S-3

As filed with the Securities and Exchange Commission on December 31, 2003

Registration No. 333-               

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
______________________________

FORM S-3

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
___________________________________

Psychiatric Solutions, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 23-2491707
(I.R.S. Employer
Identification No.)

Psychiatric Solutions, Inc.
113 Seaboard Lane, Suite C-100
Franklin, Tennessee 37067
(615) 312-5700
(Address, including zip code, and telephone number,
including area code, of Registrant’s principal executive offices)

Joey A. Jacobs
113 Seaboard Lane, Suite C-100
Franklin, Tennessee 37067
(615) 312-5700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

with copies to:

Christopher L. Howard, Esq.
Waller Lansden Dortch & Davis, PLLC
511 Union Street, Suite 2100
Nashville, Tennessee 37219
(615) 244-6380

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement as determined by market conditions and other factors.

      If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.  o

      If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box.  x

      If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

      If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

      If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  o

CALCULATION OF REGISTRATION FEE

			Proposed Maximum		Proposed Maximum
Title Of Each Class Of	Amount To Be		Offering Price		Aggregate		Amount Of
Securities To Be Registered	Registered(1)		Per Share(2)		Offering Price		Registration Fee
Common stock, $0.01 par value per share		4,932,932		$18.15		$89,532,716		$7,244

(1)

Consists of 4,932,932 shares of common stock that are held by certain of our stockholders or issuable pursuant to the conversion of shares of our series A convertible preferred stock. This registration statement shall cover any additional shares of our common stock which become issuable by reason of any stock dividend, stock split, recapitalization or any other similar transaction effected without the receipt of consideration that results in an increase in the number of shares of our outstanding common stock.

(2)

Estimated solely for purposes of calculating the amount of the registration fee pursuant to Rule 457(c) and is based on the high and the low sales prices of the Company’s common stock as reported on the Nasdaq National Market on December 23, 2003.

      The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

TABLE OF CONTENTS

EX-4.6 THIRD AMENDED INVESTOR RIGHTS AGREEMENT

EX-5.1 OPINION OF WALLER LANSDEN DORTCH & DAVIS

EX-23.1 CONSENT OF ERNST & YOUNG LLP

EX-23.2 CONSENT OF DELOITTE & TOUCHE LLP

EX-23.3 CONSENT OF BDO SEIDMAN, LLP

EX-23.4 CONSENT OF BDO SEIDMAN, LLP

      The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, dated December 31, 2003

Prospectus

4,932,932 Shares
Common Stock

      This prospectus relates to the resale by the selling stockholders of up to an aggregate of 4,891,502 shares of common stock that are issuable upon the conversion of our series A convertible preferred stock and 41,430 shares that are held by certain of the selling stockholders. We filed this registration statement, which includes this prospectus, pursuant to a registration rights agreement, dated January 6, 2003, between us and certain of the selling stockholders. The common stock may be sold by or on behalf of such selling stockholders named in this prospectus or in supplements to this prospectus.

      Our common stock is listed in the Nasdaq National Market under the symbol “PSYS.” On December 30, 2003, the last reported sale price of our common stock on the Nasdaq National Market was $20.14 per share.

      The selling stockholders may offer and sell common stock from time to time in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. The selling stockholders may sell all or a portion of the common stock in market transactions on the Nasdaq National Market; in privately negotiated transactions; through the writing of options; in a block trade in which a broker-dealer will attempt to sell a block of securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; through broker-dealers, which may act as agents or principals; directly to one or more purchasers; through agents; or in any combination of the above or by any other legally available means. The selling stockholders will receive all of the proceeds from the sale of the common stock. We will not receive any proceeds from any such sales.

Investing in our common stock involves risks. “Risk Factors” begin on page 5.

      Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is               , 2004

TABLE OF CONTENTS

THE OFFERING	4
THE COMPANY	4
RISK FACTORS	5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	13
USE OF PROCEEDS	14
PRICE RANGE AND DIVIDEND HISTORY OF OUR COMMON STOCK	14
DESCRIPTION OF OUR CAPITAL STOCK	15
SELLING STOCKHOLDERS	18
PLAN OF DISTRIBUTION	20
LEGAL MATTERS	22
EXPERTS	22
WHERE YOU CAN FIND MORE INFORMATION	23
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE	23

      You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any other documents incorporated by reference is accurate only as of the date on the front cover of the applicable document. Our business, financial condition, results of operations and prospects may have changed since that date.

      This prospectus is based on information provided by us and by other sources that we believe are reliable. We cannot assure that any information provided by other sources is accurate or complete. This prospectus summarizes certain documents and other information and we refer you to them for a more complete understanding of what we discuss in this prospectus. In making an investment decision, you should rely on your own examination of Psychiatric Solutions and the terms of this offering and the common stock, including the merits and risks involved.

      We are not making any representation to any purchaser of the common stock regarding the legality of an investment in the common stock by such purchaser. You should not consider any information in this prospectus to be legal, business or tax advice. You should consult your own attorney, business advisor and tax advisor for legal, business and tax advice regarding an investment in the common stock.

      References in this prospectus to “Psychiatric Solutions,” “we,” “us” and “our” refer to Psychiatric Solutions, Inc., a behavioral health care services company incorporated in Delaware, unless the context otherwise requires.

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THE OFFERING

Maximum Number of Shares of Our Common Stock to be Sold by Selling Stockholders	4,932,932 shares of common stock, $0.01 par value per share.
Use of Proceeds	We will receive no proceeds from this offering.
Nasdaq Symbol for our Common Stock	Our common stock is listed on the Nasdaq National Market under the symbol “PSYS.”
Risk Factors	See “Risk Factors” beginning on page 5 of this prospectus and the other information included elsewhere or incorporated by reference in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock.

THE COMPANY

      We are a leading provider of inpatient behavioral health care services in the United States. Through our inpatient division, we operate 23 owned or leased behavioral health care facilities with approximately 2,800 beds in 13 states. In addition, through our management contract division, we manage 44 behavioral health care units for third parties and 11 behavioral health care facilities for government agencies. Our address is 113 Seaboard Lane, Suite C-100, Franklin, Tennessee 37067; our phone number is (615) 312-3700.

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RISK FACTORS

      Investing in our common stock involves a high degree of risk. You should consider carefully each of the following risks and all other information included elsewhere or incorporated by reference in this prospectus before deciding to purchase shares of our common stock. If any of the events described below actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our common stock could decline, perhaps significantly, and you could lose all or part of your investment.

If federal or state health care programs or managed care companies reduce reimbursement rates or methods of reimbursement for our services, our revenue may decline.

      A portion of our revenue is derived from the Medicare and Medicaid programs and from various state and local government payors. In recent years, federal and state governments have made significant changes in these programs. These changes have, in certain instances, decreased the amount of money we receive for our services. Future federal and state legislation may further reduce the payments received for our services or increase the timing of reimbursement payments to us. Consistent with reimbursement trends in other segments of the health care services industry, the Centers for Medicare and Medicaid Services (“CMS”) proposed on November 19, 2003 a new Medicare prospective payment system (“PPS”) for inpatient behavioral health care facilities. CMS is proposing a per diem PPS. The proposed base per diem amount will cover nearly all labor and non-labor costs of furnishing covered inpatient behavioral health care services – including routine, ancillary and capital costs. The proposed per diem will not, however, include the costs of bad debts and certain other costs that are paid separately. In addition, CMS is proposing that the base per diem be adjusted for specific facility and patient characteristics that influence the cost of patient care. CMS is also proposing to adjust the per diem rate to take into account the increased cost of care associated with the first eight days after admission of a patient. CMS currently plans to begin implementing the new PPS for behavioral health care facilities on April 1, 2004, although CMS may delay implementation beyond such date. CMS has also proposed a three-year transition period that will be a blend of decreasing cost-based payments and increasing PPS payments, with full PPS rates becoming effective in the fourth year. We are uncertain what impact the proposed regulation will have on our business and financial and operating results.

      Insurance and managed care companies and other third parties from whom we receive payment may attempt to control health care costs by requiring that facilities discount their services in exchange for exclusive or preferred participation in their benefit plans, which may reduce the payments we receive for our services.

If we are unable to successfully identify and integrate acquisitions into our business, our operations could be disrupted.

      Our acquisitions of The Brown Schools and Ramsay have significantly increased the size and geographic scope of our operations. We may be unable to achieve the anticipated benefits from the acquisitions of The Brown Schools and Ramsay. If we are unable to realize these anticipated benefits, it could have a material adverse effect on our business and financial and operating results.

      Our ability to successfully identify and integrate future acquisitions with our existing business will be critical to the future success of our business. The completion and integration of acquisitions is subject to numerous conditions beyond our control, including the possibility of negative reactions by existing customers or employees or adverse general and regional economic conditions, general negative industry trends and competition.

Additional financing will be necessary to fund our acquisition program and additional financing may not be available when needed.

      We expect our capital needs over the next several years, primarily to fund acquisitions, will exceed cash generated from operations. We plan to incur indebtedness and to issue additional debt or equity securities from time to time in order to fund these needs. Our level of indebtedness at any time may restrict our ability to borrow additional funds. In addition, we may not receive additional financing on satisfactory terms, if at all. If we are unable to borrow additional funds or to obtain adequate financing on reasonable terms, we may be unable to

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consummate acquisitions and may have to change our business strategy to slow our rate of expansion or reduce our operations. If we raise additional funds by issuing equity securities, our stockholders may experience dilution.

If competition decreases our ability to acquire additional facilities on favorable terms, we may be unable to execute our acquisition strategy.

      Competition among hospitals and other health care providers in the United States has intensified in recent years due to cost containment pressures, changing technology, changes in government regulation and reimbursement, changes in practice patterns (such as shifting from inpatient to outpatient treatments), the impact of managed care organizations and other factors. An important part of our business strategy is the acquisition of facilities in growing urban markets. Some facilities and health care providers that compete with us have greater financial resources and a larger, more experienced development staff focused on identifying and completing acquisitions. Any or all of these factors may impede our business strategy.

If we fail to comply with regulations regarding licenses, ownership and operation, we could impair our ability to operate or expand our operations in any state.

      All of the states in which we operate require hospitals and most health care facilities to maintain a license. In addition, some states require prior approval for the purchase, construction and expansion of health care facilities based upon a state’s determination of need for additional or expanded health care facilities or services. Such determinations, embodied in certificates of need issued by governmental agencies with jurisdiction over health care facilities, may be required for capital expenditures exceeding a prescribed amount, changes in bed capacity or services and other matters. Ten states in which we currently own or lease inpatient behavioral health care facilities, Alabama, Florida, Georgia, Illinois, Michigan, Mississippi, Missouri, Oklahoma, North Carolina and Virginia, have certificate of need laws. The failure to obtain any required certificate of need or the failure to maintain a required license could impair our ability to operate or expand operations in any state.

If we fail to comply with extensive laws and government regulations, we could suffer penalties or be required to make significant changes to our operations.

      Participants in the health care industry are required to comply with extensive and complex laws and regulations at the federal, state and local government levels relating to, among other things:

• billing for services;

• relationships with physicians and other referral sources;

• adequacy of medical care;

• quality of medical equipment and services;

• qualifications of medical and support personnel;

• confidentiality, maintenance and security issues associated with health-related information and medical records;

• licensure;

• hospital rate or budget review;

• operating policies and procedures; and

• addition of facilities and services.

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      Among these laws are the Anti-kickback Statute, the Stark Law and the Health Insurance Portability and Accountability Act of 1996, or HIPAA. These laws impact the relationships that we may have with physicians and other referral sources. The Office of Inspector General of the Department of Health and Human Services, or the OIG, has enacted safe harbor regulations that outline practices that are deemed protected from prosecution under the Anti-kickback Statute. Our current financial relationships with physicians and other referral sources may not qualify for safe harbor protection under the Anti-kickback Statute. Failure to meet a safe harbor does not mean that the arrangement automatically violates the Anti- kickback Statute, but may subject the arrangement to greater scrutiny. Further, we cannot guarantee that practices that are outside of a safe harbor will not be found to violate the Anti-kickback Statute.

      In order to comply with the Stark Law, our financial relationships with physicians and their immediate family members must meet an exception. We attempt to structure our relationships to meet an exception to the Stark Law, but the regulations implementing the exceptions, some of which are still under review, are detailed and complex, and we cannot guarantee that every relationship fully complies with the Stark Law.

      HIPAA required the Department of Health and Human Services to issue regulations requiring hospitals and other providers to implement measures to ensure the privacy and security of patients’ medical records and use of uniform data standards for the exchange of information between the hospitals and health plans including claims and payment transactions. The privacy standard became effective April 14, 2003. Full compliance with the privacy standard was required by April 14, 2003. We have met the April 14, 2003 privacy standard compliance deadline, but compliance will be an ongoing process. The transaction standard and the security standard became effective on October 16, 2000 and February 20, 2003, respectively. Full compliance with the transaction standard and security standard is required by October 16, 2003 and April 20, 2005, respectively. We are in compliance with the transaction standard and are in the process of complying with the security standard. We may incur additional expenses in order to comply with the security standard. We cannot predict the full extent of our costs for implementing all of the requirements at this stage.

      If we fail to comply with the Anti-kickback Statute, the Stark Law, HIPAA or other applicable laws and regulations, we could be subjected to liabilities, including criminal penalties, civil penalties (including the loss of our licenses to operate one or more facilities), and the exclusion of one or more of our facilities from participation in the Medicare, Medicaid and other federal and state health care programs.

