PSYCHIATRIC SOLUTIONS, INC.
PSYCHIATRIC SOLUTIONS HOSPITALS, INC.
000 00XX XXXXXX XXXXX, XXXXX 000
XXXXXXXXX, XXXXXXXXX 00000
The 1818 Mezzanine Fund II, L.P.
c/o Brown Brothers Xxxxxxxx & Co.
000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
April 1, 2003
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreement (the "SECURITIES
PURCHASE Agreement"), dated as of June 28, 2002, between Psychiatric Solutions
Hospitals, Inc., a Delaware corporation formerly known as Psychiatric Solutions,
Inc. (the "BORROWER"), and The 1818 Mezzanine Fund II, L.P., a Delaware limited
partnership (the "FUND"), as amended by the Waiver and Amendment to the
Securities Purchase Agreement, dated as of January 6, 2003, by and among the
parties named therein, and the Second Waiver and Amendment to the Securities
Purchase Agreement, dated as of April 1, 2003, by and among the parties named
therein.
Pursuant to the Securities Purchase Agreement, the Borrower issued to
the Fund a warrant certificate attached hereto as EXHIBIT A (the "INITIAL
WARRANT CERTIFICATE") representing warrants (the "INITIAL WARRANTS") exercisable
to purchase 1,502,140 shares (subject to adjustment), par value $0.01 per share,
of common stock of the Borrower at an exercise price of $0.01 per share.
Pursuant to the PMR Merger Agreement, PMR Acquisition Corporation, a
Delaware corporation, merged with and into the Borrower, with the Borrower being
the surviving corporation and becoming a wholly-owned subsidiary of Psychiatric
Solutions, Inc., a Delaware corporation formerly known as PMR Corporation (the
"PARENT").
Pursuant to the PMR Merger, the Initial Warrants became exercisable for
372,412 shares (subject to adjustment), par value $0.01 per share, of common
stock of the Parent (the "COMMON STOCK") at an exercise price of $0.01 per share
of Common Stock.
Pursuant to terms of the PMR Letter Agreement, the Parent agreed to
assume the obligations of the Borrower to issue additional warrants to the Fund,
on terms substantially similar to the Initial Warrants, under the Securities
Purchase Agreement.
At the request of the Borrower and the Parent, the Fund has agreed,
among other things, and on the terms and conditions set forth herein, (i) not to
exercise the right of redemption under Article XIII of the Securities Purchase
Agreement with respect to
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the Initial Warrants, (ii) to exercise the Initial Warrants at the Closing (as
defined in Section 12 hereof) and (iii) to exercise any Additional Warrants (as
defined in Section 2 hereof) immediately upon issuance, and as an inducement
thereto, the Fund has required the execution and delivery of this letter
agreement by the Borrower and the Parent.
Capitalized terms used herein but not defined herein have the meanings
assigned to such terms in the Securities Purchase Agreement.
1. INITIAL WARRANTS. At the Closing and on the terms set forth
herein, the Fund agrees to exercise the Initial Warrants in a Cashless Exercise
(as defined in the Initial Warrant Certificate) pursuant to Section 1(c)(iii) of
the Initial Warrant Certificate, and the Parent agrees to issue to the Fund upon
such exercise the number of shares of Common Stock issuable upon such exercise
pursuant to Section 1(c)(iii) of the Initial Warrant Certificate.
Notwithstanding that the Initial Warrants shall have been exercised, in
the event that, following the Closing, there occurs from time to time any event
that would have given rise (assuming the Initial Warrants were outstanding at
such time and had not been exercised pursuant to the preceding paragraph) to an
adjustment of the Number Issuable under Section 2(a)(ii) or 2(a)(iv) of the
Initial Warrant Certificate, then, and in each such case, the Fund shall be
entitled to acquire, and the Parent shall be required to promptly issue and sell
to the Fund, at a price per share equal to the par value of the Common Stock, an
additional number of shares of Common Stock equal to the increase in the Number
Issuable as a result of such adjustment of the Number Issuable.
2. ADDITIONAL WARRANTS. In the event that, following the Closing,
the Parent shall be required pursuant to the terms of the Securities Purchase
Agreement and the PMR Letter Agreement to issue to the Fund a warrant
certificate, substantially in the form attached hereto as EXHIBIT B (each, an
"ADDITIONAL WARRANT CERTIFICATE"), representing warrants (the "ADDITIONAL
WARRANTS") exercisable to purchase shares of Common Stock, then, and in each
such case, the Fund agrees to exercise immediately such Additional Warrants for
shares of Common Stock.
