PSYCHIATRIC SOLUTIONS, INC.

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

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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.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with 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.

This is an offering of shares of common stock of Psychiatric Solutions, Inc. Of the 3,000,000 shares being offered, we are selling 2,850,000 shares and the selling stockholders identified in this prospectus are selling 150,000 shares. We will not receive any of the proceeds from the sale of shares by the selling stockholders.

Our common stock is traded on the Nasdaq National Market under the symbol “PSYS.” On December 13, 2004, the last reported sale price of our common stock on the Nasdaq National Market was $33.00 per share.

Investing in the common stock involves risks that are described in the “Risk Factors” section beginning on page 8 of this prospectus.

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.

You should rely only on the information contained in this prospectus. We have not authorized any person to provide you with any information different from what is contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of the prospectus or of any sale of the common stock.

PROSPECTUS SUMMARY

The following summary highlights information about us and the offering of our common stock contained elsewhere or incorporated by reference in this prospectus. It is not complete and may not contain all of the information that may be important to you in making a decision to purchase our common stock. For a more complete understanding of us and our offering of common stock, we urge you to read this entire prospectus carefully, including the “Risk Factors” section of this prospectus and the documents identified in the “Incorporation of Documents by Reference” section of this prospectus. Throughout this prospectus (unless the context otherwise requires), when we refer to “Psychiatric Solutions,” “us,” “we” or “our,” we are describing Psychiatric Solutions, Inc. together with its subsidiaries and other operations.

Psychiatric Solutions

We are a leading provider of inpatient behavioral health care services in the United States. Through our inpatient division, we operate 34 owned or leased inpatient behavioral health care facilities with approximately 4,000 beds in 19 states. In addition, through our inpatient management contract division, we manage 41 behavioral health care units for third parties and eight behavioral health care facilities for government agencies. We believe that our singular focus on the provision of behavioral health care services allows us to operate more efficiently and provide higher quality care than our competitors. We primarily operate in underserved markets with limited competition and favorable demographic trends.

Since we acquired our first inpatient behavioral health care facility in 2001, our operations, revenues and earnings have experienced significant growth. The number of inpatient behavioral health care facilities we own or lease has increased from four facilities as of December 31, 2001 to 34 facilities as of September 30, 2004. We generated revenue of $284.9 million and $352.0 million, respectively, for the year ended December 31, 2003 and the nine months ended September 30, 2004.

Our inpatient behavioral health care facilities accounted for approximately 85.5% of our revenue for the nine months ended September 30, 2004. These inpatient facilities offer a wide range of inpatient behavioral health care services. We offer these services through a combination of inpatient behavioral facilities and residential treatment centers. Our inpatient behavioral facilities provide the most intensive level of care, including 24-hour skilled nursing observation and care, daily interventions and oversight by a psychiatrist and intensive, highly coordinated treatment by a physician-led team of mental health professionals. Our residential treatment centers, or RTCs, offer longer term treatment programs primarily for children and adolescents with long-standing acute behavioral health problems. Our RTCs provide physician-led, multi-disciplinary treatments that address the overall medical, psychiatric, social and academic needs of the patient.

Our inpatient management contract division accounted for approximately 14.5% of our revenue for the nine months ended September 30, 2004. This portion of our business involves the development, organization and management of behavioral health care programs within medical surgical hospitals and the management of inpatient behavioral health care facilities for government agencies, as well as a contract to provide case management services in and around Nashville, Tennessee. We provide our customers with a variety of management options, including (1) clinical and management infrastructure, (2) personnel recruitment, staff orientation and supervision, (3) corporate consultation and (4) performance improvement plans. Our broad range of services can be customized into individual programs that meet specific facility and community requirements. We are dedicated to providing quality programs with integrity, innovation and flexibility.

Recent Developments

The Centers for Medicare and Medicaid Services, or CMS, released a final rule on November 3, 2004 establishing a prospective payment system for inpatient psychiatric facilities, which was required by the Balanced Budget Refinement Act of 1999. The new per diem prospective payment system will replace the existing cost-based payment system effective for cost-reporting periods beginning on or after January 1, 2005, and will be phased in over a three-year transition period. We expect the prospective payment system to have a favorable impact on our future results of operations.

Our Industry

An estimated 22% of the U.S. adult population and 10% of U.S. children and adolescents suffer from a diagnosable mental disorder in a given year. Based on the 2002 U.S. census, these figures translate to approximately 50 million Americans. In addition, four of the ten leading causes of disability in the United States are mental disorders.

The behavioral health care industry is extremely fragmented with only a few large national providers. During the 1990s, the behavioral health care industry experienced a significant contraction following a long period of growth. Between 1990 and 1999, nearly 300 inpatient behavioral health care facilities, accounting for over 40% of available beds, were closed. The reduction was largely driven by third party payors who decreased reimbursement, implemented more stringent admission criteria and decreased the authorized length of stay. We believe this reduced capacity has resulted in an underserved patient population.

Reduced capacity, coupled with mental health parity legislation providing for greater access to mental health services, has resulted in favorable industry fundamentals. Behavioral health care providers have enjoyed significant improvement in reimbursement rates, increased admissions and stabilized lengths of stay. According to the National Association of Psychiatric Health Systems, payments for the inpatient care of behavioral health and addictive disorders have increased nationwide. Inpatient admissions increased from an average of approximately 2,350 in 2001 to an average of approximately 2,500 in 2002, while the average occupancy rates stabilized at approximately 74% for both 2001 and 2002 after being approximately 69% in 2000. Following a rapid decrease during the early 1990s, inpatient average length of stay stabilized between 9 and 10 days from 1997 to 2002. In 2002, the inpatient average length of stay was 10.3 days. The average RTC net revenue per day in 2002 was $288 for hospital-based RTC units and $273 for freestanding RTC facilities. The average number of admissions for hospital-based RTC units was 171 for 2002. The average number of admissions for freestanding RTC facilities was 213 for 2002. The average occupancy rate for hospital-based RTC units increased from 73.0% in 2001 to 74.9% in 2002, with an average length of stay of 165.5 days in 2002. The average occupancy rate for freestanding RTC facilities was 82.6% in 2002, with an average length of stay of 187.3 days in 2002. These favorable trends have resulted in high demand for inpatient behavioral health care services.

Our Competitive Strengths

We believe the following competitive strengths contribute to our strong market share in each of our markets and will enable us to continue to successfully grow our business and increase our profitability:

• Singular focus on inpatient behavioral health care — We focus exclusively on the provision of inpatient behavioral health care services. We believe this allows us to operate more efficiently and provide higher quality care than our competitors. In addition, we believe our focus and reputation have helped us to develop important relationships and extensive referral networks within our markets and to attract and retain qualified behavioral health care professionals.

• Strong and sustainable market position — Our inpatient facilities have an established presence in each of our markets, and we believe that the majority of our owned and leased


		inpatient facilities have the leading market share in their respective service areas. Our relationships and referral networks would be difficult, time-consuming and expensive for new competitors to replicate. In addition, many of the states in which we operate require a certificate of need to open a behavioral health care facility, which may be difficult to obtain and may further preclude new market participants.

	•	Demonstrated ability to identify and integrate acquisitions — We attribute part of our success in integrating acquired inpatient facilities to our rigorous due diligence review of these facilities prior to completing the acquisitions as well as our ability to retain key employees at the acquired facilities. We employ a disciplined acquisition strategy that is based on defined criteria including quality of service, return on invested capital and strategic benefits. We also have a comprehensive post- acquisition strategic plan to facilitate the integration of acquired facilities that includes improving facility operations, retaining and recruiting psychiatrists and expanding the breadth of services offered by the facilities.

	•	Diversified payor mix and revenue base — As we have grown our business, we have focused on diversifying our sources of revenue. For the nine months ended September 30, 2004, we received 36% of our revenue from Medicaid, 28% from multiple commercial and private payors, 15% from various state and local government payors, 9% from various third parties and 12% from Medicare. As we receive Medicaid payments from more than 40 states, we do not believe that we are significantly affected by changes in reimbursement policies in any one state. Substantially all of our Medicaid payments relate to the care of children and adolescents. Management believes that children and adolescents are a patient class that is less susceptible to reductions in reimbursement rates. For the nine months ended September 30, 2004, no single inpatient facility represented more than 7% of our revenue.

	•	Experienced management team — Our senior management team has an average of 20 years of experience in the health care industry. Joey A. Jacobs, our Chairman, President and Chief Executive Officer, has over 29 years experience in various capacities in the health care industry. Jack R. Salberg, our Chief Operating Officer, has more than 30 years of operational experience in both profit and non-profit health care sectors. Our senior management operates as a cohesive, complementary group and has extensive operating knowledge of our industry and understanding of the regulatory environment in which we operate. Our senior managers employ conservative fiscal policies and have a successful track record in both operating our core business and integrating acquired assets.

	•	Consistent free cash flow and minimal capital requirements — We generate consistent free cash flow due to the profitable operation of our business, our low capital expenditure requirements and through the active management of our working capital. As the behavioral health care business does not require the procurement and replacement of expensive medical equipment, our capital expenditure requirements are less than that of other facility-based health care providers. Historically, our capital expenditures have amounted to less than 2% of our revenue. Our accounts receivable management is less complex than acute care providers because there are fewer billing codes for inpatient behavioral health care facilities.