      Because many of these laws and regulations are relatively new, we do not always have the benefit of significant regulatory or judicial interpretation of these laws and regulations. In the future, different interpretations or enforcement of these laws and regulations could subject our current or past practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses. A determination that we have violated these laws, or the public announcement that we are being investigated for possible violations of these laws, could have a material adverse effect on our business, financial condition, results of operations or prospects, and our business reputation could suffer significantly. In addition, we are unable to predict whether other legislation or regulations at the federal or state level will be adopted, what form such legislation or regulation will take or their impact.

Other companies within the health care industry continue to be the subject of federal and state investigations, which increases the risk that we may become subject to investigations in the future.

      Both federal and state government agencies as well as private payors have increased and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of health care organizations. These investigations relate to a wide variety of topics, including:

• cost reporting and billing practices;

• quality of care;

• financial relationships with referral sources;

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• medical necessity of services provided; and

• treatment of indigent patients.

      The OIG and the U.S. Department of Justice have, from time to time, undertaken national enforcement initiatives that focus on specific billing practices or other suspected areas of abuse. Moreover, health care providers are subject to civil and criminal false claims laws, including the federal False Claims Act, which allows private parties to bring whistleblower lawsuits against private companies doing business with or receiving reimbursement under federal government programs. Some states have adopted similar state whistleblower and false claims provisions. Publicity associated with the substantial amounts paid by other health care providers to settle these lawsuits may encourage our current and former employees and other health care providers to bring whistleblower lawsuits. Any investigations of us, our executives or our managers could result in significant liabilities or penalties as well as adverse publicity.

We may be subject to liabilities because of claims brought against our owned, leased and managed inpatient behavioral health care facilities. In addition, if we acquire facilities with unknown or contingent liabilities, we could become liable for material obligations.

      In recent years, plaintiffs have brought actions against hospitals and other health care providers alleging malpractice, product liability or other legal theories. Many of these actions involved large claims and significant defense costs. We maintain professional malpractice liability and general liability insurance coverage of approximately $10.0 million, in excess of our $3.0 million deductible, to cover claims arising out of the operations of our owned and leased inpatient behavioral health care facilities. Some of the claims, however, could exceed the scope of the coverage in effect or coverage of particular claims could be denied. While our professional and other liability insurance has been adequate in the past to provide for liability claims, such insurance may not be available for us to maintain adequate levels of insurance in the future. Moreover, health care providers in our industry are experiencing significant increases in the premiums for malpractice insurance, and it is anticipated that such costs may continue to rise. Malpractice insurance coverage may not continue to be available at a cost allowing us to maintain adequate levels of insurance with acceptable deductible amounts.

      In addition, inpatient behavioral health care facilities that we acquire may have unknown or contingent liabilities, including liabilities for failure to comply with health care laws and regulations. Although we generally obtain contractual indemnification from sellers covering these matters, such indemnification may be insufficient to cover material claims or liabilities for past activities of acquired hospitals.

We may be subject to liabilities because of claims arising from our management contract activities.

      We may be subject to liabilities from the acts, omissions and liabilities of the employees of the behavioral health care units we manage or from the actions of our employees in connection with the management of such units. Our unit management contracts generally require the acute care hospitals for which we manage units to indemnify us against certain claims and to maintain specified amounts of insurance. The hospitals, however, may not maintain such insurance and indemnification may not be available to us.

      Recently, other unit management companies have been subject to complaints alleging that these companies violated laws on behalf of units they managed. In some cases, plaintiffs brought actions against the managing company instead of, or in addition to, its individually managed hospital clients for these violations. Our managed units or other third parties may not hold us harmless for any losses we incur arising out of the acts, omissions and liabilities of the employees of the units we manage. If the courts determine we are liable for amounts exceeding the limits of any insurance coverage or for claims outside the scope of that coverage or any indemnity, or if any indemnity agreement is determined to be unenforceable, then the resulting liability could affect adversely our business, results of operations and financial condition.

We face periodic reviews, audits and investigations under our contracts with federal and state government agencies, and these audits could have adverse findings that may negatively impact our business.

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      As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental reviews, audits and investigations to verify our compliance with these programs and applicable laws and regulations. Private pay sources also reserve the right to conduct audits. An adverse review, audit or investigation could result in:

• refunding amounts we have been paid pursuant to the Medicare or Medicaid programs or from private payors;

• state or federal agencies imposing fines, penalties and other sanctions on us;

• loss of our right to participate in the Medicare or Medicaid programs or one or more private payor networks; or

• damages to our reputation in various markets.

      Both federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of health care companies. The investigations include:

• cost reporting and billing practices;

• quality of care;

• financial relationships with referral sources;

• medical necessity of services provided; and

• treatment of indigent patients.

      We also are subject to potential lawsuits under a federal whistleblower statute designed to combat fraud and abuse in the health care industry. These lawsuits can involve significant monetary awards and bounties to private plaintiffs who successfully bring these suits.

If we fail to cultivate new, or maintain existing, relationships with the physicians in the communities in which we operate, our patient base may decline.

      Our business depends upon the efforts and success of the physicians who provide health care services at our facilities and the strength of our relationships with these physicians.

      Our business could be adversely affected if a significant number of physicians or a group of physicians:

• terminate their relationship with, or reduce their use of, our facilities;

• fail to maintain acceptable quality of care or to otherwise adhere to professional standards;

• suffer damage to their reputation; or

• exit the market entirely.

We depend on our key management personnel, and the loss of services of one or more key executives or a significant portion of our local management personnel could weaken our management team and our ability to deliver behavioral health care services efficiently.

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      We are highly dependent on our senior management team, which has many years of experience addressing the broad range of concerns and issues relevant to our business. We have entered into employment agreements with Joey A. Jacobs, our Chairman, President and Chief Executive Officer, and Jack Salberg, our Chief Operating Officer, each of which include non-competition and non-solicitation provisions. Key man life insurance policies are not maintained on any member of senior management other than Mr. Jacobs. The loss of key management or the inability to attract, retain and motivate sufficient numbers of qualified management personnel could have a material adverse effect on our business and financial and operating results.

The shortage of qualified registered nursing staff and other health care workers could adversely affect our ability to attract, train and retain qualified personnel and could increase operating costs.

      The health care industry is very labor intensive and salaries and benefits are subject to inflationary pressures. Some of our inpatient behavioral health care facilities are experiencing the effects of the tight labor market, including a shortage of nurses, which has caused and may continue to cause an increase in our salaries, wages and benefits expense in excess of the inflation rate. In order to supplement staffing levels, we periodically use temporary help from staffing agencies.

Our substantial indebtedness could adversely affect our financial condition.

      As of September 30, 2003, our total consolidated indebtedness was approximately $174.3 million. Our indebtedness could have important consequences to you including:

• increasing our vulnerability to general adverse economic and industry conditions;

• requiring that a portion of our cash flow from operations be used for the payment of interest on our debt, thereby reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions and general corporate requirements;

• restricting our ability to sell assets, including capital stock of our restricted subsidiaries, merge or consolidate with other entities, and engage in transactions with our affiliates;

• limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions and general corporate requirements;

• limiting our flexibility in planning for, or reacting to, changes in our business and the health care industry;

• restricting our ability or the ability of our restricted subsidiaries to pay dividends or make other payments; and

• placing us at a competitive disadvantage to our competitors that have less indebtedness.

      We and our subsidiaries may be able to incur additional indebtedness in the future, including secured indebtedness. If new indebtedness is added to our and our subsidiaries’ current indebtedness levels, the related risks that we and they now face could intensify. In addition, our amended and restated credit facility requires us to maintain specified financial ratios and tests which may require that we take action to reduce our debt or to act in a manner contrary to our business objectives. Events beyond our control, including changes in general business and economic conditions, may affect our ability to meet those financial ratios and tests. We cannot assure you that we will meet those ratios and tests or that the lenders will waive any failure to meet those ratios and tests. A breach of any of these covenants would result in a default under the amended and restated credit facility and any resulting acceleration thereunder may result in a default under the indenture governing our 10 5/8% senior subordinated notes. If an event of default under our amended and restated credit facility occurs, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable.

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Our business and financial results depend on our ability to generate sufficient cash flows to service our debt or refinance our indebtedness on commercially reasonable terms.

      Our ability to make payments on and to refinance our debt and fund planned expenditures depends on our ability to generate cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors and other factors beyond our control. We cannot assure you that our business will generate cash flows from operations or that future borrowings will be available to us under our amended and restated credit facility in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. We cannot assure you that we will be able to refinance our borrowing arrangements or any other outstanding debt on commercially reasonable terms or at all. Refinancing our borrowing arrangements could cause us to:

• incur a prepayment penalty;

• pay interest at a higher rate;

• be subject to additional or more restrictive covenants than those outlined above; and

• grant additional security interests in our collateral.

      Our inability to generate sufficient cash flow to service our debt or refinance our indebtedness on commercially reasonable terms would have a material adverse effect on our business and results of operations.

If we are unable to integrate and manage our information systems effectively, our operations could be disrupted.

      Our operations depend significantly on effective information systems. Our information systems and applications require continual maintenance, upgrading and enhancement to meet our operational needs. Moreover, our acquisition activity requires frequent transitions from, and the integration of, various information systems. If we experience difficulties with the transition from information systems or are unable to maintain properly or expand our information systems, we could suffer, among other things, operational disruptions and increases in administrative expenses.

The price of our common stock may be volatile and this may adversely affect our stockholders.

      The price at which our common stock will trade may be volatile. The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices of securities, particularly securities of health care companies. The market price of our common stock may be influenced by many factors, including:

• our operating and financial performance;

• the depth and liquidity of the market for our common stock;

• future sales of common stock or the perception that sales could occur;

• investor perception of our business and our prospects;

• developments relating to litigation or governmental investigations;

• changes or proposed changes in health care laws or regulations or enforcement of these laws and regulations, or announcements relating to these matters; and

• general economic and stock market conditions.

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      In addition, the stock market in general, and the Nasdaq National Market in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of health care provider companies. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class-action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation of this type is often expensive to defend and may divert our management’s attention and resources from the operation of our business.

Future sales of our common stock may adversely affect our stock price.

      Sales of a substantial number of our shares of common stock in the public market, or the perception that these sales could occur, could substantially decrease the market price of our common stock. Substantially all of the shares of our common stock held by our affiliates are available for resale in the public market pursuant to this prospectus or in compliance with Rule 144 or Rule 701 under the Securities Act of 1933, as amended (the “Securities Act”) and the market price of our common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. We can make no prediction as to the effect, if any, that future sales of common stock, or the availability of common stock for future sale, will have on the market price of our common stock prevailing from time to time.

Our quarterly operating results have varied in the past and may vary in the future and such variations may adversely affect our stock price.

      If our quarterly net revenue and operating results fall below the expectations of securities analysts and investors, the market price of our common stock could fall substantially. Operating results vary depending on a number of factors, many of which are outside our control, including:

• demand for our services;

• loss of a significant unit management contract;

• introduction of new competitors;

• the loss of key personnel;

• wage and cost pressures;

• costs related to acquisitions of technologies or businesses; and

• general economic factors.

As we do not anticipate paying cash dividends in the future, you should not expect any return on your investment except through appreciation, if any, in the value of our common stock.

      You should not rely on an investment in our common stock to provide dividend income, as we do not plan to pay dividends on our common stock in the foreseeable future. Thus, if you are to receive any return on your investment in our common stock, it will likely have to come from the appreciation, if any, in the value of our common stock. The payment of future cash dividends, if any, will be reviewed periodically by our board of directors and will depend upon, among other things, conditions then existing, including our earnings, financial condition and capital requirements, restrictions in financing agreements, business opportunities and conditions, and other factors.

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Provisions in our certificate of incorporation and bylaws, as well as Delaware law, may hinder a change of control.

      Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of the Delaware General Corporation Law, could discourage unsolicited proposals to acquire us, even though such proposals may be beneficial to you. These provisions include:

• classification of the board of directors into three classes;

• our board’s authorization to issue shares of preferred stock, on terms the board determines in its discretion, without stockholder approval; and

• provisions of Delaware law that restrict many business combinations.

      We are subject to the provisions of Section 203 of the Delaware General Corporation Law, which could prevent us from engaging in a business combination with a 15% or greater stockholder for a period of three years from the date it acquired such status unless appropriate board or stockholder approvals are obtained.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      This prospectus (including the information incorporated by reference) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, competition, trends or developments in our industries, future events, future revenue or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. When used in this prospectus, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, our examination of historical operation trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that our expectations, beliefs and projections will be realized.

      There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this prospectus. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this prospectus are set forth in this prospectus, including under the heading “Risk Factors.”

      In addition, future trends for pricing, margins, revenue and profitability remain difficult to predict in the industries that we serve. There may also be other factors that may cause our actual results to differ materially from the forward-looking statements.

      All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this prospectus and are expressly qualified in their entirety by the cautionary statements included in this prospectus. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by applicable securities laws.

      We caution you that these factors, as well as the risk factors set forth later in this prospectus, may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict such new risk factors, nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied by any forward-looking statements.

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USE OF PROCEEDS

      The selling stockholders will receive all of the net proceeds from the sale of common stock pursuant to this prospectus. We will receive no such proceeds.