Notwithstanding that the Additional Warrants shall immediately be
exercised and the Additional Warrant Certificates shall cease to be outstanding,
in the event that, following the Closing, there occurs from time to time any
event that would have given rise (assuming all Additional Warrant Certificates
were outstanding at such time and had not yet been exercised) to an adjustment
of the Number Issuable under Section 2(a)(ii) or 2(a)(iv) of such Additional
Warrant Certificates, then, and in each such case, the Fund shall be entitled to
acquire, and the Parent shall be required to promptly issue and sell to the
Fund, at a price per share equal to the par value of the Common Stock, an
additional number of shares of Common Stock equal to the increase in the Number
Issuable as a result of such adjustment of the Number Issuable.
3. SPECIAL DISTRIBUTIONS. Notwithstanding that the Initial
Warrants shall have been exercised and any Additional Warrants shall immediately
be exercised upon issuance, the Borrower and the Parent agree that, to the
extent the Fund would
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have been entitled to have any special dividend or distribution set aside for
its benefit pursuant to Section 2(d) of the Initial Warrant Certificate and/or
Section 2(d) of any Additional Warrant Certificate, the Fund, at its election,
shall be entitled to receive following the Closing any such special dividend or
distribution except to the extent that it has already received such special
dividend or distribution as a holder of shares of Common Stock.
4. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE OF ASSETS. In case of any capital reorganization or reclassification or
other change of outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), or in case of any consolidation or
merger of the Parent with or into another Person, or in case of any sale or
other disposition to another Person of all or substantially all of the assets of
the Parent (any of the foregoing, a "TRANSACTION"), the Parent, or such
successor or purchasing Person, as the case may be, shall execute and deliver to
the Fund, simultaneously with effecting any of the foregoing Transactions, a
certificate that the Fund shall have the right thereafter to acquire the kind
and amount of shares of stock or other securities (of the Parent or another
issuer) or property or cash receivable upon such Transaction by a holder of the
number of shares of Common Stock that the Fund may be entitled thereafter to
acquire pursuant to this letter agreement. Such certificate shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this letter agreement and shall contain other terms
substantially identical to the terms hereof. If, in the case of any such
Transaction, the stock, other securities, cash or property receivable thereupon
by a holder of Common Stock includes shares of stock or other securities of a
Person other than the successor or purchasing Persons and other than the Parent,
which controls or is controlled by the successor or purchasing Person or which,
in connection with such Transaction, issues stock, securities, other property or
cash to holders of Common Stock, then such certificate also shall be executed by
such Person, and such Person shall, in such certificate, specifically assume the
obligations of such successor or purchasing Person and acknowledge its
obligations to issue such stock, securities, other property or cash to the Fund
as provided above. The provisions of this Section 4 similarly shall apply to
successive Transactions.
5. PUT RIGHT. At the request of the Borrower and the Parent, the
Fund has agreed as of the date of this letter agreement not to exercise its
redemption right under Article XIII of the Securities Purchase Agreement solely
with respect to the Initial Warrants, PROVIDED, that the foregoing agreement
shall in no event restrict or prohibit the Fund from exercising such right of
redemption with respect to the shares of Common Stock issued upon the exercise
of the Initial Warrants (including, without limitation, any shares of Common
Stock issued pursuant to the second paragraph of Section 1 hereof), as well as
the Additional Warrants and the shares of Common Stock issued upon the exercise
thereof (including, without limitation, any shares of Common Stock issued
pursuant to the second paragraph of Section 2 hereof).
6. INTENT AND PURPOSE. The parties hereto acknowledge and agree
that the Fund has agreed to the terms of this letter agreement at the request of
the Borrower and the Parent, and that it is the intent of the parties hereto
that the Fund should be in a
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position substantially similar (but no less advantageous) to the position it
would otherwise have been in, but for this letter agreement. Notwithstanding
that the Initial Warrants shall have been exercised and that any Additional
Warrants shall be immediately exercised upon issuance, the shares of Common
Stock issued pursuant to this letter agreement shall be treated as Initial
Warrants or Additional Warrants or shares of Common Stock issued upon the
exercise thereof, as the case may be, for purposes of the Transaction Documents
and for any other purpose, as may be necessary or appropriate from time to time
and under the circumstances to satisfy the intent of the parties and the purpose
of this letter agreement. The parties agree to cooperate with each other and to
execute and deliver such other documents and do all such further acts and things
as may be required or appropriate to carry out the purpose of the transactions
contemplated by this letter agreement.