Our Growth Strategy

We have experienced significant growth in our operations as measured by the number of our facilities, admissions, patient days, revenue and net income. We intend to continue to successfully grow our business and increase our profitability by improving the performance of our inpatient facilities and through strategic acquisitions. The principal elements of our growth strategy are to:

• Continue to Drive Same-Facility Growth — We increased our revenue by approximately 8.5% for the nine months ended September 30, 2004 as compared to our revenue for the nine months ended September 30, 2003 through same-facility growth. We intend to continue


		to increase our same-facility growth by increasing our admissions and patient days and obtaining annual reimbursement rate increases. We plan to accomplish these goals by:

— building relationships that enhance our presence in local and regional markets;

— developing formal marketing initiatives and expanding referral networks;

— continuing to provide high quality service; and

— expanding our services and developing new services to take advantage of increased demand in select markets where we operate.

• Grow Through Strategic Acquisitions — Our industry is highly fragmented and we plan to selectively pursue the acquisition of additional inpatient behavioral health care facilities. There are approximately 500 acute and residential treatment facilities in the United States and the top three providers operate approximately 20% of these facilities. We believe there are a number of acquisition candidates available at attractive valuations, and we have a number of potential acquisitions that are in various stages of development and consideration. We believe our focus on inpatient behavioral health care provides us with a strategic advantage when assessing a potential acquisition. We employ a disciplined acquisition strategy that is based on defined criteria, including quality of service, return on invested capital and strategic benefits.

• Enhance Operating Efficiencies — Our management team has extensive experience in the operation of multi-facility health care services companies. We intend to focus on improving our profitability by optimizing staffing ratios, controlling contract labor costs and reducing supply costs through group purchasing. We believe that our focus on efficient operations increases our profitability and will attract qualified behavioral health care professionals and patients.

Psychiatric Solutions is a Delaware corporation. Our principal executive office is located at 840 Crescent Centre Drive, Suite 460, Franklin, Tennessee 37067, and our telephone number is (615) 312-5700. Our website can be found at www.psysolutions.com. Information on our website is not deemed to be part of this prospectus.

The Offering


Common stock offered by us		2,850,000 shares

Common stock offered by selling stockholders		150,000 shares


Common stock to be outstanding after the offering		20,003,391 shares(1)


Use of proceeds		We intend to use the net proceeds from shares sold by us in the offering to redeem $50.0 million of our 10 5/8% senior subordinated notes due June 15, 2013 (including a redemption premium of $5.3 million) and to pay down a portion of our revolving credit facility. We will not receive any proceeds from the sale of shares by the selling stockholders. See “Use of Proceeds.”

Nasdaq National Market symbol		“PSYS”

Risk Factors		For a discussion of certain risks that should be considered in connection with an investment in our common stock, see “Risk Factors.”

(1)

Based on 17,104,228 shares of common stock outstanding on December 13, 2004, which reflects the conversion of all of our outstanding series A convertible preferred stock into shares of our common stock. Also includes 49,163 shares issuable upon exercise of outstanding stock options by certain selling stockholders who intend to exercise such options and sell such shares in the offering. Unless otherwise indicated, information contained in this prospectus regarding the number of shares of common stock outstanding after this offering does not include the following:

• shares issuable by us upon exercise of the underwriters’ overallotment option;

• 1,793,426 shares issuable upon exercise of outstanding stock options granted under our Amended and Restated Psychiatric Solutions, Inc. Equity Incentive Plan and our Amended and Restated Psychiatric Solutions, Inc. Outside Directors’ Non-Qualified Stock Option Plan with a weighted average exercise price of $13.93 per share;

• 11,391 shares issuable upon exercise of outstanding stock options granted separately from our stock option plans with a weighted average exercise price of $28.10; and

• 3,666 shares issuable upon the exercise of outstanding warrants with a weighted average exercise price of $14.69 per share.

Summary Historical Financial and Operating Data

The following table sets forth summary historical financial and operating data of Psychiatric Solutions for, or as of the end of, each of the nine months ended September 30, 2004 and 2003 and each of the years ended December 31, 2003, 2002 and 2001. The summary historical financial data as of and for each of the years ended December 31, 2003, 2002 and 2001 were derived from the audited consolidated financial statements of Psychiatric Solutions incorporated by reference in this prospectus. The summary historical financial data as of and for the nine months ended September 30, 2004 and 2003 were derived from the unaudited condensed consolidated financial statements of Psychiatric Solutions incorporated by reference in this prospectus. These unaudited condensed consolidated financial statements include all adjustments necessary (consisting of normal recurring accruals) for a fair presentation of the financial position and the results of operations for these periods. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2004. You should read this table in conjunction with Psychiatric Solutions’ consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” incorporated by reference in this prospectus.



			Nine Months Ended
			September 30,				Year Ended December 31,

			2004(1)		2003(1)		2003(1)		2002		2001


			(Dollars in thousands, except per share
			and other operating data)
Revenue			$	351,957	$	188,455	$	284,946	$	113,912	$	43,999
Costs and expenses:
	Salaries, wages and employee benefits			191,368		96,494		147,069		62,326		26,183
	Other operating expenses			107,624		65,319		96,735		35,716		11,322
	Provision for bad debts			8,080		3,875		6,315		3,681		662
	Depreciation and amortization			7,096		3,621		5,734		1,770		945
	Interest expense			14,077		9,363		14,781		5,564		2,660
	Other expenses			6,407		5,159		5,271		178		1,237

		Total costs and expenses		334,652		183,831		275,905		109,235		43,009
Income from continuing operations before income taxes			$	17,305	$	4,624	$	9,041	$	4,677	$	990

Net income			$	10,434	$	2,613	$	5,216	$	5,684	$	2,578

Net income available to common stockholders			$	9,778	$	2,121	$	4,405	$	5,684	$	2,578

Basic earnings per share			$	0.72	$	0.26	$	0.53	$	0.93	$	0.51

Diluted earnings per share			$	0.60	$	0.24	$	0.44	$	0.86	$	0.49

Balance Sheet Data (End of Period):
Cash			$	17,722	$	9,996	$	44,954	$	2,392	$	1,262
Working capital (deficit)				36,621		31,722		67,153		2,369		(3,624	)
Property and equipment, net				194,043		134,692		149,589		33,547		17,980
Total assets				453,876		289,303		347,658		90,138		54,294
Total debt				244,352		174,300		175,003		43,822		36,338
Stockholders’ equity				119,024		34,713		91,328		30,549		9,238
Other Operating Data:
Number of facilities				34		22		24		5		4
Number of licensed beds				4,331		2,886		3,128		699		489
Admissions				35,897		18,041		35,824		14,737		3,027
Patient days				722,801		333,361		678,506		145,575		30,511
Average length of stay				20		18		19		10		10

(footnote on following page)

Investing in our common stock involves a high degree of risk. You should consider carefully each of the following risks and all other information contained 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.

The health care industry is 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.

Among these laws are the anti-kickback provision of the Social Security Act (the “Anti-kickback Statute”) and the provision of the Social Security Act commonly known as the “Stark Law.” These laws impact the relationships that we may have with physicians and other referral sources. The Office of Inspector General (“OIG”) of the Department of Health and Human Services (“HHS”) 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 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.

If we fail to comply with the Anti-kickback Statute, the Stark Law or other applicable laws and regulations, we could be subjected to penalties, including criminal penalties, civil penalties (including the loss of our licenses to operate one or more inpatient facilities), and exclusion of one or more of our inpatient facilities from participation in the Medicare, Medicaid and other federal and state health care programs. In addition, if we do not operate our inpatient facilities in accordance with applicable law, our

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 inpatient 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.

There are currently numerous legislative and regulatory initiatives at the federal and state levels addressing patient privacy and security concerns. In particular, federal regulations issued under the Health Insurance Portability Accountability Act of 1996 contain provisions that have required, and in the future may require, our facilities to implement costly new computer systems and to adopt business procedures designed to protect the privacy and security of each of their patients’ individually identifiable health and related financial information. Compliance with the privacy regulations was required on April 14, 2003 for most health care organizations, including our inpatient facilities. The privacy regulations have had a financial impact on the health care industry because they impose extensive new administrative requirements, restrictions on the use and disclosure of individually identifiable patient health and related financial information, provide patients with new rights with respect to their health information and require our inpatient facilities to enter into contracts extending many of the privacy regulation requirements to third parties who perform functions on our behalf involving health information.

On February 20, 2003, HHS issued final security regulations. Compliance with these security regulations is required by April 21, 2005 for most health care organizations, including our inpatient facilities. These security regulations require our inpatient facilities to implement administrative, physical and technical safeguards to protect the integrity, confidentiality and availability of electronically received, maintained or transmitted patient individually identifiable health and related financial information. We cannot predict the total financial or other impact of these regulations on our business. Compliance with these regulations requires substantial expenditures, which could negatively impact our financial results. In addition, our management has spent, and may spend in the future, substantial time and effort on compliance measures.

On August 17, 2000, HHS issued regulations requiring most health care organizations, including our inpatient facilities, to use standard data formats and code sets by October 16, 2003 when electronically transmitting information in connection with several types of transactions, including health claims, health care payment and remittance advice and health claim status transactions. We have implemented or upgraded computer systems, as appropriate, at our inpatient facilities and at our corporate headquarters to comply with the new transaction and code set regulations and have tested these systems with several of our payers.

Violations of the privacy, security and transaction regulations could subject our inpatient facilities to civil penalties of up to $25,000 per calendar year for each provision contained in the privacy, security and transaction regulations that is violated and criminal penalties of up to $250,000 per violation for certain other violations. Since there is no history of enforcement efforts by the federal government at this time, it is not possible to ascertain the likelihood of enforcement efforts in connection with these regulations or the potential for fines and penalties which may result from the violation of the regulations.

Both federal and state government agencies as well as private payors have heightened 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;

	•	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 health care 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 or our executives or managers could result in significant liabilities or penalties as well as adverse publicity.

