non-exclusivity. The rights of Indemnitee under this Agreement shall
be in addition to any other rights Indemnitee may have under the Corporation's
articles of incorporation, bylaws, applicable law, or otherwise. To the extent
that a change in applicable law (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Corporation's articles of incorporation, bylaws, applicable law, or
this Agreement, it is the intent of the parties that Indemnitee enjoy by this
Agreement the greater benefits afforded by such change.
8. Liability Insurance. To the extent the Corporation maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
corporation director or officer.
9. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Corporation or any affiliate
of the Corporation against Indemnitee, Indemnitee's spouse, heirs, executors, or
personal or legal representatives after the expiration of two (2) years from the
date of accrual of such cause of action, or such longer period as may be
required by state law under the circumstances, Any claim or cause of action of
the Corporation or its affiliate shall be extinguished and deemed released
unless asserted by the timely filing of a legal action within such period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, the shorter period shall govern.
10. Amendment of this Agreement. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties to this Agreement. No waiver of any of the provisions of this
Agreement shall operate as a waiver of any other provisions (whether or not
similar), nor shall such waiver constitute a continuing waiver. Except as
specifically provided in this Agreement, no failure to exercise or any delay in
exercising any right or remedy shall constitute a waiver.
11. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
12. No Duplication of Payments. The Corporation shall not be liable
under this Agreement to make any payment in connection with any claim made
against Indemnitee to the extent Indemnitee has otherwise received payment
(under any insurance policy, bylaw, or otherwise) of the amounts otherwise
indemnifiable under this Agreement.
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13. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Corporation), assigns, spouses, heirs, and personal and legal
representatives. The Corporation shall require and cause any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all,
substantially all, or a substantial part, of the business or assets of the
Corporation or both, by written agreement, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform if no such succession had taken place.
The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity pertaining to an Indemnifiable Event even though Indemnitee may have
ceased to serve in such capacity at the time of any proceeding.
14. Severability. If any portion of this Agreement shall be held by a
court of competent jurisdiction to be invalid, void, or otherwise unenforceable,
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void, or otherwise unenforceable,
that is not itself invalid, void, or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, void, or
unenforceable.
15. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
16. Notices. All notices, demands, and other communications required or
permitted under this Agreement shall be made in writing and shall be deemed to
have been duly given if delivered by hand, against receipt, or mailed, postage
prepaid, certified or registered mail, return receipt requested, and addressed
to the Corporation at:
Psychiatric Solutions, Inc.
000 Xxxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxx 00000
Attn: President
and to Indemnitee at:
____________________________________
____________________________________
____________________________________
____________________________________
Notice of change of address shall be effective only when given in accordance
with this agreement. All notices complying with this paragraph shall be deemed
to have been received on the date of delivery or on the third business day after
mailing.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day specified above.
PSYCHIATRIC SOLUTIONS, INC.
By:
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Its:
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INDEMNITEE
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