PRICE RANGE AND DIVIDEND HISTORY OF OUR COMMON STOCK

      Our common stock has traded on the Nasdaq National Market under the symbol “PSYS” since August 6, 2002. Prior to August 6, 2002, our common stock was traded on the Nasdaq National Market under the symbol “PMRP.”

      The table below sets forth, for the calendar quarters indicated, the high and low sales prices per share as reported on the Nasdaq National Market for our common stock and, prior to August 6, 2002, for PMR Corporation’s common stock. The stock prices have been adjusted to reflect a 1-for-3 reverse stock split effected on August 5, 2002.

		High		Low
2001
	First Quarter	$	6.00	$	3.36
	Second Quarter		5.25		3.81
	Third Quarter		4.77		3.63
	Fourth Quarter		6.42		4.38
2002
	First Quarter	$	7.68	$	4.89
	Second Quarter		11.43		3.72
	Third Quarter		6.75		4.75
	Fourth Quarter		5.94		5.00
2003
	First Quarter	$	8.50	$	4.47
	Second Quarter		10.17		7.95
	Third Quarter		14.51		9.53
	Fourth Quarter (through December 30, 2003)		20.37		12.26

      As of December 31, 2003, we had 11,936,639 shares of common stock outstanding.

      We currently intend to retain future earnings for use in the expansion and operation of our business. Borrowings and the terms of our series A convertible preferred stock may limit our ability to pay dividends. The payment of any future cash dividends will be determined by our board of directors in light of conditions then existing, including our earnings, financial condition and capital requirements, restrictions in financing agreements, business opportunities and conditions, and other factors.

      On May 6, 2002, PMR Corporation’s board of directors declared a special cash dividend of $5.10 per share of common stock payable on May 24, 2002 to the stockholders of record as of the close of business on May 17, 2002. The total amount of the dividend was approximately $12.3 million.

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DESCRIPTION OF OUR CAPITAL STOCK

      Our authorized capital stock consists of 48,000,000 shares of common stock, $0.01 par value per share, and 6,000,000 shares of preferred stock, $0.01 par value per share. As of December 31, 2003, there were 11,936,639 shares of our common stock outstanding and 4,545,454 shares of our series A convertible preferred stock outstanding. In addition, as of December 31, 2003, we have accrued pay-in-kind dividends related to our series A convertible preferred stock that would convert into approximately 147,400 shares of our common stock. We also refer you to our Registration Statement on Form 10, filed with the Securities and Exchange Commission on July 31, 1992, including all amendments or reports filed for the purpose of updating the description, which discusses the terms of our capital stock. See “Incorporation of Certain Documents by Reference” below for information as to how to obtain this document.

Common Stock

      Subject to the rights and preferences specifically granted to our preferred stockholders, our common stockholders are entitled to receive dividends as they may be declared by our board of directors. Our common stockholders do not have fixed or cumulative dividend rights. Upon our liquidation or dissolution, holders of our common stock are entitled to share ratably in all of our assets remaining after payment of our liabilities and payment of any preferential liquidation rights of our preferred stock then outstanding. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Cumulative voting for directors is not permitted. Subject to certain exceptions, removal of any director (or of our entire board of directors), approval of amendments to our amended and restated certificate of incorporation and approval of amendments to our amended and restated bylaws generally require the affirmative vote of the holders of two-thirds of the combined voting power of our then-outstanding shares of stock, voting together as a single class. Our amended and restated certificate of incorporation and amended and restated bylaws contain no provision that would require greater than a majority of stockholders to approve mergers, consolidations, sales of a substantial amount of assets, or other similar transactions. Our common stockholders do not have preemptive rights to purchase shares of our common stock. The issued and outstanding shares of our common stock are not subject to any redemption provisions and are not convertible into any other shares of our capital stock. All outstanding shares of our common stock are, and the shares of common stock to be issued in this offering will be, upon payment therefor, fully paid and nonassessable. The rights, preferences and privileges of holders of our common stock are subject to those of the holders of shares of our series A convertible preferred stock and to those of holders of any preferred stock that we may issue in the future.

Preferred Stock Rights and Preferences

      Our amended and restated certificate of incorporation authorizes our board of directors to designate any series of preferred stock, to designate the powers, preferences, and rights of the shares of any series so designated, and to designate the qualifications, limitations, or restrictions of the series itself all without further action by the holders of our common stock. As of the date of this prospectus, our board of directors has authorized, and we have issued, 4,545,454 shares of series A convertible preferred stock.

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      With respect to dividend rights and rights on liquidation, winding-up, and dissolution, the series A convertible preferred stock ranks senior to all classes of our common stock and to any other series of preferred stock that we might issue in the future. Subject to certain exceptions, we may not pay or declare any dividend or other distribution on our common stock or other outstanding equity securities until we have first paid all dividends on the series A preferred stock. Dividends on the series A convertible stock accrue on a daily basis pursuant to a certain formula. In the event of our liquidation, dissolution or winding-up, we must pay the required liquidation preference to the holders of the series A convertible preferred stock before we can make any payment or final distribution of our assets to our common stockholders or any other holders of our equity securities. Upon our acquisition, change of control, or sale of substantially all of our assets, we are required to redeem the series A convertible preferred stock for an amount equal to the liquidation preference. The series A convertible preferred stock liquidation preference is $5.50 per share plus all accrued and unpaid dividends. Shares of series A convertible preferred stock are convertible at the option of the holder into shares of our common stock. Each share of series A convertible preferred stock is convertible into one share of our common stock. Holders of our series A convertible preferred stock are entitled to receive pay-in-kind dividends, compounded quarterly, equal to 5% per share of the original share price through March 31, 2005. Thereafter, pay-in-kind dividends will compound quarterly at 7% per share of the original share price. Circumstances may arise, however, in which a conversion of the series A convertible preferred stock is mandatory. We will at all times reserve from our authorized and unissued common stock a sufficient number of shares to permit conversion in full of the outstanding shares of series A convertible preferred stock. Upon a conversion, we will not issue fractional shares of common stock. The holders of shares of series A convertible preferred stock are entitled to one vote per share, are entitled to vote with the common stockholders as a single class on all matters submitted for a vote of the common stockholders, and are entitled to notice of all stockholders’ meetings. Before we can take certain actions, we must first obtain the approval of at least a majority of the holders of the series A convertible preferred stock voting as a single class. Such actions include 1) amending or repealing our governing documents or certificates of designations in such a way that would adversely affect the rights of the series A convertible preferred stockholders as a class, 2) issuing or creating any securities that are superior to or on parity with the series A convertible preferred stock in any way or issuing any obligation convertible into such securities, 3) increasing the number of authorized shares of series A preferred stock, or 4) declaring any dividend on our common stock.

Anti-Takeover Considerations and Special Provisions of Delaware Law, our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws

Delaware Anti-Takeover Law

      We are subject to the provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate takeovers. This section prevents Delaware corporations, under certain circumstances, from engaging in a “business combination” with:

• a stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an interested stockholder);

• an affiliate of an interested stockholder; or

• an associate of an interested stockholder,

for three years following the date that the stockholder became an interested stockholder. A “business combination” includes a merger or sale of more than 10% of our assets.

      However, the above provisions of Section 203 do not apply if:

• our board of directors approves the transaction that made the stockholder an interested stockholder, prior to the date of that transaction;

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• after the completion of the transaction that resulted in the stockholder becoming an interested stockholder, that stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding shares owned by our officers and directors; or

• on or subsequent to the date of the transaction, the business combination is approved by our board of directors and authorized at a meeting of our stockholders by an affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.

      This statute could prohibit or delay mergers or other change in control attempts, and thus may discourage attempts to acquire us.

Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws

      A number of provisions of our amended and restated certificate of incorporation and our amended and restated bylaws concern matters of corporate governance and the rights of our stockholders. Provisions that grant our board of directors the ability to issue shares of preferred stock and to set the voting rights, preferences and other terms thereof may discourage takeover attempts that are not first approved by our board of directors, including takeovers which may be considered by some stockholders to be in their best interests. Certain provisions could delay or impede the removal of incumbent directors even if such removal would be beneficial to our stockholders. These provisions also could discourage or make more difficult a merger, tender offer or proxy contest, even if they could be favorable to the interests of stockholders, and could potentially depress the market price of our common stock. Our board of directors believes that these provisions are appropriate to protect our interests and the interests of our stockholders.

      Classified Board of Directors. Our amended and restated certificate of incorporation divides our board of directors into three classes. Moreover, no director may be removed prior to the expiration of his or her term except for cause and upon the vote of at least two-thirds of the combined voting power of the then outstanding shares of our common stock. These provisions in our amended and restated certificate of incorporation may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of our company and may maintain the incumbency of our board of directors because this structure generally increases the difficulty of, or may delay, replacing a majority of the directors.

      Meetings of Stockholders. Our bylaws provide that annual meetings of our stockholders may take place at the time and place established by our board of directors. A special meeting of our stockholders may be called at any time by either the chairman of the board, the chief executive officer, the president, or a majority of the board of directors, and the stockholders are entitled to written notice thereof.

      Filling of Board Vacancies. Our amended and restated certificate of incorporation provides that vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by the affirmative vote of a majority of our directors then in office, even though that number may be less than a quorum of the board of directors.

      Amendment of the Certificate of Incorporation. Our amended and restated certificate of incorporation may be amended or repealed by an affirmative vote of at least two-thirds of the combined voting power of the then-outstanding shares of stock entitled to vote on the proposed amendment. In the event a resolution to amend the amended and restated certificate of incorporation is adopted by an affirmative vote of at least 80% of our board of directors, final approval of the amendment only requires an affirmative vote of a majority of the combined voting power then outstanding.

      Amendment of the Bylaws. Our amended and restated bylaws may be amended or repealed by a majority of our board of directors. Any amendment or repeal of our amended and restated bylaws that has not previously received the approval of our board shall require for adoption the affirmative vote of the holders of at least two-thirds of the voting power of our then outstanding shares of stock entitled to vote on any proposed amendment of our amended and restated bylaws.

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Limitations on Liability and Indemnification of Officers and Directors

      Our amended and restated certificate of incorporation includes a provision that eliminates the personal liability of our directors for monetary damages for certain breaches of fiduciary duty as a director to the fullest extent permitted by Delaware law. Our amended and restated certificate of incorporation also provides that we must indemnify our directors and officers to the fullest extent permitted by Delaware law, and we must advance expenses to our directors and officers in connection with a legal proceeding to the fullest extent permitted by Delaware law, subject to certain exceptions. These obligations apply with equal force to any surviving or constituent entities to a merger to which we may be a party. We also carry directors’ and officers’ liability insurance.

      The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation may discourage stockholders from bringing a lawsuit against directors for breaches of their fiduciary duty. They may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though an action of this kind, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholders’ investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. However, we believe these indemnification provisions are necessary to attract and retain qualified directors and officers.

Transfer Agent and Registrar

      StockTrans, Inc. is the transfer agent and registrar for our common stock.

Listing

      Our common stock is listed on the Nasdaq National Market under the trading symbol “PSYS.”

SELLING STOCKHOLDERS

      The following table sets forth the number of shares of common stock beneficially owned by each selling stockholder as of December 31, 2003, the number of shares of common stock covered by this prospectus and the percentage of total shares of common stock that the selling stockholder will beneficially own upon completion of this offering. This table assumes that all of the selling stockholders will offer for sale all of the shares of common stock covered by this prospectus, however we cannot be certain that they will do so.

      The common stock offered by this prospectus may be offered from time to time by the selling stockholders named below, or by any of their respective pledgees, donees, transferees or other successors in interest. The selling stockholders will receive all of the proceeds from the sale of shares of common stock under this prospectus. The amounts and information set forth below are based upon information provided to us by each selling stockholder or its representative, or on our records, as of December 31, 2003, and are accurate to the best of our knowledge. It is possible, however, that the selling stockholders may acquire or dispose of additional shares of common stock from time to time after the date of this prospectus.

      A representative of Salix Ventures II, L.P., Christopher Grant, Jr., is a member of our board of directors. Mr. Grant, who has been a member of our board of directors since our formation in 1997, is the president of Salix Management Corporation, the manager of venture capital partnerships Salix Ventures, L.P., Salix Ventures II, L.P. and Salix Affiliates II, L.P. Mr. Grant also is president of CGJR Capital Management, Inc., which is the general partner of CGJR Health Care Services Private Equities, L.P., CGJR II, L.P. and CGJR/ MF III, L.P.

      A representative of Oak Investment Partners, Ann H. Lamont, is a member of our board of directors. Ms. Lamont, who has been a member of our board of directors since March 2003, is a managing member of Oak Associates X, LLC, the general partner of Oak Investment Partners X, Limited Partnership, and a managing member of Oak X Affiliates, LLC, the general partner of Oak X Affiliates Fund, Limited Partnership. Also, a representative of The 1818 Mezzanine Fund II, L.P., Joseph P. Donlan, is a member of our board of directors. Mr. Donlan, who has been a member of our board of directors since June 2002, is managing director of Brown Brothers Harriman & Co., a private banking firm and co-manager of The 1818 Mezzanine Fund II, L.P., a private equity fund.

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      Information about the selling stockholders may change from time to time. Any changed information will be set forth in prospectus supplements or post-effective amendments, if required by applicable law.