Facilities acquired by us may have unknown or contingent liabilities, including liabilities related to patient care and liabilities for failure to comply with health care laws and regulations, which could result in large claims and significant defense costs. Although we generally seek indemnification covering these matters from prior owners of facilities we acquire, material liabilities for past activities of acquired facilities may exist and such prior owners may not be able to satisfy their indemnification obligations. We are also susceptible to being named in claims brought related to patient care and other matters at inpatient facilities owned by third parties and operated by us.

To protect ourselves from the cost of these claims, professional malpractice liability insurance and general liability insurance coverage is maintained in amounts and with deductibles common in the industry. Due to our acquisition of Ramsay Youth Services, Inc. (“Ramsay”), we have two distinct insurance programs that cover our inpatient facilities. For our inpatient facilities that were not acquired from Ramsay, we have obtained professional and general liability insurance for claims in excess of $3 million with an insured limit of $10 million. In December 2003, we increased this insured limit to $20 million. For the inpatient facilities acquired from Ramsay, we have obtained professional and general liability insurance for claims in excess of $500,000 with an insured limit of $25 million. These policies include umbrella coverage of $20 million and $25 million, respectively. The self-insured reserves for professional and general liability risks are calculated based on historical claims, demographic factors, industry trends, severity factors, and other actuarial assumptions calculated by an independent third party. The self-insured reserve is discounted to its present value using a 5% discount rate. This estimated accrual for professional and general liabilities could be significantly affected should current and future occurrences differ from historical claim trends and expectations. We have established a captive insurance company to manage this additional self-insured retention for our inpatient facilities not acquired from Ramsay. While claims are monitored closely when estimating professional and general liability accruals, the complexity of the claims and wide range of potential outcomes often hampers timely adjustments to the assumptions used in these estimates. There are no assurances that our insurance will cover all claims (e.g., claims for punitive damages) or that claims in excess of our insurance coverage will not arise. A successful lawsuit against us that is not covered by, or is in excess of, our insurance coverage may have a material adverse

A large portion of our revenue comes from the Medicare and Medicaid programs. In recent years, federal and state governments have made significant changes in these programs.

On November 3, 2004, CMS announced final regulations adopting a prospective payment system for services provided by inpatient behavioral health care hospitals. Inpatient behavioral health care facilities historically have been reimbursed based on reasonable cost, subject to a discharge ceiling. For cost reporting periods after January 1, 2005, CMS will begin to phase in over a three-year period a prospective payment system which will pay inpatient behavioral health care facilities a per diem base rate. During the three-year phase-in period, CMS has agreed to a stop loss provision which will guarantee that a provider will receive at least 70% of the amount it would have been paid under the cost-based reimbursement system.

The per diem base rate will be adjusted by factors that influence the cost of an individual patient’s care, such as each patient’s diagnosis related group, certain other medical and psychiatric comorbidities (i.e., other coexisting conditions that may complicate treatment), and age. The per diem amounts are calculated in part based on national averages, but will be adjusted for specific facility characteristics that increase the cost of patient care. The base rate per diem is intended to compensate a facility for costs incurred to treat a patient with a particular diagnosis, including nearly all labor and non-labor costs of furnishing covered inpatient behavioral health care services as well as routine, ancillary and capital costs. Payment rates for individual inpatient facilities will be adjusted to reflect geographic differences in wages and will allow additional outlier payments for expenses associated with extraordinary cases. Additionally, rural providers will receive an increased payment adjustment. Medicare will pay this per diem amount, as adjusted, regardless of whether it is more or less than a hospital’s actual costs. The per diem will not, however, include the costs of bad debt and certain other costs that are paid separately. Please see http://www.cms.hhs.gov/providers/ipfpps for additional information.

Future federal and state legislation may reduce the payments we receive for our services.

Insurance and managed care companies and other third parties from whom we receive payment are increasingly attempting to control health care costs by requiring that facilities discount their fees in exchange for exclusive or preferred participation in their benefit plans. This trend may continue and may reduce the payments received by us for our services.

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 to acquire inpatient facilities in growing markets. Some inpatient 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. In addition, some competitors are owned by governmental agencies or not-for-profit corporations supported by endowments and charitable contributions, and can finance capital expenditures on a tax-exempt basis. Any or all of these factors may impede our business strategy.

As of September 30, 2004, our total consolidated indebtedness was approximately $244.4 million.


	•	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.

Our acquisition program requires substantial capital resources. Likewise, the operation of existing inpatient facilities requires ongoing capital expenditures for renovation, expansion and the upgrade of equipment and technology.

We may not receive additional financing on satisfactory terms. In addition, our level of indebtedness at any time may restrict our ability to borrow additional funds. If we are not able to obtain financing, then we may not be in a position to consummate acquisitions or undertake capital expenditures.

Hospital acquisitions generally require a longer period to complete than acquisitions in many other industries and are subject to additional regulatory uncertainty. Many states have adopted legislation regarding the sale or other disposition of facilities operated by not-for-profit entities. In other states that do not have specific legislation, the attorneys general have demonstrated an interest in these transactions under their general obligations to protect charitable assets from waste. These legislative and administrative efforts focus primarily on the appropriate valuation of the assets divested and the use of the proceeds of

We acquired 19 inpatient facilities in 2003 and have acquired 10 inpatient facilities thus far in 2004.

This expansion exposes us to additional business and operating risk and uncertainties, including:


	•	our ability to effectively manage the expanded activities;

	•	our ability to realize our investment in the increased number of inpatient facilities;

	•	our exposure to unknown liabilities; and

	•	our ability to meet contractual obligations.

If we are unable to manage this expansion efficiently or effectively, or are unable to attract and retain additional qualified management personnel to run the expanded operations, it could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to maintain or increase the profitability of, or operating cash flows at, any existing hospital or other acquired inpatient facility, effectively integrate the operations of any acquisitions or otherwise achieve the intended benefit of our growth strategy. To the extent that we are unable to enroll in third party payor plans in a timely manner following an acquisition, we may experience a decrease in cash flow or profitability.

Our business depends upon the efforts and success of the physicians who provide health care services at our inpatient facilities and the strength of the 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 inpatient 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 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, Chief Executive Officer, and Jack Salberg, Chief Operating Officer, 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 us.

We are evaluating our internal controls systems in order to allow management to report on, and our registered independent public accounting firm to attest to, our internal controls, as required by Section 404 of the Sarbanes-Oxley Act of 2002. We are performing the system and process evaluation and testing required in an effort to comply with the management certification and auditor attestation requirements of Section 404. As a result, we are incurring additional expenses and a diversion of management’s time. While we anticipate being able to fully implement the requirements relating to internal controls and all other aspects of Section 404 in a timely fashion, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of same on our operations since there is no precedent available by which to measure compliance adequacy. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission. Any such action could adversely affect our financial results and the market price of our common stock.

Following this offering, the price at which our common stock will trade may be volatile. The public offering price may not be indicative of the price at which our common stock will trade in the future. 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 after this offering 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;

	•	changes in market conditions in the mental health or behavioral health care industries;

	•	timing of acquisitions;

	•	ratings by equity analysts and rating agencies; and

	•	general economic and stock market conditions.

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.

Sales of a substantial number of our shares of common stock in the public market following this offering, or the perception that these sales could occur, could substantially decrease the market price of our common stock. All the shares sold in this offering will be freely tradeable, other than those shares sold to our affiliates. Substantially all of the shares of our common stock held by our affiliates are available for resale in the public market in compliance with Rule 144 or Rule 701 under the Securities Act of 1933, subject to the restrictions on sale or transfer during the lock-up period following the date of this prospectus. As restrictions on resale end, 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.

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 and prevent investors from reselling their shares of our common stock at or above the offering price. 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;

	•	timing and rates of reimbursement;

	•	same-facility results;

	•	timing of acquisitions;

	•	costs related to acquisitions of technologies or businesses; and

	•	general economic factors.

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.

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.

This prospectus includes or incorporates by reference “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 incorporated by reference in this prospectus or included under the headings “Prospectus Summary” and “Use of Proceeds.” When used or incorporated by reference in this prospectus, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “seeks,” “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 operating 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 or incorporated by reference 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 and the documents we incorporate by reference, including under the heading “Risk Factor” in this prospectus.

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 or incorporated by reference 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 estimate that our net proceeds from the sale of the shares of common stock we are offering will be approximately $84.0 million, after deducting the underwriting discounts and approximately $175,000 of estimated offering expenses payable by us. We will not receive any of the net proceeds from the sale of shares by the selling stockholders. See “Principal and Selling Stockholders.”

We intend to use approximately $55.3 million of the net proceeds from our sale of shares of common stock to redeem $50.0 million of our 10 5/8% senior subordinated notes due June 15, 2013 and pay a redemption premium of $5.3 million. We expect to issue an irrevocable notice of redemption to the noteholders as soon as practicable upon completion of the offering. The balance of the net proceeds will be used to pay down a portion of our revolving line of credit with Bank of America, N.A. that matures in January 2007. As of September 30, 2004, the weighted average interest rate under the revolving line of credit was 4.8%. From time to time, we have drawn on our revolving line of credit to finance the acquisition of inpatient behavioral health care facilities. Pending the application of the net proceeds, we expect to invest the proceeds in short-term, interest bearing, investment-grade marketable securities or money market obligations.

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.

At the close of business on December 13, 2004, there were approximately 222 holders of record of our common stock.

The following table sets forth the cash and cash equivalents and our consolidated capitalization as of September 30, 2004. You should read this table in conjunction with our consolidated financial statements and the related notes incorporated by reference in this prospectus. See “Summary — Summary Historical Financial and Operating Data” and “Use of Proceeds” included elsewhere in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference in this prospectus.