7. LEGEND. All certificates representing the shares of Common
Stock issued pursuant to this letter agreement shall bear legends substantially
as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED, UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED BY ANY PERSON, EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH STATE SECURITIES
LAWS.
8. COVENANTS AND AGREEMENTS.
(a) Notwithstanding that the Initial Warrants shall have
been exercised and that any Additional Warrants shall immediately
exercised upon issuance, the Parent promptly shall deliver to the Fund,
at least five Business Days prior to effecting any transaction that
would entitle the Fund to acquire any shares of Common Stock pursuant
to this letter agreement, a notice thereof, together with a
certificate, signed by the President or the Chief Executive Officer and
by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Parent, setting forth in reasonable detail
the event entitling the Fund to acquire such shares of Common Stock,
the number of such shares of Common Stock that the Fund is entitled to
acquire and the method by which the number of such shares of Common
Stock was calculated.
(b) The Parent covenants and agrees that all shares of Common
Stock which may be issued pursuant to this letter agreement will be
duly authorized, validly issued and fully paid and nonassessable, will
be free and clear of any Liens, and will not be subject to any
preemptive or similar rights that have not been waived.
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(c) The Parent covenants and agrees that, as promptly as
practicable, and in any event within five Business Days after the
issuance of any shares of Common Stock pursuant to this letter
agreement, the Parent shall deliver or cause to be delivered
certificates representing the number of validly issued, fully paid and
nonassessable shares of Common Stock so issued. The Person entitled to
receive such certificates shall be treated for all purposes as having
been the record holder of the shares of Common Stock represented by
such certificate at the time of issuance of such shares,
notwithstanding that such certificate may not have been delivered at
such time.
(d) The Parent shall at all times reserve and keep available
for issuance such number of its authorized but unissued shares of
Common Stock as will from time to time be sufficient to permit the
issuance of all shares of Common Stock that may be issuable pursuant to
this letter agreement, and shall take all action required to increase
the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to
permit such reservation or to permit the issuance of all shares of
Common Stock that may be issuable pursuant to this letter agreement.
(e) The Parent covenants and agrees that it shall not change
the par value of the Common Stock without the prior written consent of
the Fund.
9. REPRESENTATIONS AND WARRANTIES. Each of the Borrower and the
Parent hereby represents and warrants to the Fund as follows:
(a) Such party is a corporation duly organized and validly
existing under the laws of Delaware, and has the corporate power and
authority to execute, deliver and perform its obligations under this
letter agreement.
(b) The execution, delivery and performance by such party of
this letter agreement and the transactions contemplated hereby have
been duly authorized by all necessary action of such party, and will
not violate or conflict with the organizational documents of such
party, any material agreement binding upon such party or any law,
regulation or order or require any consent or approval which has not
been obtained.
(c) This letter agreement has been duly executed and
delivered by such party, and constitutes the legal, valid and binding
obligation of such party, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity
relating to enforceability.
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10. SURVIVAL; TERMINATION. All of the representations, warranties,
covenants and agreements made herein shall survive the execution and delivery of
this letter agreement. The right of the Fund following the Closing (a) to
acquire shares of Common Stock pursuant to the second paragraphs of Sections 1
and 2 hereof, (b) to elect to receive special dividends and distributions
pursuant to Section 3 hereof and (c) to acquire shares of stock or other
securities or property or cash pursuant to Section 4 hereof, shall expire on the
tenth anniversary of the Initial Closing Date; PROVIDED, HOWEVER, that
notwithstanding the foregoing, upon the satisfaction by the Borrower and the
Parent of all of their respective obligations in connection with the exercise of
a redemption right under Article XIII of the Securities Purchase Agreement,
including, without limitation, the obligation to fully pay the Put Price, the
rights of the Fund under the second paragraphs of Sections 1 and 2 hereof and
under Sections 3 and 4 hereof shall terminate solely with respect to any Initial
Warrants (notwithstanding that such Initial Warrants shall have been exercised),
Additional Warrants (notwithstanding that such Additional Warrants shall have
been exercised immediately following the issuance thereof) and shares of Common
Stock issued upon the exercise thereof that, in each case, have been redeemed in
full by the Borrower and the Parent in connection with such redemption.