      The selling stockholders listed in the table do not necessarily intend to sell any of their shares. Selling stockholders may decide to sell only a portion of the common stock offered by them pursuant to this prospectus or may decide not to sell any common stock offered by them pursuant to this prospectus. We filed this registration statement, which includes this prospectus, because of registration rights granted to the selling stockholders, not because any of the stockholders had expressed an intent to immediately sell their shares.

      For information on the procedure for sales by selling stockholders, read the disclosure under the heading “Plan of Distribution” below.

					Percentage of
					Common Stock
	Number of Shares of		Number of Shares of		Beneficially
	Common Stock		Common Stock That		Owned Assuming
Name of Selling	Beneficially		May Be Sold		Completion of This
Stockholder	Owned(1)		Pursuant Hereto		Offering
Salix Ventures II, L.P. (2)		808,640		747,229		*
Salix Affiliates II, L.P. (2)		808,640		35,411		*
CGJR Health Care Services Private Equities, L.P. (2)		808,640		23,477		*
CGJR II, L.P. (2)		808,640		11,483		*
CGJR/MF III, L.P. (2)		808,640		6,470		*
The 1818 Mezzanine Fund II, L.P. (3)		190,847		195,660		*
Oak Investment Partners X, Limited Partnership (4)		3,755,284		3,851,374		*
Oak X Affiliates Fund, Limited Partnership (4)		3,755,284		61,828		*

*	Indicates beneficial ownership of less than 1.0% of our outstanding common stock.
(1)	Under SEC rules, the number of shares shown as beneficially owned includes shares of common stock subject to options that currently are exercisable or will be exercisable within 60 days of December 31, 2003. The number of shares shown as beneficially owned also includes shares of common stock into which shares of Series A convertible preferred stock are convertible. Shares of common stock subject to options that are currently exercisable or will be exercisable within 60 days of December 31, 2003 and shares of common stock into which shares of series A convertible preferred stock are presently convertible are considered to be outstanding for the purpose of computing the percentage of the shares held by a holder, but are not considered to be outstanding for computing the percentage held by others.
(2)	Includes options of Mr. Grant, one of our directors, to purchase 3,133 shares. Also includes an aggregate of 750,857 shares of common stock into which the shares of series A convertible preferred stock purchased by Salix Ventures II, L.P. and Salix Affiliates II, L.P. may presently be converted. In addition, this prospectus covers the resale of 31,783 shares which will accrue subsequent to the date hereof. Mr. Grant is the board designee for Salix Ventures II, L.P. and is the president of Salix Management Corporation, the manager of venture capital partnerships Salix Ventures, L.P., Salix Ventures II, L.P. and Salix Affiliates II, L.P. Also, Mr. Grant is the president of CGJR Capital Management, Inc., which is the general partner of each of the three entities in the CGJR Group. The CGJR Group consists of (1) CGJR Health Care Services Private Equities, L.P. which owns 23,477 shares, (2) CGJR II, L.P. which owns 11,483 shares and (3) CGJR/ MF III, L.P. which owns 6,470 shares. Mr. Grant and CGJR Capital Management, Inc. directly own 6,612 and 6,608 shares of our common stock, respectively.
(3)	Includes options granted to Mr. Donlan, one of our directors, to purchase 3,133 shares. Also includes an aggregate of 187,714 shares of common stock into which the shares of series A convertible preferred stock purchased by The 1818 Mezzanine Fund II, L.P. may presently be converted. In addition, this prospectus covers

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the resale of 7,946 shares which will accrue subsequent to the date hereof. Mr. Donlan is the board designee and a co-manager of The 1818 Mezzanine Fund II, L.P.

(4)

Includes options granted to Ms. Lamont, one of our directors, to purchase 1,000 shares. Also includes an aggregate of 3,694,967 shares of common stock into which the shares of series A convertible preferred stock purchased by Oak Investment Partners X, Limited Partnership may presently be converted and an aggregate of 59,317 shares of common stock into which the shares of series A convertible preferred stock purchased by Oak X Affiliates Fund, Limited Partnership may presently be converted. In addition, this prospectus covers the resale of 156,407 shares by Oak Investment Partners X, Limited Partnership and 2,511 shares by Oak X Affiliates Fund, Limited Partnership which will accrue subsequent to the date hereof. Ms. Lamont is a managing member of Oak Associates VI, LLC, the general partner of Oak Investment Partners VI, Limited Partnership; a managing member of Oak Associates VII, LLC, the general partner of Oak Investment Partners VII, Limited Partnership; a managing member of Oak VII Affiliates, LLC, the general partner of Oak VII Affiliates Fund, Limited Partnership; a managing member of Oak Associates X, LLC, the general partner of Oak Investment Partners X, Limited Partnership; and a managing member of Oak X Affiliates, LLC, the general partner of Oak X Affiliates Fund, Limited Partnership. The address for Oak Investment Partners is One Gorham Island, Westport, Connecticut 06880.

      To the extent that any of the selling stockholders identified above are broker-dealers, they are deemed to be, under interpretations of the Securities and Exchange Commission, “underwriters” within the meaning of the Securities Act.

      With respect to selling stockholders that are affiliates of broker-dealers, we believe that such entities acquired their common stock in the ordinary course of business and, at the time of the purchase of the common stock, such selling stockholders had no agreements or understandings, directly or indirectly, with any person to distribute the common stock. To the extent that we become aware that such entities did not acquire their common stock in the ordinary course of business or did have such an agreement or understanding, we will file a post-effective amendment to the registration statement of which this prospectus forms a part to designate such affiliate as an “underwriter” within the meaning of the Securities Act.

      Only selling stockholders identified above who beneficially own the common stock set forth opposite each such selling stockholder’s name in the foregoing table on the effective date of the registration statement of which this prospectus forms a part may sell such securities pursuant to the registration statement. Prior to any use of this prospectus in connection with an offering of common stock by any holder not identified above, this prospectus will be supplemented to set forth the name and aggregate amount of common stock beneficially owned by the selling stockholder intending to sell such common stock and the aggregate number of shares of the common stock to be offered. The prospectus as so supplemented will also disclose whether any selling stockholder selling in connection with such prospectus has held any position or office with, has been employed by or otherwise has had a material relationship with us during the three years prior to the date of the prospectus if such information has not been disclosed herein.

PLAN OF DISTRIBUTION

      The common stock is being registered to permit the resale of such securities by the holders of such securities, including certain of their transferees, from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling stockholders of the common stock. We will bear the fees and expenses incurred in connection with our obligation to register the common stock. These fees and expenses include registration and filing fees, printing expenses, fees and disbursements of our counsel and independent accountants, reasonable fees and expenses of a single special counsel for the selling stockholders not to exceed $10,000, blue sky fees and expenses and the expenses of any special audits incident to or required by any this registration statement or amendment or supplement hereto. However, the selling stockholders will be solely responsible for all fees and expenses of any counsel retained by any of them besides the single special counsel and all fees and expenses of the special counsel in excess of $10,000 and all underwriting discounts and commissions and agent’s commissions, if any. The selling stockholders may offer and sell common stock from time to time in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices.

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      Such sales may be effected by a variety of methods, including the following:

• In market transactions on the Nasdaq National Market;

• In privately negotiated transactions;

• Through options, swaps and derivatives;

• In a block trade in which a broker-dealer will attempt to sell a block of securities as agent but may position and resell a portion of the block as principal to facilitate the transaction (including crosses where the same broker acts as agent for both sides of the transaction);

• Through broker-dealers, which may act as agents or principals;

• Directly to one or more purchasers;

• In short sales or transactions to cover short sales;

• Through agents; and/or

• In any combination of the above or by any other legally available means.

      In connection with the sales of common stock, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the offered securities, short and deliver the common stock to close out such short positions, or loan or pledge the common stock to broker-dealers that in turn may sell such securities.

      If a material arrangement with any underwriter, broker, dealer or other agent is entered into for the sale of any common stock through a secondary distribution or a purchase by a broker or dealer, or if other material changes are made in the plan of distribution of the common stock, a prospectus supplement will be filed, if necessary, under the Securities Act disclosing the material terms and conditions of such arrangement.

      To our knowledge, there are currently no plans, arrangements or understandings between any selling stockholders and any underwriter, broker-dealer or agent regarding the sale of the common stock by the selling stockholders. Selling stockholders may decide to sell only a portion of the common stock offered by them pursuant to this prospectus or may decide not to sell any common stock offered by them pursuant to this prospectus. In addition, any selling stockholders may transfer, devise or give the common stock by other means not described in this prospectus. Any common stock covered by this prospectus that qualifies for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to this prospectus.

      The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholder under this prospectus.

      The selling stockholders and any underwriters, broker-dealers or agents participating in the distribution of the common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any profit on the sale of common stock by the selling stockholders and any commissions received by any such underwriters, broker-dealers or agents may be deemed to be underwriting commissions under the Securities Act. If any selling stockholder were deemed to be an underwriter, that selling stockholder may be subject to statutory liabilities, including, but not limited to, those under Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act.

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      We have advised the selling stockholders that the selling stockholders and any other person participating in the distribution may be subject to the applicable provisions of the Exchange Act and the rules and regulations under the Exchange Act, including, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the common stock by the selling stockholder and any other relevant person. Furthermore, Regulation M may restrict the ability of any person engaged in the distribution of the common stock to engage in market-making activities with respect to the common stock. All of the above may affect the marketability of the common stock and the ability of any person or entity to engage in market-making activities with respect to the common stock.

      Under the securities laws of certain states, the common stock may be sold in those states only through registered or licensed brokers or dealers. In addition, in certain states the common stock may not be sold unless the common stock has been registered or qualified for sale in that state or an exemption from registration or qualification is available and complied with. Each selling stockholder should consult its counsel regarding the application of the applicable states’ blue sky or securities law in connection with sales of the common stock.

      We have agreed to indemnify the selling stockholders against certain losses, liabilities, damages and expenses, including certain liabilities arising from material misstatements or omissions or violations of applicable securities laws in connection with this registration statement of which this prospectus forms a part, and the selling stockholders will be entitled to contribution from us in connection with those liabilities. Each selling stockholder will indemnify us against certain losses, liabilities, damages and expenses from material misstatements or omissions contained in written information provided to us by that selling stockholder, and we will be entitled to contribution from the applicable selling stockholder in connection with those liabilities.

LEGAL MATTERS

      Certain legal matters regarding the common stock will be passed upon for us by Waller Lansden Dortch & Davis, PLLC.

EXPERTS

      Our consolidated financial statements and the combined financial statements of The Brown Schools of Virginia. Inc., Cedar Springs Behavioral Health System, Inc., Healthcare San Antonio, Inc., The Brown Schools of San Marcos, Inc., and The Oaks Psychiatric Hospital, Inc., as of December 31, 2002 and 2001, and for each of the years in the three year period ended December 31, 2002, appearing in our prospectus filed with the Securities and Exchange Commission on December 19, 2003 pursuant to Rule 424(b) of the Securities Act, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon included therein and incorporated herein by reference and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

      The combined financial statements of Cypress Creek Hospital, Inc., West Oaks Hospital, Inc. and Healthcare Rehabilitation Center of Austin, Inc. for each of the years in the period ended December 31, 2000, 1999 and 1998 appearing in our Amendment No. 1 to Registration Statement on Form S-4 (No. 333-90372) have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

      The consolidated financial statements of PMR Corporation as of April 30, 2002 and 2001, and for each of the years in the three year period ended April 30, 2002 appearing in our Amendment No. 1 to Registration Statement on Form S-4 (No. 333-90372) have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

      The financial statements of Holly Hill /Charter Behavioral Health System, L.L.C. for the years ended September 30, 2001 and 2000 appearing in our Amendment No. 1 to Registration Statement on Form S-4 (No. 333-90372) have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included

22

therein and incorporated herein by reference and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

      The consolidated financial statements of Ramsay Youth Services, Inc. as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, appearing in our prospectus filed with the Securities and Exchange Commission on December 19, 2003 pursuant to Rule 424(b) of the Securities Act, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are included therein and incorporated by reference herein (which report expresses an unqualified opinion and includes an explanatory paragraph referring to Ramsay Youth Services, Inc. changing its method of accounting for goodwill and other intangible assets by adopting Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002) and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

      The consolidated financial statements of The Brown Schools of Oklahoma, Inc. incorporated by reference in this prospectus have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their report and are incorporated herein in reliance upon such report given upon authority of said firm as experts in auditing and accounting.

      The consolidated financial statements of Aeries Healthcare Corporation and Subsidiary (d/b/a Riveredge Hospital) as of December 31, 2001 and 2000 and for the year ended December 31, 2001 and the ten month period ended December 31, 2000, appearing in our Amendment No. 1 to Registration Statement on S-4 (No. 333-90372) have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their report and are included in reliance upon such report given upon authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

      We are subject to the information and reporting requirements of the Securities Exchange Act of 1934, under which we file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy this information at the following location of the Securities and Exchange Commission:

Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549

      You also may obtain copies of this information by mail from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1024, Washington, DC 20549, at prescribed rates. Please call the Securities and Exchange Commission at (800) 732-0330 for further information about the Public Reference Room.

      The Securities and Exchange Commission also maintains an internet website that contains reports, proxy statements and other information about issuers that file electronically with the Securities and Exchange Commission. The address of that site is www.sec.gov. SEC filings may also be accessed free of charge through our Internet site at www.psysolutions.com.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

      We are “incorporating by reference” into this prospectus certain information that we file with the Securities and Exchange Commission, which means that we are disclosing important information to you by referring you to those documents. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information contained directly in this prospectus. This prospectus incorporates by reference the documents set forth below that we have previously filed with the Securities and Exchange Commission. These documents contain important information about us.