(1)	The mortgage loans insured by the U.S. Department of Housing and Urban Development (“HUD”) are secured by real estate located at Holly Hill Hospital in Raleigh, North Carolina, West Oaks Hospital in Houston, Texas and Riveredge Hospital near Chicago, Illinois. Interest accrues on the Holly Hill, the West Oaks and the Riveredge HUD loans at 5.95%, 5.85% and 5.65% and principal and interest are payable in 420 monthly installments through December 2037, September 2038 and December 2038, respectively.

(2)	During 2003, we sold 4,545,454 shares of our series A convertible preferred stock to certain investors in a private placement for $25.0 million. During the nine months ended September 30, 2004, 2,727,272 shares of our series A convertible preferred stock were converted into 2,871,028 shares of our common stock. Subsequent to September 30, 2004, the remaining 1,818,182 shares of our series A convertible preferred stock were converted into 1,942,442 shares of our common stock. We currently do not have any shares of Series A convertible preferred stock outstanding.

The following table sets forth information with respect to ownership of our common stock as of December 2, 2004 by:


	•	each beneficial owner of more than 5% of our common stock;

	•	each of our directors;

	•	certain of our current executive officers;

	•	each of our selling stockholders; and

	•	all of our directors and executive officers as a group.

To our knowledge, unless otherwise indicated, each stockholder listed below has sole voting and investment power with respect to the shares beneficially owned. We are unaware of any person, other than those listed below, who beneficially owns more than 5% of the outstanding shares of our common stock. All computations are based on 17,104,228 shares of common stock outstanding on December 13, 2004 and 20,003,391 outstanding following the offering.


	(2)	Mr. Jacobs is our Chairman, Chief Executive Officer and President. Includes options to purchase 263,646 shares.

	(3)	Includes options to purchase 6,250 shares.

	(4)	Mr. Salberg is our Chief Operating Officer. Includes options to purchase 82,133 shares.

	(5)	Includes options to purchase 38,241 shares.

	(6)	Includes options to purchase 23,250 shares.

	(7)	Includes options to purchase 2,933 shares.


	(8)	Mr. Wissing is one of our directors. Includes options to purchase 11,436 shares.


	(9)	The number of shares beneficially owned by Ms. Lamont includes options granted to Ms. Lamont to purchase 3,000 shares of common stock. Includes 178 shares of common stock by Oak Investment Partners X, Limited Partnership and 9 shares of common stock owned by Oak X Affiliates Fund, Limited Partnership. Ms. Lamont is the general partner of Oak Investment Partners X, Limited Partnership and the general partner of Oak X Affiliates Fund, Limited Partnership. Ms. Lamont disclaims beneficial ownership of such securities, other than 13,034 shares of our common stock owned directly and options to purchase 3,000 shares of our common stock.


(10)	Includes options to purchase 3,000 shares.

(11)	Includes options to purchase 48,810 shares. Mr. Clein, one of our directors and, formerly, the chief executive officer of PMR Corporation, plans to sell up to 15,000 shares of our common stock if the underwriters exercise their overallotment option.

(12)	Includes options to purchase 1,000 shares.


(13)	Includes options to purchase 483,529 shares.

Our amended and restated certificate of incorporation provides that our authorized capital stock consists of 48,000,000 shares of common stock, $0.01 par value, and 6,000,000 shares of preferred stock, $0.01 par value. As of December 13, 2004, there were 17,104,228 shares of our common stock outstanding and no shares of preferred stock outstanding.

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 capital 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 any preferred stock that we may issue in the future.

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. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control. We previously authorized and issued series A convertible preferred stock to certain investors. All of the outstanding shares of series A preferred stock have been converted into shares of our common stock. We have no present plan to issue any additional shares of preferred stock.

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

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.


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

	•	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.

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 amended and restated 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 that 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 a 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.

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 that these indemnification provisions are necessary to attract and retain qualified directors and officers.

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

We intend to offer the shares through the underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc. are acting as representatives of the underwriters named below. Subject to the terms and conditions described in a purchase agreement among us, the selling stockholders and the underwriters, we and the selling stockholders have agreed to sell to the underwriters, and the underwriters severally have agreed to purchase from us and the selling stockholders, the number of shares listed opposite their names below.

The underwriters have agreed to purchase all of the shares sold under the purchase agreement if any of these shares are purchased. If an underwriter defaults, the purchase agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreement may be terminated.

We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, including the validity of the shares, and other conditions contained in the purchase agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

The representatives have advised us and the selling stockholders that the underwriters propose initially to offer the shares to the public at the public offering price on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $ per share to other dealers. After this public offering, the public offering price, concession and discount may be changed.

The following table shows the public offering price, underwriting discount and proceeds before expenses to us and to the selling stockholders. The information assumes either no exercise or full exercise by the underwriters of their overallotment option.

The expenses of the offering, not including the underwriting discount, are estimated at $175,000 and are payable by us.

The underwriters may also purchase up to an additional 450,000 shares from us and one of our directors at the purchase price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the purchase agreement, to purchase a number of additional shares proportionate to that underwriter’s initial amount reflected in the above table.

We, our executive officers and directors and the selling stockholders and their affiliates have agreed, with certain exceptions, not to sell or transfer any common stock for 75 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch and Citigroup. Specifically, we and these other individuals have agreed not to directly or indirectly


	•	offer, pledge, sell or contract to sell any common stock;

	•	sell any option or contract to purchase any common stock;

	•	purchase any option or contract to sell any common stock;

	•	grant any option, right or warrant for the sale of any common stock;

	•	otherwise dispose of or transfer any common stock;

	•	request or demand that we file a registration statement related to the common stock; or

	•	enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock, whether any such swap or transaction is to be settled by delivery of common stock or other securities, in cash or otherwise.

This lockup provision applies both to our common stock and to securities convertible into or exchangeable or exercisable for our common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.

Until the distribution of our common stock offered hereby is completed, the SEC rules may limit the underwriters from bidding for or purchasing our common stock. However, the representative may engage in transactions that stabilize the price of our common stock, such as bids or purchases that peg, fix or maintain that price.

The underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering.

“Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares from us in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the overallotment option. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representative has repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

In connection with this offering, the underwriters may engage in passive market making transactions in our common stock on the Nasdaq National Market in accordance with Rule 103 of Regulation M under the Exchange Act during a period before the commencement of offers or sales of common stock and extending through the completion of distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, that bid must then be lowered when specified purchase limits are exceeded.

Merrill Lynch will be facilitating Internet distribution for this offering to certain of its Internet subscription customers. Merrill Lynch intends to allocate a limited number of shares for sale to its online brokerage customers. An electronic prospectus is available on the Website maintained by Merrill Lynch. Other than the prospectus in electronic format, the information on the Merrill Lynch Website is not a part of this prospectus.

The underwriters and their affiliates have provided investment and commercial banking and financial advisory services from time to time for us in the ordinary course of business for which they have received customary fees. Affiliates of Banc of America Securities LLC and Lehman Brothers Inc. are lenders under our existing credit facility and will receive a portion of the proceeds of this offering. In addition, affiliates of certain of our underwriters hold certain of our 10 5/8% senior subordinated notes due June 15, 2013 and will receive a portion of the proceeds of this offering. In the event any such proceeds are greater than 10% of the aggregate offering proceeds received by us, then the requirements of NASD Conduct Rule 2710(h) will be complied with. Avondale Partners, LLC, an underwriter of this offering, provided financial advisory services to The Brown Schools, Inc. in connection with the sale of certain facilities of The Brown Schools, Inc. to us. Avondale Partners, LLC received a fee in connection with rendering such services on or about the date such sales closed.

Any of the underwriters or their respective affiliates may in the future engage in investment banking or other transactions of a financial nature with us or our affiliates, including the provision of advisory services and the making of loans to us or our affiliates, for which they would receive customary fees or other payments.

Waller Lansden Dortch & Davis, PLLC has passed upon the validity of the shares of common stock offered by this prospectus on our behalf. Weil, Gotshal & Manges LLP advised the underwriters in connection with the offering of the common stock.

The consolidated financial statements of Psychiatric Solutions, Inc. at December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003 appearing in Psychiatric Solutions, Inc.’s Current Report on Form 8-K dated November 24, 2004, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference 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. and Subsidiaries (“Ramsay”), incorporated in this prospectus by reference from Amendment No. 2 to the Registration Statement of Psychiatric Solutions, Inc. on Form S-2, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report incorporated herein by reference (which report expresses an unqualified opinion and includes an explanatory paragraph referring to a change in Ramsay’s method of accounting for goodwill and other intangible assets effective January 1, 2002), and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

The consolidated financial statements of Northern Healthcare Associates and Subsidiaries incorporated by reference herein have been audited by Selznick & Company, LLP, independent certified public accountants, to the extent and for the periods set forth in their report and are included herein in reliance upon such report given upon authority of said firm as experts in auditing and accounting.

The consolidated financial statements of Brentwood Health Management, LLC and Subsidiaries as of December 31, 2003 and for the year then ended, included in the Amended Current Report on Form 8-K/ A filed by Psychiatric Solutions, Inc. on May 12, 2004, have been audited by Crowe Chizek and Company LLC, independent registered public accounting firm, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in auditing and accounting.

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 and at regional offices in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC’s web site at http://www.sec.gov.

We make available free of charge through our website, which you can find at www.psysolutions.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of

The SEC allows us to “incorporate by reference” the information we file with the SEC, which means:


	•	incorporated documents are considered part of the prospectus;

	•	we can disclose important information to you by referring you to those documents; and

	•	information that we file later with the SEC automatically will update and supersede information contained in the prospectus.