11. SUCCESSORS AND ASSIGNS. Neither the Borrower nor the Parent
may assign any of its rights or obligations under this letter agreement without
the prior written consent of the Fund. This letter agreement shall inure to the
benefit of and be binding upon the successors, permitted assigns and permitted
transferees of the parties hereto. No person or entity other than the parties
hereto and their successors, permitted assigns and permitted transferees is
intended to be a beneficiary of this letter agreement.
12. CLOSING. The closing of this letter agreement shall occur upon
the Fund's receipt of the following (which, in the case of documents, agreements
and certificates, must be satisfactory in form and substance to the Fund and its
counsel):
(a) payment of the fees and expenses pursuant to Section
21(a);
(b) a fully executed copy of this letter agreement;
(c) a fully executed copy of a consent and waiver from
Capital Source, as agent for all lenders party to the Credit Agreement,
to the provisions of this letter agreement; and
(d) copies of such other documentation and certificates as
the Fund may reasonably request.
13. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof
or the exercise of
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any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available
to any party hereto at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this letter agreement, any waiver of any provision of this
letter agreement and any consent to any departure by any party hereto
from the terms of any provision of this letter agreement, shall be
effective (i) only if it is made or given in writing and signed by each
party hereto, and (ii) only in the specific instance and for the
specific purpose for which made or given.
14. NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
services or personal delivery, (a) if to the Fund or the holder of any shares of
Common Stock, at such holder's last known address appearing on the books of the
Parent, and (b) if to the Parent or the Borrower, at the principal executive
office of the Parent in the United States located at the address designated for
notices in the Securities Purchase Agreement, or such other address as shall
have been furnished to the party given or making such notice, demand or other
communication. All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; one Business Day
after delivered to a courier if delivered by commercial overnight courier
service; and five Business Days after being deposited in the mail, postage
prepaid, if mailed.
15. COUNTERPARTS. This letter agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
16. HEADINGS. The headings in this letter agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
17. GOVERNING LAW. THIS LETTER AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED IN THE STATE OF NEW YORK, AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
18. SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
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19. REMEDIES. If a breach of this letter agreement by any party
hereto occurs and is continuing, the other parties may pursue any available
remedy by proceeding at law or in equity to enforce the performance (including,
without limitation, the specific performance) of any provision of this letter
agreement. Except as otherwise provided by law, a delay or omission by any party
hereto in exercising any right or remedy accruing upon any such breach shall not
impair the right or remedy or constitute a waiver of or acquiescence in any such
breach. No remedy is exclusive of any other remedy. All available remedies are
cumulative.
20. ENTIRE AGREEMENT. This letter agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, representations, warranties or undertakings, other than those set
forth or referred to herein. This letter agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
21. EXPENSES. The Parent acknowledges and agrees that it shall
reimburse the Fund for (a) all reasonable out-of-pocket expenses of the Fund
(including reasonable legal fees, costs and expenses of Xxxx, Weiss, Rifkind,
Xxxxxxx & Xxxxxxxx LLP) incurred in connection with the negotiation, execution
and delivery of this letter agreement, and (b) all reasonable out-of-pocket
expenses and the reasonable legal fees and expenses of legal counsel in
connection with any (i) issuance of any shares of Common Stock pursuant to this
letter agreement following the Closing and (ii) amendment, supplement,
modification or waiver of or to any provision of this letter agreement following
the Closing. The fees and expenses set forth in clause (a) shall be paid by the
Parent at the Closing, and the fees and expenses set forth in clause (b) shall
be paid by the Parent as incurred by the Fund.
22. FURTHER ASSURANCES. Each of the parties hereto agrees that,
except as otherwise provided in this letter agreement and subject to its legal
obligations, it will use its reasonable best efforts to fulfill all conditions
precedent specified herein, and to do all things reasonably necessary to
consummate the transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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If this letter agreement correctly sets forth your understanding of our
agreement with respect to the foregoing, please so indicate by signing below on
the lines provided for your signatures.
Sincerely,
PSYCHIATRIC SOLUTIONS, INC.
By: /s/ Xxxx X. Xxxxxx
-------------------------------
Name:
Title:
PSYCHIATRIC SOLUTIONS
HOSPITALS, INC.
By: /s/ Xxxx X. Xxxxxx
-------------------------------
Name:
Title:
Acknowledged and agreed to
as of the date above written:
THE 1818 MEZZANINE FUND II, L.P.
By: Xxxxx Brothers Xxxxxxxx & Co.,
its General Partner
By: /s/ Xxxxxx X. Xxxxxx
----------------------------
Name: Xxxxxx X. Xxxxxx
Title: Managing Director