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(1) our prospectus, filed with the SEC on December 19, 2003, pursuant to Rule 424(b)(4) under the Securities Act;

(2) our Annual Report on Form 10-K for the year ended December 31, 2002;

(3) our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003;

(4) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003;

(5) our Quarterly Report on Form 10-Q for the quarter ended September 30, 2003;

(6) our Current Report on Form 8-K filed with the SEC on January 7, 2003;

(7) our Current Report on Form 8-K filed with the SEC on February 14, 2003;

(8) our Current Report on Form 8-K filed with the SEC on April 9, 2003;

(9) our Current Report on Form 8-K filed with the SEC on April 10, 2003;

(10) our Current Report on Form 8-K filed with the SEC on June 9, 2003;

(11) our Current Report on Form 8-K/A filed with the SEC on June 16, 2003;

(12) our Current Report on Form 8-K filed with the SEC on July 1, 2003;

(13) our Current Report on Form 8-K filed with the SEC on November 6, 2003;

(14) our Current Report on Form 8-K filed with the SEC on December 19, 2003;

(15) our Current Report on Form 8-K filed with the SEC on December 29, 2003;

(16) our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 14, 2003; and

(17) our Registration Statement on Form 10, filed with the SEC on July 31, 1992, including all amendments or reports filed for the purpose of updating the description of our capital stock.

      All documents that we file with the Securities and Exchange Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act from the date of this prospectus to the end of the offering of the common stock under this document shall also be deemed to be incorporated herein by reference. Any statement contained in this prospectus or in a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or any other subsequently filed document that is deemed to be incorporated by reference into this prospectus modifies or supersedes the statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus.

      You may request a copy of these filings, at no cost, by writing or calling us at the following address or telephone number:

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Brent Turner
Vice President, Treasurer and Investor Relations
Psychiatric Solutions, Inc.
113 Seaboard Lane, Suite C-100
Franklin, Tennessee 37067
(615) 312-5700

      Exhibits to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus.

      Information contained on our website, other than the documents filed with the SEC which are specifically incorporated by reference as listed above, is not intended to be incorporated by reference in this prospectus and you should not consider that information a part of this prospectus.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

      The following table sets forth the expenses in connection with the offering described in this Registration Statement:

Securities and Exchange Commission registration fee*	$	7,244
Legal fees and expenses		35,000
Accounting fees and expenses		40,000
Miscellaneous		5,000
TOTAL	$	87,244

* Actual; other expenses are estimated

Item 15. Indemnification of Directors and Officers.

      Pursuant to the provisions of Section 145 of the Delaware General Corporation Law, we are required to indemnify any present or former officer or director against expenses reasonably incurred by the officer or director in connection with legal proceedings in which the officer or director becomes involved by reason of being an officer or director if the officer or director is successful in the defense of such proceedings. Section 145 also provides that we may indemnify an officer or director in connection with a proceeding against which he or she is not successful in defending if it is determined that the officer or director acted in good faith and in a manner reasonably believed to be in or not opposed to our best interests, and in the case of a criminal action, if it is determined that the officer or director had no reasonable cause to believe his or her conduct was unlawful. Liabilities for which an officer or director may be indemnified include amounts paid in satisfaction of settlements, judgments, fines and other expenses incurred in connection with such proceedings. In a stockholder derivative action, no indemnification may be paid in respect of any claim, issue or matter as to which the officer or director has been adjudged to be liable to us (except for expenses allowed by a court).

      Pursuant to the provisions of Article VII of our amended and restated bylaws, we are required to indemnify our officers or directors to a greater extent than under the current provisions of Section 145 of the Delaware General Corporation Law. Except with respect to stockholder derivative actions, our amended and restated bylaws generally state that an officer or director will be indemnified against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by the officer or director in connection with any threatened, pending or completed action, suit or proceeding, provided that (i) such officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to our best interests; and (ii) with respect to criminal actions or proceedings, such officer or director had no reasonable cause to believe his conduct was unlawful. With respect to stockholder derivative actions, our amended and restated bylaws generally state that an officer or director will be indemnified against expenses actually and reasonably incurred by the officer or director in connection with the defense or settlement of any threatened, pending or completed action or suit provided that such officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to our best interests, except that no indemnification (except for indemnification allowed by a court) will be made with respect to any claim, issue or matter as to which such officer or director has been adjudged to be liable for negligence or misconduct in the performance of the officers or director’s duty to us. Our amended and restated bylaws also provide that under certain circumstances, we will advance expenses for the defense of any action for which indemnification may be available.

      Additionally, pursuant our amended and restated certificate of incorporation, a director is not personally liable to us or any of our stockholders for monetary damages for breach of his or her fiduciary duty as a director, except for liability resulting from (i) any breach of the director’s duty of loyalty to us or to our stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law; (iii) violation of Section 174 of the Delaware General Corporation Law, which generally holds directors liable for unlawful

II-1

dividends, stock purchases or stock redemptions in the event of our dissolution or insolvency; or (iv) any transaction from which the director derived an improper personal benefit.

      The indemnification provided by the Delaware General Corporation Law, our amended and restated certificate of incorporation, and our amended and restated bylaws is not exclusive of any other rights to which our directors or officers may HP entitled. We also carry directors’ and officers’ liability insurance.

Item 16. Exhibits and Financial Statement Schedules.

Exhibit
Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation of PMR Corporation, filed with the Delaware Secretary of State on March 9, 1998 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 1998)
3.2	Certificate of Amendment to Amended and Restated Certificate of Incorporation of PMR Corporation, filed with the Delaware Secretary of State on August 5, 2002 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2002)
3.3	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Psychiatric Solutions, Inc., filed with the Delaware Secretary of State on March 21, 2003 (incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement, filed on January 22, 2003)
3.4	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal period ended April 30, 1997)
4.1	Reference is made to Exhibits 3.1 – 3.4.
4.2	Common Stock Specimen Certificate (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)
4.3	Stock Purchase Agreement, dated as of January 6, 2003, by and among Psychiatric Solutions, Inc. and the Purchasers named therein (incorporated by reference to Appendix B of the Company’s Definitive Proxy Statement, filed January 22, 2003)
4.4	Registration Rights Agreement, dated as of January 6, 2003, by and among Psychiatric Solutions, Inc. and the Purchasers named therein (incorporated by reference to Appendix C of the Company’s Definitive Proxy Statement, filed January 22, 2003)
4.5	Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, filed with the Delaware Secretary of State on March 24, 2003 (incorporated by reference to Appendix D of the Company’s Definitive Proxy Statement filed January 22, 2003)

II-2

Exhibit
Number	Description of Document
	L.P. (incorporated by reference to Exhibit 4.5 of the Company’s Current Report on Form 8-K, filed January 7, 2003)
4.6*	Third Amended and Restated Investor Rights Agreement, dated as of January 6, 2003, by and among Psychiatric Solutions, Inc., The 1818 Mezzanine Fund II, L.P. and CapitalSource Holdings LLC.
5.1*	Opinion of Waller Lansden Dortch & Davis, PLLC.
23.1*	Consent of Ernst & Young LLP, Independent Auditors.
23.2*	Consent of Deloitte & Touche LLP, Independent Auditors.
23.3*	Consent of BDO Seidman, LLP, Independent Auditors.
23.4*	Consent of BDO Seidman, LLP, Independent Auditors.
23.5*	Consent of Waller Lansden Dortch & Davis, PLLC (included in Exhibit 5.1)
24*	Power of Attorney (included on the signature page)

* Filed herewith

Item 17. Undertakings.

(a) The undersigned Registrant hereby undertakes:

      (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act of 1933 if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement.

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement;

provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.

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      (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

      (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, the filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

II-4

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonably grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signal on its behalf by the undersigned, thereunto duly authorized in the City of Franklin, State of Tennessee, as of the 31st day of December, 2003.

PSYCHIATRIC SOLUTIONS, INC
By:	/s/ Joey A. Jacobs
	Joey A. Jacobs Chairman, Chief Executive Officer and President

POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Joey A. Jacobs and Brent Turner, and each of them acting individually, his or her true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to sign any and all registration statements relating to the same offering of securities as this Registration Statement that are filed pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and any other regulatory authority, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Joey A. Jacobs Joey A. Jacobs	Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)	December 31, 2003
/s/ Jack E. Polson Jack E. Polson	Chief Accounting Officer (Principal Accounting Officer)	December 31, 2003
/s/ Mark P. Clein Mark P. Clein	Director	December 29, 2003
/s/ Joseph P. Donlan Joseph P. Donlan	Director	December 31, 2003
/s/ Richard D. Gore Richard D. Gore	Director	December 31, 2003
/s/ Christopher Grant, Jr. Christopher Grant, Jr.	Director	December 31, 2003

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Signature	Title	Date
/s/ Ann H. Lamont Ann H. Lamont	Director	December 23, 2003
/s/ Edward K. Wissing Edward K. Wissing	Director	December 31, 2003

II-6

Exhibit
Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation of PMR Corporation, filed with the Delaware Secretary of State on March 9, 1998 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 1998)
3.2	Certificate of Amendment to Amended and Restated Certificate of Incorporation of PMR Corporation, filed with the Delaware Secretary of State on August 5, 2002 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2002)
3.3	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Psychiatric Solutions, Inc., filed with the Delaware Secretary of State on March 21, 2003 (incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement, filed on January 22, 2003)
3.4	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal period ended April 30, 1997)
4.1	Reference is made to Exhibits 3.1 – 3.4.
4.2	Common Stock Specimen Certificate (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002)
4.3	Stock Purchase Agreement, dated as of January 6, 2003, by and among Psychiatric Solutions, Inc. and the Purchasers named therein (incorporated by reference to Appendix B of the Company’s Definitive Proxy Statement, filed January 22, 2003)
4.4	Registration Rights Agreement, dated as of January 6, 2003, by and among Psychiatric Solutions, Inc. and the Purchasers named therein (incorporated by reference to Appendix C of the Company’s Definitive Proxy Statement, filed January 22, 2003)
4.5	Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, filed with the Delaware Secretary of State on March 24, 2003 (incorporated by reference to Appendix D of the Company’s Definitive Proxy Statement filed January 22, 2003) L.P. (incorporated by reference to Exhibit 4.5 of the Company’s Current Report on Form 8-K, filed January 7, 2003)
4.6*	Third Amended and Restated Investor Rights Agreement, dated as of January 6, 2003, by and among Psychiatric Solutions, Inc., The 1818 Mezzanine Fund II, L.P. and CapitalSource Holdings LLC.
5.1*	Opinion of Waller Lansden Dortch & Davis, PLLC.
23.1*	Consent of Ernst & Young LLP, Independent Auditors.
23.2*	Consent of Deloitte & Touche LLP, Independent Auditors.
23.3*	Consent of BDO Seidman, LLP, Independent Auditors.
23.4*	Consent of BDO Seidman, LLP, Independent Auditors.
23.5*	Consent of Waller Lansden Dortch & Davis, PLLC (included in Exhibit 5.1)
24*	Power of Attorney (included on the signature page)

* Filed herewith

EX-4.6

                                                                     EXHIBIT 4.6

                           THIRD AMENDED AND RESTATED

                           INVESTOR RIGHTS AGREEMENT

                           PSYCHIATRIC SOLUTIONS, INC.

                                JANUARY 6, 2003



                                TABLE OF CONTENTS



                                                                                                      PAGE
                                                                                                      ----
                                                                                                
SECTION 1.     GENERAL..................................................................................2
  1.1      Definitions..................................................................................2

SECTION 2.     REGISTRATION.............................................................................4
  2.1      Legend Removal...............................................................................4
  2.2      Demand Registration..........................................................................4
  2.3      Piggyback Registrations......................................................................5
  2.4      Form S-3 Registration........................................................................6
  2.5      Expenses of Registration.....................................................................8
  2.6      Obligations of the Company...................................................................8
  2.7      Reserved....................................................................................10
  2.8      Delay of Registration; Furnishing Information...............................................10
  2.9      Indemnification.............................................................................11
  2.10     Assignment of Registration Rights...........................................................13
  2.11     Amendment of Registration Rights............................................................13
  2.12     Limitation on Subsequent Registration Rights................................................14
  2.13     "Market Stand-Off" Agreement................................................................14
  2.14     Rule 144 Reporting..........................................................................14

SECTION 3.     RESERVED................................................................................15

SECTION 4.     RIGHTS OF FIRST REFUSAL.................................................................15
  4.1      Subsequent Offerings........................................................................15
  4.2      Exercise of Rights..........................................................................15
  4.3      Issuance of Equity Securities...............................................................15
  4.4      Reserved....................................................................................16
  4.5      Transfer of Rights of First Refusal.........................................................16
  4.6      Excluded Securities.........................................................................16

SECTION 5.     RESERVED................................................................................16

SECTION 6.     MISCELLANEOUS...........................................................................17
  6.1      Governing Law...............................................................................17
  6.2      Survival....................................................................................17
  6.3      Successors and Assigns......................................................................17
  6.4      Severability................................................................................17
  6.5      Amendment and Waiver........................................................................17
  6.6      Delays or Omissions.........................................................................17
  6.7      Notices.....................................................................................18
  6.8      Attorneys' Fees.............................................................................18
  6.9      Entire Agreement............................................................................18
  6.10     Titles and Subtitles........................................................................18
  6.11     Counterparts................................................................................18
  6.12     Pipe Registrable Securities.................................................................18
  6.13     Lock-Up Provisions..........................................................................18



                                       i



                           PSYCHIATRIC SOLUTIONS, INC.

              THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

         THIS THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the
"AGREEMENT") is entered into as of the 6th day of January, 2003 by and among
PSYCHIATRIC SOLUTIONS, INC., a Delaware corporation formerly known as PMR
Corporation (the "COMPANY"), THE 1818 MEZZANINE FUND II, L.P. ("1818 FUND") and
CAPITALSOURCE HOLDINGS LLC ("CAPITALSOURCE") (1818 Fund and CapitalSource may be
referred to collectively as the "INVESTORS" and each individually an
"INVESTOR").

                                    RECITALS

         WHEREAS, Psychiatric Solutions Hospitals, Inc. (f/k/a Psychiatric
Solutions, Inc.) ("OLD PSI"), the Investors and other parties thereto are
parties to that certain Second Amended and Restated Investor Rights Agreement,
dated as of June 28, 2002 (as amended through the date hereof, the "PRIOR RIGHTS
AGREEMENT") pursuant to which Old PSI granted, among other things, certain
registration, information and first refusal rights to the parties;

         WHEREAS, pursuant to the terms of that certain Agreement and Plan of
Merger (the "MERGER") between the Company, Old PSI and PMR Acquisition
Corporation dated August 5, 2002, Old PSI became a direct wholly owned
subsidiary of the Company;

         WHEREAS, following the Merger, the parties determined it was
appropriate for the Company to replace Old PSI as a party to this Agreement;

         WHEREAS, the Company and the Investors have agreed to amend the Prior
Rights Agreement to remove the restrictions on transfer contained in Section
2.1;

         WHEREAS, the Company and the Investors acknowledge that all of the
rights and obligations of all of the parties to the Prior Rights Agreement
(other than the Company, Old PSI and the Investors) contained in the Prior
Rights Agreement have expired or been terminated; parties signing this Agreement
other than the Company, Old PSI and the Investors are signing this Agreement
solely in their capacity as "Investors" under the Prior Rights Agreement to
provide their consent to the amendment of the Prior Rights Agreement; and

         WHEREAS, the Company, 1818 Fund, and CapitalSource desire to amend and
restate the Prior Rights Agreement according to the terms set forth herein.

         NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, and for other good and valuable consideration the adequacy of
sufficiency of which are hereby acknowledged, the Company and each of the
Investors mutually agree as follows:


                                       1



SECTION 1. GENERAL

         1.1      DEFINITIONS. As used in this Agreement the following terms
shall have the following respective meanings:

         "1818 FUND SECURITYHOLDERS" means 1818 Fund and any other owner of
warrants issued pursuant to the 1818 Fund Purchase Agreement or shares of Series
A Convertible Preferred Stock of the Company, par value $0.01 per share (the
"SERIES A CONVERTIBLE PREFERRED STOCK") issued to 1818 Fund (or its permitted
assigns) pursuant to the Pipe Stock Purchase Agreement or shares of Common Stock
issued or issuable upon exercise of such warrants or upon conversion of such
shares of Series A Convertible Preferred Stock, and their respective successors
and assigns.

         "1818 FUND PURCHASE AGREEMENT" means that certain Securities Purchase
Agreement between Old PSI and 1818 Fund dated as of June 28, 2002, as amended.

         "CREDIT FACILITY" means the Revolving Credit and Term Loan Agreement,
dated as of November 30, 2001, by and among the Company, such other borrowers
signatory thereto and CapitalSource, as amended.

         "COMMON STOCK" means the shares, par value $0.01 per share, of common
stock of the Company, and each other class of capital stock of the Company into
which such stock is reclassified or reconstituted.

         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

         "FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.

         "HOLDER" means (i) any person owning of record Shares or Registrable
Securities that have not been sold to the public or (ii) any assignee of record
of such Registrable Securities in accordance with Section 2.10 hereof.

         "INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act.

         "PIPE REGISTRABLE SECURITIES" means "Registrable Securities" as defined
in the Pipe Registration Rights Agreement.

         "PIPE REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of January 6, 2003 by and among the Company and the
purchasers named therein.

         "PIPE STOCK PURCHASE AGREEMENT" means that certain Stock Purchase
Agreement dated as of January 6, 2003 by and among the Company, 1818 Fund and
the other purchasers named therein.


                                       2



         "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.

         "REGISTRABLE SECURITIES" means (i) Common Stock issued or issuable upon
exercise of the warrants issued to CapitalSource pursuant to the Credit
Facility; (ii) Common Stock issued upon exercise of any warrants issued pursuant
to the 1818 Fund Purchase Agreement; (iii) Common Stock issued or issuable upon
conversion of the Shares and any other shares of Common Stock acquired by the
Holder; and (iv) any Common Stock issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
or in connection with a recapitalization, merger, consolidation or other
reorganization or otherwise of, such above-described securities. Notwithstanding
the foregoing, Registrable Securities shall not include any securities (x) sold
by a person to the public either pursuant to a registration statement or Rule
144 (unless the purchaser thereof receives "restricted securities" as defined in
Rule 144) or (y) sold in a private transaction in which the transferor's rights
under Section 2 of this Agreement are not assigned; provided, that clause (y)
shall not apply with respect to any transfer of shares of Common Stock described
in clause (ii) of the preceding sentence or pursuant to clause (iii) of the
preceding sentence (with respect to Common Stock issued upon conversion of the
Series A Convertible Preferred Stock) or pursuant to clause (iv) of the
preceding sentence to the extent related to the shares of Common Stock described
in clause (ii) or clause (iii).

         "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares
of Common Stock that are Registrable Securities and are (1) then issued and
outstanding or (2) issuable pursuant to then exercisable or convertible
securities.

         "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with Section 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company and of its independent public accountants (including the
expenses of "cold comfort letters") and the reasonable fees and disbursements of
underwriters (other than Selling Expenses), reasonable fees and disbursements of
a single special counsel for the Holders not to exceed $20,000, blue sky fees
and expenses and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).

         "SEC" or "COMMISSION" means the Securities and Exchange Commission.

         "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.

         "SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.

         "SHARES" shall mean (i) the warrants issued to CapitalSource pursuant
to Credit Facility, (ii) any warrants issued pursuant to the 1818 Fund Purchase
Agreement, (iii) the Series A Convertible Preferred Stock issued to 1818 Fund
(or its permitted assigns) pursuant to the Pipe Stock Purchase Agreement and
(iv) any shares of Common Stock issued or issuable upon


                                       3



conversion or exercise of any of the foregoing, and any other shares of Common
Stock owned by a Holder, whether now owned or hereafter acquired.

SECTION 2. REGISTRATION.

         2.1      LEGEND REMOVAL. The Company agrees to take all necessary
actions (including causing its transfer agent to take such necessary actions) to
arrange for the prompt issuance to each Investor (or any "Investor" under the
Prior Rights Agreement) of a replacement stock certificate not bearing any
restrictive legend relating to the restrictions on transfer contained in Section
2.1 of the Prior Rights Agreement upon presentment of any certificate
representing Shares hereunder or any "Shares" (as such term is defined under the
Prior Rights Agreement) that is imprinted with such a legend.

         2.2      DEMAND REGISTRATION.

                  (a)      Subject to the conditions of this Section 2.2, if
after the date hereof, the Company shall receive a written request from 1818
Fund, acting on behalf of one or more 1818 Fund Securityholders holding
Registrable Securities that the Company file a registration statement under the
Securities Act covering the registration of (i) at least twenty percent (20%) of
the then outstanding Registrable Securities held by the 1818 Fund
Securityholders or (ii) Registrable Securities having an aggregate offering
price to the public in excess of $5,000,000, then the Company shall (x) within
thirty (30) days of the receipt thereof, give written notice of such request to
all Holders and (y) subject to the limitations of this Section 2.2, use its best
efforts to effect, as soon as practicable, but not later than sixty (60) days,
the registration under the Securities Act of all Registrable Securities that the
Holders request to be registered, provided that no Registrable Securities (other
than those held by 1818 Fund Securityholders) shall be included in any such
registration.

                  (b)      If 1818 Fund intends to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
and the Company shall include such information in the written notice referred to
in Section 2.2(a). In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
1818 Fund and such Holder) to the extent provided herein. All Holders proposing
to distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by 1818 Fund (which underwriter or underwriters
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 2.2, if the underwriter advises the Company that
marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so advise
all Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated to the Holders of such Registrable Securities on
a pro rata basis based on the number of Registrable Securities held by all such
Holders (including 1818 Fund); provided that, in no event, shall any Registrable
Securities (other than those held by 1818 Fund Securityholders) be


                                       4



included in any registration pursuant to Section 2.2(a). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.

                  (c)      The Company shall not be required to effect a
registration pursuant to this Section 2.2:

                           (i)      after the Company has effected two (2)
registrations pursuant to Section 2.2(a) for 1818 Fund, on behalf of the 1818
Fund Securityholders, and in each case such registrations have been declared or
ordered effective; provided, however, that a registration requested pursuant to
this Section 2.2 shall not be deemed to have been effected: (A) unless a
registration statement with respect thereto has become effective and remained
effective in compliance with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such registration
statement until the earlier of (x) such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement and (y) 180 days after the effective date of such registration
statement; (B) if after it has become effective, such registration is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason not attributable
to the Holders of Registrable Securities participating in such registration and
has not thereafter become effective; or (C) if the conditions to closing
specified in the underwriting agreement, if any, entered into in connection with
such registration are not satisfied or waived, other than by reason of a failure
on the part of the Holders of Registrable Securities participating in such
registration;

                           (ii)     during the period starting with the date of
filing of, and ending on the date one hundred eighty (180) days following the
effective date of the registration statement pertaining to the Initial Offering;
provided that the Company makes reasonable good faith efforts to cause such
registration statement to become effective; or

                           (iii)    if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 2.2, a certificate
signed by the Chairman of the Board stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be effected at
such time, in which event the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the request of
1818 Fund; provided that such right to delay a request shall be exercised by the
Company not more than once in any twelve (12) month period.

         2.3      PIGGYBACK REGISTRATIONS. The Company shall notify all Holders
of Registrable Securities in writing at least thirty (30) days prior to the
filing of any registration statement under the Securities Act for purposes of a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations, acquisitions or other
transactions under Rule 145 of the Securities Act and any registration pursuant
to Section 2.2(a)) and will afford each such Holder an opportunity to include in
such registration statement all or part of such Registrable Securities held by
such Holder. Each Holder desiring to include in any such registration statement
all or any part of the Registrable Securities held by it shall, within fifteen
(15) days after receipt of the


                                       5



above-described notice from the Company, so notify the Company in writing, and
the Company will use its best efforts to cause to be included in such
registration all of the Registrable Securities which such Holder requests. Such
notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.

                  (A)      UNDERWRITING.

                           (i)      If the registration statement under which
the Company gives notice under this Section 2.3 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant to
this Section 2.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company.

                           (ii)     Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders; and third, to any
stockholder of the Company (other than a Holder) on a pro rata basis. Except as
may be required pursuant to the remainder of this subsection (ii), no such
reduction shall reduce the securities being offered by the Company for its own
account to be included in the registration and underwriting. In no event shall
the amount of securities of the selling Holders included in the registration be
reduced below thirty percent (30%) of the total amount of securities included in
such registration, unless such offering is the Initial Offering and such
registration does not include shares of any other selling stockholders, in which
event any or all of the Registrable Securities of the Holders may be excluded in
accordance with the first sentence of this subsection (ii). In no event will
shares of any other selling stockholder be included in such registration which
would reduce the number of shares which may be included by Holders without the
written consent of Holders of not less than a majority of the Registrable
Securities proposed to be sold in the offering.

                  (b)      RIGHT TO TERMINATE REGISTRATION. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 2.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The Company
shall give prompt written notice of its determination to terminate or withdraw
any such registration to each Holder of Registrable Securities participating in
such registration. The Registration Expenses of such terminated or withdrawn
registration shall be borne by the Company in accordance with Section 2.5
hereof.

         2.4      FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of Registrable Securities a written request or requests
that the Company effect a


                                       6



registration on Form S-3 (or any successor to Form S-3) or any similar
short-form registration statement and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:

                  (a)      promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and

                  (b)      as soon as practicable, but not later than forty-five
(45) days, effect such registration and all such qualifications and compliances
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Holder's or Holders' Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within fifteen (15) days
after receipt of such written notice from the Company; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.4:

                           (i)      if Form S-3 (or any successor or similar
form) is not available for such offering by the Holders;

                           (ii)     if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $1,000,000;

                           (iii)    if the Company shall furnish to the Holders
a certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 2.4; provided, that such
right to delay a request shall be exercised by the Company not more than once in
any twelve (12) month period; or

                           (iv)     in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.

                  (c)      Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders, but not later than forty-five (45)
days, and shall keep such Form S-3 registration statement effective and updated
from the date such Form S-3 registration statement is declared effective until
such time as the Registrable Securities included in such registration statement
cease to be Registrable Securities.