We are incorporating by reference the following documents, which we have previously filed with the SEC:


	(1) Consolidated Financial Statements of Ramsay Youth Services, Inc. and Subsidiaries as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002 (incorporated by reference to Amendment No. 2 to our Registration Statement on Form S-2, filed on December 18, 2003 (Reg. No. 333-110206));

	(2) Consolidated Financial Statements of Northern Healthcare Associates and Subsidiaries as of December 31, 2003 and 2002, and for the year ended December 31, 2003 and December 31, 2002 (incorporated by reference to Form 8-K/ A, filed on August 10, 2004);

	(3) Consolidated Financial Statements of Brentwood Health Management, LLC and Subsidiaries as of December 31, 2003 and for the year then ended (incorporated by reference to Form 8-K/ A, filed on May 12, 2004);

	(4) our Annual Report on Form 10-K for the year ended December 31, 2003;

	(5) our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004;

	(6) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004;

	(7) our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004;

	(8) our Current Report on Form 8-K filed with the SEC on March 3, 2004;

	(9) our Current Report on Form 8-K/A filed with the SEC on May 12, 2004;

	(10) our Current Report on Form 8-K filed with the SEC on June 2, 2004;

	(11) our Current Report on Form 8-K/A filed with the SEC on August 10, 2004;

	(12) our Current Report on Form 8-K filed with the SEC on September 7, 2004;

	(13) our Current Report on Form 8-K filed with the SEC on November 24, 2004;

	(14) our Current Report on Form 8-K filed with the SEC on November 29, 2004;

	(15) our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 9, 2004; and

	(16) any future filings with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until our offering is completed; provided that the prospectus will not incorporate any information we may furnish to the SEC under Item 2.02 or Item 7.01 of Form 8-K.

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

You can obtain copies of the documents incorporated by reference in the prospectus without charge through our website (www.psysolutions.com) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the SEC, or by requesting them in writing or by telephone at the following address:


	Psychiatric Solutions, Inc.
	840 Crescent Centre Drive, Suite 460
	Franklin, Tennessee 37067
	Attention: Investor Relations
	(615) 312-5700






	3,000,000 Shares



	Common Stock



	PROSPECTUS


	Merrill Lynch & Co.

	Citigroup

	Lehman Brothers

	Banc of America Securities LLC

	Raymond James

	Avondale Partners

	, 2004

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

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

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 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 be entitled. We also carry directors’ and officers’ liability insurance.

(a) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each 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.

(b) 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.


	(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) of 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

	(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus 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.

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 Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Franklin, State of Tennessee, as of the 14th day of December, 2004.

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.

II-6 EX-1.1 2 g92111a1exv1w1.txt EX-1.1 FORM OF UNDERWRITING AGREEMENT Exhibit 1.1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PSYCHIATRIC SOLUTIONS, INC. (a Delaware corporation) 3,000,000 Shares of Common Stock UNDERWRITING AGREEMENT Dated: December 14, 2004 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WGM DRAFT 12/14/04 PSYCHIATRIC SOLUTIONS, INC. (a Delaware corporation) 3,000,000 Shares of Common Stock (Par Value $0.01 Per Share) UNDERWRITING AGREEMENT December 14, 2004 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Citigroup Global Markets Inc. as Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated 4 World Financial Center New York, New York 10080 Ladies and Gentlemen: PSYCHIATRIC SOLUTIONS, INC., a Delaware corporation (the "COMPANY"), and the persons listed in Schedule B hereto (the "SELLING STOCKHOLDERS"), confirm their respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MERRILL LYNCH") and each of the other Underwriters named in Schedule A hereto (collectively, the "UNDERWRITERS," which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch and Citigroup Global Markets Inc. ("CITIGROUP") are acting as representatives (in such capacity, the "REPRESENTATIVES"), with respect to (i) the sale by the Company and the Selling Stockholders, acting severally and not jointly, and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $0.01 per share, of the Company ("COMMON STOCK") set forth in Schedules A and B hereto and (ii) the grant by the Company and one director of the Company (the "SELLING DIRECTOR") to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of 450,000 additional shares of Common Stock to cover overallotments, if any. The aforesaid 3,000,000 shares of Common Stock (the "INITIAL SECURITIES") to be purchased by the Underwriters and all or any part of the 450,000 shares of Common Stock subject to the option described in Section 2(b) hereof (the "OPTION SECURITIES") are hereinafter called, collectively, the "SECURITIES." The Company and the Selling Stockholders understand that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. The Company has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement on Form S-3 (No. 333-120804), including the related preliminary prospectus or prospectuses, covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 ACT"). Promptly after execution and delivery of this Agreement, the Company will prepare and file a prospectus in accordance with the provisions of Rule 430A ("RULE 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 ACT REGULATIONS") and paragraph (b) of Rule 424 ("RULE 424(b)") of the 1933 Act Regulations. The information included in such prospectus that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective pursuant to paragraph (b) of Rule 430A is referred to as "RULE 430A INFORMATION." Each prospectus used before such registration statement became effective, and any prospectus that omitted the Rule 430A Information, that was used after such effectiveness and prior to the execution and delivery of this Agreement, including all documents incorporated by reference therein, is herein called a "PRELIMINARY PROSPECTUS." Such registration statement, including the exhibits and any schedules thereto, at the time it became effective, and including the Rule 430A Information and all documents incorporated by reference therein, is herein called the "REGISTRATION STATEMENT." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "RULE 462(b) REGISTRATION STATEMENT," and after such filing the term "REGISTRATION STATEMENT" shall include the Rule 462(b) Registration Statement. The final prospectus in the form first furnished to the Underwriters for use in connection with the offering of the Securities, including all documents incorporated by reference therein, is herein called the "PROSPECTUS." For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). SECTION 1. Representations and Warranties. (a) Representations, Warranties and Agreements of the Company. The Company represents, warrants and agrees that (i) The Registration Statement, including a Prospectus, with respect to, among other things, the Securities has (i) been prepared by the Company in conformity in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations, (ii) been filed with the Commission under the 1933 Act and (iii) become effective under the 1933 Act. Copies of such Registration Statement and each of the amendments thereto have been delivered by the Company to you as the Representatives of the Underwriters. As used in this Agreement, "EFFECTIVE TIME" means the date and the time as of which the Registration Statement, or the most recent post-effective amendment thereto, if any, was declared effective by the Commission; "EFFECTIVE DATE" means the date of each Effective Time. (ii) In the case of the Registration Statement, the conditions for the use of Form S-3, as set forth in the General Instructions thereto have been satisfied. (iii) The Commission has not issued any order preventing or suspending the use of the Registration Statement. 2 (iv) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will, when they become effective or are filed with the Commission, as the case may be, conform in all material respects to the requirements of the 1933 Act and the 1933 Act Regulations and do not and will not, as of the Effective Date (as to the Registration Statement and any amendment thereto) and as of the applicable filing date (as to the Prospectus and any amendment or supplement thereto) contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that no representation or warranty is made as to information contained in or omitted from the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or any Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto). (v) The documents incorporated by reference in the Prospectus and Registration Statement, when they were filed with the Commission, conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the rules and regulations thereunder (the "EXCHANGE ACT RULES") and the 1933 Act Regulations, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made; and any further documents so filed and incorporated by reference in each Prospectus, when such documents are filed with the Commission, will conform in all material respects to the requirements of the Exchange Act, the Exchange Act Rules and the 1933 Act Regulations and will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made. (vi) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification, except such failures to qualify as are not, either individually or in the aggregate, material to the Company and its subsidiaries, taken as a whole, affecting the management, condition, financial or otherwise, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"), and has all corporate power and authority necessary to own or hold its properties and to conduct the business in which it is engaged. (vii) Neither the Company nor any of its subsidiaries (i) is in violation of its charter or by-laws, (ii) is in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant, condition or other obligation contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject, except for such violations or defaults that do not have a Material Adverse Effect, or (iii) is in violation of any law, ordinance, governmental rule, regulation or court decree 3 to which it or its property or assets may be subject or has failed to obtain or maintain any license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business, except for such violations or defaults that do not have a Material Adverse Effect. (viii) The Company has an authorized capitalization as set forth in the Prospectus (and on the Closing Date (as defined in Section 2(c)) will have the authorized capitalization so set forth in the Prospectus as of that date) under the caption "Description of Capital Stock." All of the issued shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; and all of the issued shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued and are fully paid and non-assessable and (except for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, other than liens, encumbrances, equities or claims under the Company's existing credit facility, and none of such shares of capital stock were issued in violation of preemptive or other similar rights arising by operation of law, under the charter and bylaws (or similar organizational documents) of the Company or any of its subsidiaries or under any agreement to which the Company or any of its subsidiaries is a party or otherwise. (ix) The Securities to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided in this Agreement, will be duly and validly issued, fully paid and non-assessable. The Securities conform to the description thereof in the Prospectus in all material respects. (x) The Company has all requisite corporate power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by the Company. (xi) The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby (i) will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, except for such conflicts, breaches, violations or defaults that do not have a Material Adverse Effect or for which a waiver or consent has been obtained, (ii) will not result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or (iii) will not violate any applicable statute, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets, except for such conflicts, breaches, violations or defaults that do not have a Material Adverse Effect; and except for filings with NASDAQ, the National Association of Securities Dealers, Inc. (the "NASD") and under the 1933 Act, the Exchange Act and applicable state or foreign securities laws in connection with the purchase and distribution of the Securities by the Underwriters, no consent, approval, authorization or order of, or filing, registration or qualification with, any such court or governmental agency or body is required for the execution of this Agreement by the Company and the consummation of the transactions contemplated hereby other than such 4 consents, approvals, authorizations, orders, filings, registrations or qualifications the failure to make or obtain would not have a Material Adverse Effect. (xii) There are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act. (xiii) Except as set forth or incorporated by reference in the Prospectus, the Company has not sold or issued any shares of Common Stock during the six-month period preceding the date of the Prospectus, including any sales pursuant to Regulation D or Regulation S of the 1933 Act, other than shares issued pursuant to employee benefit plans, qualified stock options plans or other employee compensation plans or pursuant to outstanding options, rights or warrants. (xiv) The historical financial statements of the Company (including the related notes and supporting schedules) included in or incorporated by reference in the Registration Statement and the Prospectus present fairly in all material respects the financial condition and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. (xv) The historical financial statements of Ramsay Youth Services, Inc. ("RAMSAY") (including the related notes and supporting schedules) incorporated by reference in the Registration Statement and the Prospectus present fairly in all material respects the financial condition and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. (xvi) The historical financial statements of Northern Healthcare Associates and Subsidiaries ("NORTHERN HEALTHCARE") (including the related notes and supporting schedules) incorporated by reference in the Registration Statement and the Prospectus present fairly in all material respects the financial condition and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. (xvii) The historical financial statements of Brentwood Health Management, LLC and subsidiaries ("BRENTWOOD") (including the related notes and supporting schedules) incorporated by reference in the Registration Statement and the Prospectus present fairly in all material respects the financial condition and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. (xviii) The other financial data, operating data and statistical information and data included in or incorporated by reference in the Registration Statement and the Prospectus is presented fairly in all material respects and, to the extent 5 derived therefrom, has been prepared on a basis consistent with such financial statements and the books and records of the Company and its subsidiaries. (xix) Ernst & Young LLP, who has certified certain historical financial statements of the Company, whose report is incorporated by reference in the Registration Statement and Prospectus and who has delivered (a) the initial letter referred to in Section 5(f)(i) hereof, and (b) the bring-down letters referred to in Section 5(g)(i) hereof, is an independent public accounting firm as required by the 1933 Act and the 1933 Act Regulations during the periods covered by the financial statements on which it reported that were or are incorporated by reference in the Registration Statement and Prospectus. (xx) Deloitte & Touche LLP, who has certified certain historical financial statements of Ramsay, whose report is incorporated by reference in the Registration Statement and Prospectus and who has delivered (a) the initial letter referred to in Section 5(f)(ii) hereof, and (b) the bring-down letter referred to in Section 5(g)(ii) hereof, are independent public accountants as required by the 1933 Act and the 1933 Act Regulations during the periods covered by the financial statements on which it reported that were or are incorporated by reference in the Registration Statement and Prospectus. (xxi) Selznick & Company, LLP, who has certified certain historical financial statements of Northern Healthcare, whose report is incorporated by reference in the Registration Statement and Prospectus and who has delivered (a) the initial letter referred to in Section 5(f)(iii) hereof, and (b) the bring-down letter referred to in Section 5(g)(iii) hereof, are independent public accountants during the periods covered by the financial statements on which it reported that were or are incorporated by reference in the Registration Statement and Prospectus. (xxii) Crowe Chizek and Company LLC, who has certified certain historical financial statements of Brentwood, whose report is incorporated by reference in the Registration Statement and Prospectus and who has delivered (a) the initial letter referred to in Section 5(f)(iv) hereof, and (b) the bring-down letter referred to in Section 5(g)(iv) hereof, are independent public accountants as required by the 1933 Act and the 1933 Act Regulations during the periods covered by the financial statements on which it reported that were or are incorporated by reference in the Registration Statement and Prospectus. (xxiii) The Company and each subsidiary (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls that provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals. (xxiv) Since the date as of which information is given or incorporated by reference in the Preliminary Prospectus through the date hereof, and except as may otherwise be disclosed in the Prospectus, neither the Company nor any subsidiary has (i) issued or granted any securities, other than shares issued pursuant to employee benefit plans, qualified stock options plans or other employee compensation plans or pursuant to 6 outstanding options, rights or warrants, (ii) incurred any liability or obligation, direct or contingent, other than liabilities and obligations that were incurred in the ordinary course of business, (iii) entered into any transaction not in the ordinary course of business or (iv) declared or paid any dividend on its capital stock. (xxv) There are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject that, if determined adversely to the Company or any of its subsidiaries, would reasonably be likely to have a Material Adverse Effect, and to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (xxvi) The Company and each of its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights and licenses necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any such rights of others, except for such conflicts that do not or would not have a Material Adverse Effect. (xxvii) The Company and each of its subsidiaries have good and marketable title to all real property and good title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described or incorporated by reference in the Registration Statement and Prospectus and such as do not materially affect the value of the property of the Company and its subsidiaries taken as a whole and do not materially interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries; and all real property and buildings held under lease by the Company or any of its subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company or any of its subsidiaries. (xxviii) No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of its subsidiaries on the other hand, which is required to be described or incorporated by reference in the Prospectus or filed or incorporated by reference as exhibits in the Registration Statement that is not described in the Prospectus or filed or incorporated by reference as exhibits in the Registration Statement. (xxix) The Company and each of its subsidiaries has filed all federal, state and local income and franchise tax returns required to be filed through the date hereof and has paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company or any of its subsidiaries that has had (nor does the Company or any subsidiary have any knowledge of any tax deficiency that, if determined adversely to the Company or any of its subsidiaries, might have) a Material Adverse Effect. 