                  (d)      If the Holder or Holders of Registrable Securities
requesting registration pursuant to this Section 2.4 intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.4 and the Company shall include such information in the written
notice referred to in Section 2.4(a). In such event, the right of any Holder
to include its


                                       7



Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
such Holder and the Holder, or a majority in interest of the Holders, of
Registrable Securities requesting registration pursuant to this Section 2.4) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Holder, or a majority in interest of the Holders, of
Registrable Securities requesting registration pursuant to this Section 2.4
(which underwriter or underwriters shall be reasonably acceptable to the
Company). Notwithstanding any other provision of this Section 2.4, if the
underwriter advises the Company that marketing factors require a limitation of
the number of securities to be underwritten (including Registrable Securities)
then the Company shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares that
may be included in the underwriting shall be allocated, first, to the Holders of
such Registrable Securities on a pro rata basis based on the number of
Registrable Securities held by all such Holders (including the Holder or Holders
of Registrable Securities requesting registration pursuant to this Section 2.4)
and second, to any stockholder of the Company (other than a Holder) on a pro
rata basis. Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from the registration.

                  (e)      No registration requested pursuant to this Section
2.4 shall be deemed a "demand registration" pursuant to Section 2.2.

         2.5      EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities (including Registrable Securities) so
registered on a pro rata basis based on the number of shares so registered. The
Company shall not, however, be required to pay for expenses of any registration
proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been
subsequently withdrawn by the 1818 Fund (in the case of Section 2.2) or the
Holder or Holders of Registrable Securities requesting registration pursuant to
Section 2.4 (in the case of Section 2.4) unless the withdrawal is based upon
material adverse information concerning the Company of which the 1818 Fund (in
the case of Section 2.2) or the Holder or Holders of Registrable Securities
requesting registration pursuant to Section 2.4 (in the case of Section 2.4)
were not aware at the time of such request. If the Holders are required to pay
the Registration Expenses, such expenses shall be borne by the holders of
securities (including Registrable Securities) requesting such registration in
proportion to the number of shares for which registration was requested. If the
Company is required to pay the Registration Expenses of a withdrawn offering,
then the Holders shall not forfeit their rights pursuant to Section 2.2 or
Section 2.4 to a demand registration.

         2.6      OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:

                  (a)      Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
best efforts to cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities


                                       8



registered thereunder, keep such registration statement effective for up to 180
days or, if earlier, until the Holder or Holders have completed the distribution
related thereto.

                  (b)      Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.

                  (c)      Furnish to the Holders such number of copies of the
registration statement (and each amendment and supplement thereto) and the
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

                  (d)      Use all reasonable best efforts to register and
qualify the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Holders, and do any and all other acts and things that may be
necessary or desirable to enable the Holders to consummate the public sale or
other disposition in such states of the Registrable Securities owned by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.

                  (e)      In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement, provided that the Holders shall not be
obligated to enter into any such underwriting agreement if the indemnification
provisions thereof are more burdensome on such Holder than those contained
herein or if they are being asked to make representations and warranties about
the Company of any kind whatsoever except representations and warranties with
respect to the identity of such Holder, such Holder's intended method of
distribution, such Holder's good title to the Registrable Securities being sold,
the absence of any encumbrances with respect to the Registrable Securities being
sold, such Holder's authority to sell such Registrable Securities, or any other
representations required by applicable law.

                  (f)      Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.

                  (g)      Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities


                                       9



becomes effective, (i) an opinion, dated as of such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.

                  (h)      As of the effective date of any registration
statement relating thereto, list all Registrable Securities covered by such
registration statement on each securities exchange on which similar securities
issued by the Company are then listed, and if not so listed, so long as the
Company meets the applicable listing standards, to be listed on the New York
Stock Exchange or the Nasdaq National Market.

                  (i)      Provide and cause to be maintained a transfer agent
and registrar for all Registrable Securities covered by each registration
statement from and after a date not later than the effective date of such
registration.

                  (j)      Keep the Holders advised in writing as to the
initiation and progress of any registration under this Agreement, allow such
Holders and their counsel to participate in the preparation of the registration
statement and to have access to all relevant corporate records, documents and
information, and include in such registration statement such information as such
Holders may reasonable request.

                  (k)      Cause representatives of the Company to participate
in any "road show" or "road shows" reasonably requested by any underwriter of an
underwritten or "best efforts" offering of any Registrable Securities.

                  (1)      Otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and, if required,
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve (12) months, but not
more than eighteen (18) months, beginning with the first full calendar month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section ll(a) of the Securities Act
and Rule 158 promulgated thereunder, and promptly furnish to each such seller of
Registrable Securities a copy of any amendment or supplement to such
registration statement or prospectus.

         2.7      RESERVED. DELAY OF REGISTRATION; FURNISHING INFORMATION. It
shall be a condition precedent to the obligations of the Company to take any
action pursuant to Section 2.2, 2.3 or 2.4 that the selling Holders shall
furnish to the Company such information regarding themselves, the Registrable
Securities held by them and the intended method of disposition of such
securities as shall be required to effect the registration of their Registrable
Securities; provided, that any such information shall be given or made by a
selling Holder without representation or warranty of any kind whatsoever except
representations with respect to the identity of such Holder, such Holder's


                                       10



Registrable Securities and such Holder's intended method of distribution or any
other representations required by applicable law.

                  (b)      The Company shall have no obligation with respect to
any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 2.2 or Section 2.4,
whichever is applicable.

         2.9      INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:

                  (a)      To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, members, agents,
affiliates, officers, directors and legal counsel of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, or otherwise,
including, without limitation, the reasonable fees and expenses of legal counsel
(including those incurred in connection with a claim for indemnity hereunder)
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus, final
prospectus or summary prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or (iii) any violation or alleged violation by the Company of the Securities
Act, the Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state securities
law in connection with the offering covered by such registration statement; and
the Company will reimburse each such Holder, partner, member, agent, affiliate,
officer or director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
that the indemnity agreement contained in this Section 2.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, member, officer, director,
underwriter or controlling person of such Holder.

                  (b)      To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the


                                       11



meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall the
liability of any Holder hereunder and any indemnity under this Section 2.9(b)
exceed the net proceeds from the offering received by such Holder.

                  (c)      Promptly after receipt by an indemnified party under
this Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.9.
Notwithstanding the foregoing, in any action or proceeding in which both the
Company and an indemnified party is, or is reasonably likely to become, a party,
such indemnified party shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such action or proceeding
if, in the reasonable opinion of counsel to such indemnified party, (a) there
are or may be legal defenses available to such indemnified party or to other
indemnified parties that are different from or additional to those available to
the Company or (b) any conflict or potential conflict exists between the Company
and such indemnified party that would make such separate representation
advisable; provided, however, that in no event shall the Company be required to
pay fees and


                                       12



expenses under this Section 2.9 for more than one firm of attorneys in any
jurisdiction in any one legal action or group of related legal actions.

                  (d)      If the indemnification provided for in this Section
2.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution by
a Holder hereunder exceed the proceeds from the offering received by such
Holder; provided, further, that each Holder's obligations to contribute as
provided in this Section 2.9(d) are several in proportion to the relative value
of their respective Registrable Securities covered by such registration
statement and not joint.

                  (e)      The obligations of the Company and Holders under this
Section 2.9 shall survive completion of any offering of Registrable Securities
in a registration statement. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.

         2.10     ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2: (A) may
be transferred or assigned by a Holder (other than 1818 Fund Securityholder who
is a Holder) to a transferee or assignee of Registrable Securities which (i) is,
with respect to a Holder, a stockholder, subsidiary, parent, general partner,
limited partner, retired partner, member or former member or a liquidating trust
for the benefit of any such entity, or (ii) is a Holder's family member or trust
for the benefit of an individual Holder; and (B) shall be deemed to be
transferred automatically with any Registrable Security that is transferred by
an 1818 Fund Securityholder who is a Holder; provided, however, that, in the
case of clauses (A) and (B), (x) the transferor shall, upon such transfer,
furnish to the Company written notice of the name and address of such transferee
or assignee and the securities with respect to which such registration rights
are being assigned and (y) such transferee shall agree to be subject to all
restrictions set forth in this Agreement.

         2.11     AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Section 2 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and 1818 Fund. Any
amendment or waiver effected in accordance with this Section 2.11 shall be


                                       13



binding upon each Holder and the Company. By acceptance of any benefits under
this Article II, Holders of Registrable Securities hereby agree to be bound by
the provisions hereunder.

         2.12     LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date
of this Agreement, the Company shall not, without the prior written consent of
1818 Fund, enter into any agreement with any holder or prospective holder of any
securities of the company that would grant such holder registration rights
senior to or inconsistent with those granted to the Holders hereunder.

         2.13     "MARKET STAND-OFF" AGREEMENT. If requested by the Company or
the representative of the underwriters of Common Stock (or other securities) of
the Company, each Holder shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Holder (other
than those included in the registration) for a period specified by the
representative of the underwriters not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that:

                  (a)      such agreement shall apply only to the Company's
Initial Offering; and

                  (b)      all officers and directors of the Company and all
employees of the Company who are holders of at least one percent (1%) of the
Company's voting securities enter into similar agreements.

The obligations described in this Section 2.13 shall not apply to a registration
relating solely to employee benefit plans on Form S-l or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day period.
The Company shall use its best efforts to obtain agreements not to sell from all
future holders of in excess of one percent (1%) of the Company's voting
securities which are not less favorable to the Company that the foregoing.

         2.14     RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:

                  (a)      Make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its securities
to the general public;

                  (b)      File with the SEC in a timely manner, all reports and
other documents required of the Company under the Exchange Act; and

                  (c)      So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any


                                       14



time after it has become subject to such reporting requirements); a copy of the
most recent annual or quarterly report of the Company; and such other reports
and documents as a Holder may reasonably request in availing itself of any rule
or regulation of the SEC allowing it to sell any such securities without
registration.

SECTION 3. RESERVED. RIGHTS OF FIRST REFUSAL. SUBSEQUENT OFFERINGS. Until the
earlier of (x) June 28, 2007 and (y) the date 1818 Fund owns less than 50% of
any shares of Common Stock issued to 1818 Fund pursuant to the 1818 Fund
Purchase Agreement (assuming exercise of any warrants issued to 1818 Fund),
each 1818 Fund Securityholder shall have a right of first refusal to purchase
its pro rata share of all Equity Securities (as defined below) that the Company
may, from time to time, propose to sell and issue after the date of this
Agreement, other than the Equity Securities excluded by Section 4.6 hereof.
Each 1818 Fund Securityholder's pro rata share is equal to a percentage
determined by dividing (x) the number of shares of Common Stock (treating all
Shares as if converted or exercised into Common Stock) which each 1818 Fund
Securityholder is deemed to be a holder of immediately prior to the issuance of
such Equity Securities to (y) the total number of shares of outstanding Common
Stock (treating all Shares as if converted or exercised into Common Stock)
immediately prior to the issuance of the Equity Securities. The term "EQUITY
SECURITIES" shall mean (i) any Common Stock, Preferred Stock or other equity
security of the Company, (ii) any security convertible, with or without
consideration, into any Common Stock, Preferred Stock or other equity security
(including any option to purchase such a convertible security), (iii) any
equity security carrying any warrant or right to subscribe to or purchase any
Common Stock, Preferred Stock or other equity security or (iv) any such warrant
or right.

         4.2      EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each 1818 Fund Securityholder written notice of
its intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each 1818 Fund
Securityholder shall have fifteen (15) days from the giving of such notice to
agree to purchase its pro rata share of the Equity Securities for the price and
upon the terms and conditions specified in the notice by giving written notice
to the Company and stating therein the quantity of Equity Securities to be
purchased. Notwithstanding the foregoing, the Company shall not be required to
offer or sell such Equity Securities to any 1818 Fund Securityholder who would
cause the Company to be in violation of applicable federal securities laws by
virtue of such offer or sale.

         4.3      ISSUANCE OF EQUITY SECURITIES.

                  (a)      If not all of the 1818 Fund Securityholders elect to
purchase their pro rata share of the Equity Securities, then the Company shall
promptly notify in writing the 1818 Fund Securityholders who do so elect and
shall offer such 1818 Fund Securityholders the right to acquire such
unsubscribed shares. The 1818 Fund Securityholders shall have fifteen (15) days
after receipt of such notice to notify the Company of their election to purchase
all or a portion thereof of the unsubscribed shares. If the 1818 Fund
Securityholders exercise in full the rights of first refusal, the closing of the
purchase of the Equity Securities subscribed for by the 1818 Fund
Securityholders under this Section 4 shall be held at the executive office of
the Company on the 30th day after the giving of the notice pursuant to Section
4.2 or Section 4.3, as the case may be, or at such other time and place the
parties to the transaction may agree. If the 1818 Fund


                                       15



Securityholders fail to exercise in full the rights of first refusal, the
Company shall have ninety (90) days thereafter to sell the Equity Securities in
respect of which the 1818 Fund Securityholders' rights were not exercised, at a
price per share no less than ninety five percent (95%) of the price per share
specified in the notice delivered pursuant to Section 4.2 and upon other general
terms and conditions materially no more favorable to the purchasers thereof than
specified in the Company's notice to the 1818 Fund Securityholders pursuant to
Section 4.2 hereof. If the Company has not sold such Equity Securities within
ninety (90) days of the notice provided pursuant to Section 4.2, the Company
shall not thereafter issue or sell any Equity Securities, without first offering
such securities to the 1818 Fund Securityholders in the manner provided above.

                  (b)      At the closing of the purchase of the Equity
Securities subscribed for by the 1818 Fund Securityholders under this Section 4,
the Company shall deliver certificates representing the Equity Securities, and
such Equity Securities shall be issued free and clear of all liens and
encumbrances (other than those attributable to actions by the purchasers
thereof) and the Company shall so represent and warrant, and further represent
and warrant (in addition to other customary representations and warranties) that
such Equity Securities shall be, upon issuance thereof to the 1818 Fund
Securityholders and after payment therefor, duly authorized, validly issued,
fully paid and non-assessable. Each 1818 Fund Securityholder purchasing Equity
Securities shall deliver at the closing payment in full in immediately available
funds for the Equity Securities purchased by him or it. At such closing all of
the parties to the transaction shall execute such additional documents as are
customary for transactions of this type.

         4.4      RESERVED.

         4.5      TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal of any 1818 Fund Securityholder under this Section 4 may be transferred
or assigned by any 1818 Fund Securityholder to any transferee or assignee of
Shares.

         4.6      EXCLUDED SECURITIES. The rights of first refusal established
by this Section 4 shall have no application to any of the following Equity
Securities:

                  (a)      any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination approved by the Board of Directors, including at least one member of
the Board of Directors designated by the Investors;

                  (b)      shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;

                  (c)      warrants issued pursuant to the 1818 Fund Purchase
Agreement; and

                  (d)      shares of Common Stock issued or issuable upon (i)
conversion of any shares of Series A Convertible Preferred Stock issued pursuant
to the Pipe Stock Purchase Agreement, or (ii) exercise of any warrants issued
pursuant to the 1818 Fund Purchase Agreement.

SECTION 5. RESERVED.


                                       16



SECTION 6. MISCELLANEOUS.

         6.1      GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied to agreements among
Delaware residents entered into and to be performed entirely within Delaware.

         6.2      SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.

         6.3      SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Shares or Registrable Securities from time to
time; provided, however, that prior to the receipt by the Company of adequate
written notice of the transfer of any Shares or Registrable Securities
specifying the full name and address of the transferee, the Company may deem and
treat the person listed as the holder of such shares in its records as the
absolute owner and holder of such shares for all purposes, including the payment
of dividends or any redemption price.

         6.4      SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

         6.5      AMENDMENT AND WAIVER. Except as otherwise expressly provided,
this Agreement may be amended or modified only upon the written consent of the
Company and 1818 Fund.

                  (a)      Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of 1818 Fund.

                  (b)      Notwithstanding the foregoing, this Agreement may be
amended with only the written consent of the Company and 1818 Fund to include
additional purchasers of Shares as "INVESTORS," "HOLDERS" and parties hereto.

         6.6      DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be


                                       17

effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to Holders,
shall be cumulative and not alternative.

         6.7      NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature pages hereof
or Exhibit A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.

         6.8      ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.

         6.9      ENTIRE AGREEMENT. This Agreement, together with the exhibits
hereto, 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 and therein. There are no restrictions, promises, representations,
warranties or undertakings, other than those set forth herein or therein. This
Agreement, together with the exhibits hereto, supersedes all prior agreements
and understandings among the parties with respect to such subject matter,
including, without limitation, the Prior Rights Agreement.

         6.10     TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.

         6.11     COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

         6.12     LOCK-UP PROVISIONS.

         Notwithstanding anything contained in this Agreement to the contrary,
nothing contained in this Agreement shall be deemed in any way to supercede any
of the provisions contained in Section 4(1) of the Pipe Stock Purchase Agreement
with respect to the Series A Preferred Stock.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]


                                       18


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above written.

COMPANY:                                       INVESTORS:

PSYCHIATRIC SOLUTIONS, INC.                    CAPITALSOURCE HOLDINGS LLC



By: /s/ Joey A. Jacobs                         By: /s/ Keith D. Reuben
   ---------------------------                     -----------------------------
   Joey A. Jacobs
Its: President                                 Title:  Director


OLD PSI:

PSYCHIATRIC SOLUTIONS
HOSPITALS, INC.



By: /s/ Joey A. Jacobs
   ---------------------------
   Joey A. Jacobs
Its: President

    [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]


                                       A-1


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above written.

                                               INVESTORS:



                                               /s/ Joey A. Jacobs
                                               ---------------------------------
                                               Joey A. Jacobs

    [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]


                                       A-2


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above written.

                                             INVESTORS:

                                             CLAYTON ASSOCIATES, LLC



                                             By: /s/ Bill F. Cook
                                                 -------------------------------
                                             Title:
                                                    ----------------------------

    [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]


                                      A-3


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above written.

                                              INVESTORS:

                                              THE 1818 MEZZANINE FUND II, L.P.
                                              BY: BROWN BROTHERS HARRIMAN & CO.,
                                                  ITS GENERAL PARTNER



                                              By: /s/ Joseph P. Donlan
                                                  ------------------------------
                                                  Name:  Joseph P. Donlan
                                                  Title: Managing Director

    [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]


                                      A-4


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above written.

                                           INVESTORS:

                                           F.C.A. VENTURE PARTNERS II, L.P.
                                           BY: CLAYTON DC VENTURE CAPITAL GROUP,
                                                 LLC, GENERAL PARTNER


                                           By: /s/ Bill F. Cook
                                              ----------------------------------
                                           Name: Bill F. Cook
                                                 -------------------------------
                                           Title:
                                                 -------------------------------

    (SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]


                                      A-5


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT AS of the date first above written.

                                                INVESTORS:

                                                F.C.A. VENTURE PARTNERS I, L.P.
                                                BY: DC INVESTMENTS LLC,
                                                    GENERAL PARTNER



                                                By: /s/ D. Robert Cants, III
                                                   -----------------------------
                                                Name:  D. Robert Cants, III
                                                     ---------------------------
                                                Title: Manager
                                                       -------------------------

    [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]


                                      A-6


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above written.

                                             INVESTORS:

                                             OAK INVESTMENT PARTNERS VII,
                                             LIMITED PARTNERSHIP



                                             By: /s/ Ann H. Lamont
                                                 -------------------------------
                                             Name: Ann H. Lamont
                                                   -----------------------------
                                             Title:
                                                    ----------------------------

MANAGING MEMBER OF OAK ASSOCIATES VII, LLC,
        THE GENERAL PARTNER OF
       OAK INVESTMENT PARTNERS VII,
          LIMITED PARTNERSHIP

    [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]



                                      A-7


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above written.


                                             INVESTORS:

                                             OAK VII AFFILIATES FUND,
                                             LIMITED PARTNERSHIP



                                             By: /s/ Ann H. Lamont
                                                 -------------------------------
                                             Name: Ann H. Lamont
                                                   -----------------------------
                                             Title:
                                                    ----------------------------

MANAGING MEMBER OF OAK VII AFFILIATES, LLC,
          THE GENERAL PARTNER OF
              AFFILIATES FUND,
            LIMITED PARTNERSHIP

    [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]


                                      A-8


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above written.

                                           INVESTORS:

                                           SOUTH POINTE VENTURE PARTNERS, L.P.



                                           By: /s/ David S. Heer
                                               ---------------------------------
                                           Name: David S. Heer
                                                 -------------------------------
                                           Title: General Partner
                                                  ------------------------------

    [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]


                                      A-9


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above written.

                               INVESTORS:

                               ACACIA VENTURE PARTNERS, L.P.



                               Acacia Venture Partners, L.P.
                               By: Acacia Management, L.P., It's General Partner

                               By: /s/ David S. Heer
                                   ---------------------------------------------
                                   David S. Heer, General Partner

    [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]


                                      A-10


         IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above written.

                                            INVESTORS:

                                            CGJR HEALTH CARE SERVICES,
                                              PRIVATE EQUITIES, L.P.
                                            CGJR II, L.P.
                                            CGJR/MF III, L.P.
                                            BY: CGJR CAPITAL MANAGEMENT, INC.
                                                AS GENERAL PARTNER OF ALL 3
                                                OF THE ENTITIES ABOVE



                                            By: /s/ Christopher Grant Jr.
                                                --------------------------------
                                            Name: Christopher Grant Jr.
                                                  ------------------------------
                                            Title: President
                                                   -----------------------------

    [SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

EX-5.1

                                                                     EXHIBIT 5.1

                   [WALLER LANSDEN DORTCH & DAVIS LETTERHEAD]

                                December 30, 2003

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.  20549

                  Re:    Psychiatric Solutions, Inc.
                         Registration Statement on Form S-3

Ladies and Gentlemen:

         We are acting as counsel to Psychiatric Solutions, Inc., a Delaware
corporation (the "Registrant"), in connection with the preparation of a
Registration Statement on Form S-3 (the "Registration Statement") to be filed
with the Securities and Exchange Commission registering the resale of up to
4,932,932 shares (the "Shares") of common stock, $.01 par value per share, of
the Registrant to be sold by certain selling stockholders of the Registrant. The
Shares include 4,891,502 shares (the "Series A Shares") issuable upon conversion
of the Registrant's series A convertible preferred stock in accordance with that
certain Stock Purchase Agreement, dated January 6, 2003, between the Registrant
and certain of the selling stockholders (the "Agreement").

         In connection with this opinion, we have examined and relied upon such
records, documents and other instruments as in our judgment are necessary and
appropriate in order to express the opinions hereinafter set forth and have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
document submitted to us as certified or photostatic copies.

         Based upon the foregoing, we are of the opinion that (i) the Series A
Shares will be, when issued upon conversion of the series A convertible
preferred stock in accordance with the provisions of the Agreement, validly
issued, fully paid and non-assessable; and (ii) the Shares (other than the
Series A Shares) are validly issued, fully paid and non-assessable.

         We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the reference to us under the
caption "Legal Matters" in the prospectus included in the Registration
Statement.

                                        Very truly yours,



                                        Waller Lansden Dortch & Davis,
                                        A Professional Limited Liability Company

EX-23.1

                                                                    EXHIBIT 23.1

                         CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Psychiatric
Solutions, Inc. for the registration of 4,932,932 shares of common stock and to
the incorporation by reference therein of our reports dated (i) March 7, 2003,
with respect to the consolidated financial statements of Psychiatric Solutions,
Inc. included in Psychiatric Solutions, Inc.'s Annual Report (Form 10-K) for the
year ended December 31, 2002; and (ii) May 2, 2003, with respect to the combined
financial statements of The Brown Schools of Virginia, Inc., Cedar Springs
Behavioral Health System, Inc., Healthcare San Antonio, Inc., The Brown Schools
of San Marcos, Inc., and The Oaks Psychiatric Hospital, Inc. for each of the
years in the three-year period ended December 31, 2002 included in Psychiatric
Solutions, Inc.'s Registration Statement (Form S-2), filed November 3, 2002;
(iii) June 4, 2002, with respect to the financial statements of Holly
Hill/Charter Behavioral Health System, L.L.C. for each of the years in the
two-year period ended September 30, 2001 and (iv) May 31, 2002, with respect to
the combined financial statements of Cypress Creek Hospital, Inc., West Oaks
Hospital, Inc., and Healthcare Rehabilitation of Austin, Inc. for each of the
years in the three year period ended December 31, 2000 both included in
Psychiatric Solutions, Inc.'s Registration Statement (Amendment No. 1 to Form
S-4), filed on July 11, 2002; and (v) June 21, 2002, with respect to the
consolidated financial statements and schedule of PMR Corporation included in
PMR Corporation's Annual Report (Form 10-K) for the year ended April 30, 2002,
filed with the Securities and Exchange Commission.

                                        /s/ Ernst & Young LLP

December 29, 2003
Nashville, Tennessee

EX-23.2

                                                                    EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Registration Statement of
Psychiatric Solutions, Inc. on Form S-3 of our report for Ramsay Youth Services,
Inc. dated March 14, 2003 (April 8, 2003 as to Note 19) (which report expresses
an unqualified opinion and includes an explanatory paragraph referring to Ramsay
Youth Services, Inc. changing its method of accounting for goodwill and other
intangible assets by adopting Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, effective January 1, 2002), appearing
in the Prospectus, filed on Form S-2 with the SEC on December 19, 2003, pursuant
to Rule 424(b)(4) under the Securities Act and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.


/s/ Deloitte & Touche LLP

Certified Public Accountants
Miami, Florida

December 31, 2003

EX-23.3

                                                                    EXHIBIT 23.3

                         INDEPENDENT AUDITORS' CONSENT

To the Board of Directors
The Brown Schools of Oklahoma, Inc.

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement on Form S-3 of our report
dated May 22, 2003 relating to the consolidated financial statements of The
Brown Schools of Oklahoma, Inc. and subsidiary appearing in the Current Report
on Form 8-K/A filed by Psychiatric Solutions, Inc. on June 16, 2003.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP

Houston, Texas
December 29, 2003

EX-23.4

                                                                    EXHIBIT 23.4

                          INDEPENDENT AUDITORS' CONSENT

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement on Form S-3 of our report
dated February 14, 2002, except for notes 9c and 10 which are as of July 1,
2002, relating to the consolidated financial statements of Aeries Healthcare
Corporation (d/b/a Riveredge Hospital), as of December 31, 2001 and 2000 and for
the year ended December 31, 2001 and the ten month period ended December 31,
2000.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP

Chicago, Illinois
December 29, 2003