7 (xxx) The Company and each of its subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is customary for companies engaged in similar businesses in similar industries. (xxxi) No labor disturbance by the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company or any of its subsidiaries, is imminent that could be expected to have a Material Adverse Effect. (xxxii) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company or any of its subsidiaries would have any liability; neither the Company nor any of its subsidiaries has incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to the termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "CODE"); and each "pension plan" for which the Company or any of its subsidiaries would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (xxxiii) Set forth on Exhibit B hereto is a list of each employee pension or benefit plan with respect to which the Company or any corporation considered an affiliate of the Company within the meaning of Section 407(d)(7) of ERISA is a party in interest or disqualified person. (xxxiv) Neither the Company nor any of its subsidiaries, nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (xxxv) Except for such matters as would not, individually or in the aggregate, either result in a Material Adverse Effect or require disclosure in the Prospectus, the Company and its subsidiaries (or, to the knowledge of the Company, any of their predecessors in interest) (1) are conducting and have conducted their businesses, operations and facilities in compliance with Environmental Law (as defined below); (2) possess, and are in compliance with, any and all permits, licenses or registrations required under Environmental Law ("ENVIRONMENTAL PERMITS"); (3) will not require material expenditures to maintain such compliance with Environmental Law or their Environmental Permits or to remediate, clean up, abate or remove any Hazardous Substance (as defined below); and (4) are not subject to any pending or, to the best knowledge of the Company and its subsidiaries, threatened claim or other legal proceeding under any Environmental Laws against the Company or its subsidiaries, and have not been named as a "potentially responsible party" under or pursuant to any 8 Environmental Law. As used in this paragraph, "ENVIRONMENTAL LAW" means any and all applicable federal, state, local and foreign laws, ordinances, regulations and common law, or any administrative or judicial order, consent, decree or judgment thereof, relating to pollution or the protection of human health or the environment, including, without limitation, those related to (i) emissions, discharges, releases or threatened releases of, or exposure to, Hazardous Substances, (ii) the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances, or (iii) the investigation, remediation or cleanup of any Hazardous Substances. As used in this paragraph, "HAZARDOUS SUBSTANCES" means pollutants, contaminants or hazardous, dangerous, toxic, biohazardous or infectious substances, materials or wastes or any other chemical substance regulated under Environmental Laws. (xxxvi) Except as set forth or incorporated by reference in the Prospectus, neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any other person who has a direct or indirect ownership or control interest in the Company or any of its subsidiaries or who is an officer, director, agent or managing employee of the Company or any of its subsidiaries (1) has engaged in any activities which are prohibited, or are cause for criminal or civil penalties and/or mandatory or permissive exclusion from Medicare or Medicaid, under Section 1320a-7, 1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States Code, the federal TRICARE statute, the Federal False Claims Act 31 U.S.C. Section 3729-3733, or the regulations promulgated pursuant to such statutes or regulations or related state or local statutes or by generally recognized professional standards of care or conduct, except for such activities as would not, individually or in the aggregate, result in a Material Adverse Effect; (2) has had a civil monetary penalty assessed against it under Section 1128A of the Social Security Act ("SSA"); (3) is currently excluded from participation under the Medicare program or a Federal Health Care Program (as that term is defined in SSA Section 1128(B)(f)); or (4) has been convicted (as that term is defined in 42 C.F.R. Section 1001.2) of any of the categories of offenses described in SSA Section 1128(a) and (b)(1), (2) and (3). (xxxvii) Neither the Company nor any subsidiary is, or, after giving effect to the offering and sale of the Securities as described in the Prospectus, will be, an "investment company" as defined in the Investment Company Act of 1940, as amended. (xxxviii) Prior to the date hereof, neither the Company and its subsidiaries nor any of their respective affiliates nor any person acting on its or their behalf (other than you, as to whom the Company and its subsidiaries make no representation) has taken nor will take any action that is designed to or that has constituted or that might have been expected to cause or result in stabilization or manipulation of the price of any security of the Company or its subsidiaries to facilitate the sale or resale of the Common Stock. (xxxix) The minute books and records of the Company relating to proceedings of its shareholders, board of directors and committees of its board of directors made available to Weil, Gotshal & Manges LLP, counsel for the Underwriters, are the original minute books and records or are true, correct and complete copies thereof, with respect to all proceedings of said shareholders, board of directors and committees since December 24, 2003 through the date hereof. In the event that definitive minutes have not been prepared with respect to any proceedings of such shareholders, board of 9 directors or committees, the Company has provided Weil, Gotshal & Manges LLP with originals or true, correct and complete copies of draft minutes or written agendas relating thereto, which drafts and agendas, if any, reflect all events that occurred in connection with such proceedings. (xl) The statements set forth in the Prospectus under the caption "Description of Capital Stock" insofar as it purports to constitute a summary of the terms of the Common Stock and the statements incorporated by reference from the Company's proxy statement filed with the Commission on April 9, 2004 under the heading "Certain Relationships and Related Party Transactions" insofar as they relate solely to factual matters, are accurate in all material respects. (xli) The Company is subject to and in full compliance with the reporting requirements of Section 13 or 15(d) of the Exchange Act. All reports filed by the Company with the Commission pursuant to Section 13 or 15(d) of the Exchange Act comply as to form in all material respects with the Exchange Act and the Exchange Act Rules. (xlii) The Company has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-15 under the Exchange Act), which (i) are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported and is made known to the Company's principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the Exchange Act are being prepared; (ii) have been evaluated for effectiveness as of the end of the last fiscal quarter; and (iii) are effective in all material respects to perform the functions for which they were established. (xliii) Based on the evaluation of its disclosure controls and procedures, the Company is not aware of (i) any significant deficiency in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data or any material weaknesses in internal controls; or (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls. (xliv) Since the date of the most recent evaluation of such disclosure controls and procedures, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. (xlv) There is and has been no failure on the part of the Company and any of the Company's directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith (the "SARBANES OXLEY ACT"), including Section 402 related to loans and Section 302 and 906 related to certifications. 10 (xlvi) Except as disclosed or incorporated by reference in the Prospectus, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering. (xlvii) The Securities have been approved for listing subject to notice of issuance on the NASDAQ National Market. (xlviii) The market-related and industry data included or incorporated by reference in the Prospectus and the Registration Statement are based upon estimates by the Company derived from sources that the Company believes to be reliable and accurate. (b) Representations and Warranties by the Selling Stockholders. Each of the Selling Stockholders, severally and not jointly represents, warrants and agrees that: (i) Immediately prior to each applicable Date of Delivery, such Selling Stockholder will have full right, power and authority to sell, assign, transfer and deliver the shares of Common Stock to be sold by the Selling Stockholder hereunder on such date; and upon delivery of such shares and payment therefor pursuant hereto, assuming each purchaser thereof is otherwise a bona fide purchaser and has no notice of any "adverse claim" (within the meaning of the New York Uniform Commercial Code), each purchaser thereof will receive title to the shares of Common Stock purchased by it from such Selling Stockholder free and clear of any adverse claim. (ii) Pursuant to the Irrevocable Power of Attorney and Custody Agreement (the "CUSTODY AGREEMENT"), such Selling Stockholder (i) has placed in custody with StockTrans, Inc., as custodian (the "CUSTODIAN"), for delivery under this Agreement, certificates in negotiable form representing the shares of the Stock to be sold by such Selling Stockholder hereunder; and (ii) has duly and irrevocably appointed Brent Turner, as attorney-in-fact (the "ATTORNEY-IN-FACT"), with full power of substitution, and with full authority to execute and deliver this Agreement and to take such other actions as set forth in such Custody Agreement. (iii) Such Selling Stockholder has full right, power and authority, corporate or otherwise, to enter into this Agreement and the Custody Agreement; the execution, delivery and performance of this Agreement and the Custody Agreement by such Selling Stockholder and the consummation by such Selling Stockholder of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, other than such breaches, violations or defaults that, singly or in the aggregate, could not materially adversely affect such Selling Stockholder's ability to consummate the transactions contemplated hereby, nor will such actions result in a violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property or assets of such Selling Stockholder; and, except for filings with NASDAQ, the NASD and under the 1933 Act, the Exchange Act 11 and applicable state or foreign securities laws in connection with the purchase and distribution of the Securities by the Underwriters, no consent, approval, authorization or order of, or filing, registration or qualification with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement or the Custody Agreement by such Selling Stockholder and the consummation by such Selling Stockholder of the transactions contemplated hereby and thereby. (iv) To the knowledge of each Selling Stockholder, the Registration Statement, as of the Effective Date, and the Prospectus, as of its date, do not and will not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which made) not misleading; provided that no representation or warranty is made as to the information contained in or omitted from the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or any Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto); provided, further, that this paragraph (iv) shall apply to each of the Selling Stockholders other than Management Selling Stockholders only to the extent that the statements or omissions from the Registration Statement or the Prospectus were made in conformity with written information relating to such Selling Stockholder furnished to the Company by any such Selling Stockholder expressly for use in the Registration Statement (or any amendment thereto) or any Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto). (v) Each of including Joey A. Jacobs and Jack R. Salberg (collectively, the "MANAGEMENT SELLING STOCKHOLDERS") have no reason to believe that the representations and warranties of the Company contained in this Section 1 are not true and correct and have no knowledge of any material fact, condition or information not disclosed or incorporated by reference in the Prospectus or any supplement thereto which has adversely affected or may adversely affect the business of the Company or any of its subsidiaries; and the sale of Securities by any such Management Selling Stockholder pursuant hereto is not prompted by any information concerning the Company or any of its subsidiaries which is not set forth or incorporated by reference in the Prospectus or any supplement thereto. (vi) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Selling Stockholder and any person that would give rise to a valid claim against the Selling Stockholder or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering. (vii) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (c) Any certificate signed by any officer of the Company or any of its subsidiaries delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered 12 thereby; and any certificate signed by or on behalf of the Selling Stockholders as such and delivered to the Representatives or to counsel for the Underwriters pursuant to the terms of this Agreement shall be deemed a representation and warranty by such Selling Stockholder to the Underwriters as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriters; Closing. (a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and each Selling Stockholder, severally and not jointly, agree to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company and each Selling Stockholder, at $[ ] per share that proportion of the number of Initial Securities set forth in Schedule B opposite the name of the Company or such Selling Stockholder, as the case may be, which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, bears to the total number of Initial Securities, subject, in each case, to such adjustments among the Underwriters as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional securities. (b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company grants to the Underwriters, severally and not jointly, an option to purchase up to 435,000 shares of Common Stock at $[ ] per share and the Selling Director grants to the Underwriters, severally and not jointly, an option to purchase up to 15,000 shares of Common Stock at $[ ] per share. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering overallotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company and the Selling Director setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "DATE OF DELIVERY") shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Date, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, or at such other place as shall be agreed upon by the Representatives and the Company and the Selling Stockholders, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company and the Selling Stockholders (such time and date of payment and delivery being herein called "CLOSING DATE"). 13 In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company and the Selling Stockholders, on each Date of Delivery as specified in the notice from the Representatives to the Company and the Selling Stockholder(s). Payment shall be made to the Company and the Selling Stockholders by wire transfer of immediately available funds to one or more bank accounts designated by the Company and the Custodian pursuant to the Custody Agreement, as the case may be, against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Each of the Representatives, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Date or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriters from their respective obligations hereunder. (d) Denominations; Registration. Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Date or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Date or the relevant Date of Delivery, as the case may be. SECTION 3. Covenants. (a) Covenants of the Company. The Company covenants with each Underwriter as follows: (i) Compliance with Regulations and Commission Requests. The Company, subject to Section 3(a)(ii), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the 14 issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (ii) Filing of Amendments. The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)) or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall object. (iii) Delivery of Registration Statements. The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (iv) Delivery of Prospectuses. The Company has delivered to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (v) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(a)(ii), such amendment or supplement as may be necessary to correct such 15 statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (vi) Blue Sky Qualifications. The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representatives may designate and to maintain such qualifications in effect for a period of not less than one year from the later of the effective date of the Registration Statement and any Rule 462(b) Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. (vii) Rule 158. The Company will timely file such reports pursuant to the Exchange Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (viii) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds." (ix) Listing. The Company will use its best efforts to effect and maintain the quotation of the Securities on the Nasdaq National Market. (x) Restriction on Sale of Securities. During a period of 75 days from the date hereof , the Company will not, without the prior written consent of the Representatives, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to or incorporated by reference in the Prospectus, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company referred to or incorporated by reference in the Prospectus or (D) any shares of Common Stock issued pursuant to any non-employee director stock plan or dividend reinvestment plan; the Company will cause each person identified on Schedule C hereto to furnish to the Representatives, prior to the Closing Date, a letter or letters, substantially in the form of Exhibit C hereto (the "LOCK-UP LETTER AGREEMENT"). 16 (xi) Reporting Requirements. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and the Exchange Act Rules. (b) Covenants of the Selling Stockholders. Each of the Selling Stockholders severally and not jointly covenants with each Underwriter as follows: (i) Each of the Selling Stockholders will comply with its obligations under its respective Lock-up Letter Agreement and the Custody Agreement. (ii) Each of the Selling Stockholders will deliver to the Representatives prior to the Closing Date a properly completed and executed United States Treasury Department Form W-8 (if the Selling Stockholder is a non-United States person) or Form W-9 (if the Selling Stockholder is a United States person). SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay or cause to be paid all expenses incident to the performance of their obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of a blue sky survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each Preliminary Prospectus and of the Prospectus and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the blue sky survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities, (ix) investor presentations on any "ROAD SHOW" undertaken in connection with the marketing of the offering of the Stock, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, and 25% of the cost of any aircraft chartered in connection with the road show, (x) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the NASD of the terms of the sale of the Securities and (xi) the fees and expenses incurred in connection with the inclusion of the Securities in the Nasdaq National Market; provided that except as set forth in this Section 4, the Underwriters shall pay their own costs and expenses, including the costs and expenses of their counsel, any transfer taxes on Securities which they may sell and the expense of advertising any offering of the Securities made by the Underwriters. (b) Expenses of the Selling Stockholders. The Selling Stockholders, severally and not jointly, will pay all expenses incident to the performance of their respective 17 obligations under, and the consummation of the transactions contemplated by this Agreement, including (i) any stamp duties, capital duties and stock transfer taxes, if any, payable upon the sale of the Securities to the Underwriters, and their transfer between the Underwriters pursuant to an agreement between such Underwriters, and (ii) the fees and disbursements of their respective counsel and other advisors. (c) Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5, Section 9(a)(i) or Section 11 hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. (d) Allocation of Expenses. The provisions of this Section shall not affect any agreement that the Company and the Selling Stockholders may make for the sharing of such costs and expenses. SECTION 5. Conditions of Underwriters' Obligations. The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company and the Selling Stockholders contained in Section 1 hereof or in certificates of any officer of the Company or on behalf of any Selling Stockholder delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) The Prospectus shall have been timely filed with the Commission; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in either the Registration Statement or the Prospectus or otherwise shall have been complied with. (b) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Securities, the Registration Statement and the Prospectus, and all other legal matters relating to this Agreement, the Custody Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to counsel for the Underwriters, and the Company and the Selling Stockholders shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (c) Waller Lansden Dortch & Davis PLLC shall have furnished to the Underwriters its written opinion, or letter or letters, as counsel to the Company and the Selling Stockholders, addressed to the Underwriters and dated the Closing Date and each Date of Delivery, substantially in the form of Exhibit A hereto. (d) The Underwriters shall have received from Weil, Gotshal & Manges LLP, counsel for the Underwriters, such opinion or opinions, dated the Closing Date and each Date of Delivery, with respect to the issuance and sale of the Securities, the Registration Statement, the Prospectus and other related matters as the Underwriters may reasonably require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. 18 (e) At time of the execution of this Agreement, the Underwriters shall have received from: (i) Ernst & Young LLP, a letter with respect to the financial information of the Company incorporated by reference in the Prospectus, in form and substance satisfactory to the Representatives, addressed to the Underwriters and dated the date hereof (A) confirming that it is an independent public accounting firm within the meaning of the 1933 Act and is in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (B) stating, as of the date hereof (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given or incorporated by reference in the Prospectus, as of a date not more than five days prior to the date hereof), the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to underwriters in connection with registered public offerings; (ii) Deloitte & Touche LLP, a letter with respect to the financial information of Ramsay, in form and substance satisfactory to the Representatives, addressed to the Underwriters and dated the date hereof (A) confirming that they are independent public accountants within the meaning of the 1933 Act and is in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (B) stating, as of the date hereof, the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to underwriters in connection with registered public offerings; (iii) Selznick & Company, LLP, a letter with respect to the financial information of Northern Healthcare, in form and substance satisfactory to the Representatives, addressed to the Underwriters and dated the date hereof (A) confirming that they are independent public accountants with respect to Northern Healthcare, (B) stating, as of the date hereof, the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to underwriters in connection with registered public offerings; and (iv) Crowe Chizek and Company LLC, a letter with respect to the financial information of Brentwood, in form and substance satisfactory to the Representatives, addressed to the Underwriters and dated the date hereof (A) confirming that they are independent public accountants within the meaning of the 1933 Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (B) stating, as of the date hereof, the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to underwriters in connection with registered public offerings (f) With respect to the letters referred to in the immediately preceding paragraph and delivered to the Underwriters concurrently with the execution of this Agreement (each, an "INITIAL LETTER"), the Underwriters shall have received a letter (each, a "BRING-DOWN LETTER") addressed to the Underwriters and dated as of the Closing Date and each Date of Delivery from: 19 (i) Ernst & Young LLP, with respect to the financial information of the Company, incorporated by reference in the Prospectus, (A) confirming that it is an independent public accounting firm within the meaning of the 1933 Act and is in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (B) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given or incorporated by reference in the Prospectus, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (C) confirming in all material respects the conclusions and findings set forth in the initial letter; (ii) Deloitte & Touche LLP, with respect to the financial information of Ramsay, incorporated by reference in the Prospectus, (A) confirming that they are independent public accountants within the meaning of the 1933 Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (B) stating, as of the date of the bring-down letter, the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter; (iii) Selznick & Company, LLP, with respect to the financial information of Northern Healthcare, incorporated by reference in the Prospectus, (A) confirming that they are independent public accountants with respect to Northern Healthcare, (B) stating, as of the date of the bring-down letter, the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter; and (iv) Crowe Chizek and Company LLC, with respect to the financial information of Brentwood, incorporated by reference in the Prospectus, (A) confirming that they are independent public accountants within the meaning of the 1933 Act and is in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (B) stating, as of the date of the bring-down letter, the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter. (g) The Company shall have furnished to the Representatives a certificate from the Company, dated the Closing Date and each Date of Delivery, signed by its Chief Executive Officer and Chief Accounting Officer stating, as applicable, that: (i) The representations, warranties and agreements of the Company contained herein, as applicable, are true and correct in all material respects (except with respect to representations, warranties and agreements already qualified by materiality) as if made on and as of the Closing Date and such Date of Delivery (other than to the extent any such representation or warranty is made expressly to a certain date), and the Company has performed all covenants and agreements and satisfied all conditions (after giving effect to all materiality qualifiers herein) on their part to be performed or satisfied hereunder, to the extent a party hereto, at or prior to the Closing Date and the Date of Delivery; and the conditions set forth in Section 5 have been fulfilled; and 20 (ii) They have carefully examined the Registration Statement and the Prospectus and, in their opinion (A) as of the Effective Date, the Registration Statement did not include, and as of its date, the Closing Date and as of the Date of Delivery, the Prospectus did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary (in the case of the Prospectus in the light of the circumstances under which made) to make the statements therein not misleading, and (B) since the Effective Date no event has occurred which should have been set forth in an amendment to the Registration Statement or supplement to the Prospectus. (h) Each Selling Stockholder participating in a sale of the Securities on the Closing Date or any subsequent Date of Delivery (or the Custodian or the attorney-in-fact on behalf of the Selling Stockholders) shall have furnished to the Underwriters on the Closing Date and each Date of Delivery a certificate, dated the Closing Date or such Date of Delivery, signed by, or on behalf of, such Selling Stockholder (or the attorney-in-fact) stating that the representations, warranties and agreements of such Selling Stockholder contained herein are true and correct (after giving effect to all materiality qualifiers herein) as of the Closing Date or that Date of Delivery (other than to the extent any such representation or warranty is made expressly to a certain date), and that the Selling Stockholders have complied in all material respects with all agreements contained herein to be performed by the Selling Stockholders at or prior to the Closing Date or that Date of Delivery. (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus (i) any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth, incorporated by reference or contemplated in the Prospectus or (ii) since such date there shall not have been any change in the capital stock or increase in the long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth, incorporated by reference or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of the Representatives, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities being delivered on the Closing Date or any subsequent Date of Delivery on the terms and in the manner contemplated herein and in the Prospectus. (j) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) of the 1933 Act Regulations and (ii) no such organization shall have publicly announced that it is under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities (k) At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit C hereto signed by the persons listed on Schedule C hereto. 21 All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters. SECTION 6. Indemnification. (a) Indemnification of Underwriters. The Company agrees to indemnify and hold harmless each Underwriter, its affiliates, as such term is defined in Rule 501(b) under the 1933 Act (each, an "AFFILIATE"), its selling agents and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(e) below) any such settlement is effected with the written consent of the Company and the Selling Stockholders; (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or any Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto). (b) Each Selling Stockholder, severally and not jointly, agrees to indemnify and hold harmless each Underwriter, its Affiliates and selling agents and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act to the extent and in the manner set forth in clauses (a)(i), (ii) and (iii) above, but, solely with respect to the Selling Stockholders that are not Management Selling Stockholders, only 22 with reference to written information furnished to the Company by or on behalf of such Selling Stockholder expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or any Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto); provided, however, that the liability of each Selling Stockholder under such Selling Stockholder's representations and warranties contained in Section 1 hereof and under the indemnity and contribution agreements contained in this Section 6 and Section 7 hereof shall be limited to an amount equal to the public offering price of the Securities sold by such Selling Stockholder to the Underwriters. (c) Indemnification of the Company, Directors and Officers and the Selling Stockholders. Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and each Selling Stockholder against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a)of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information or any Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto). The Company and each Selling Stockholder acknowledge that the statements set forth in the last paragraph of the cover page regarding delivery of the Securities and the first and second sentences of the first paragraph under the caption "Commissions and Discounts" in the "Underwriting" section of the Prospectus are correct and constitute the only information concerning such Underwriters furnished in writing to the Company by or on behalf of the Underwriters specifically for inclusion in the Registration Statement (or any amendment thereto) or such Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto). (d) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) or 6(b) above, counsel to the indemnified parties shall be selected by the Representatives, and, in the case of parties indemnified pursuant to Section 6(c) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or 23 any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (e) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a) or 6(b) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (f) Other Agreements with Respect to Indemnification. The provisions of this Section shall not affect any agreement among the Company and the Selling Stockholders with respect to indemnification. SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the Selling Stockholders and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus bear to the aggregate initial public offering price of the Securities as set forth on the cover of the Prospectus. The relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 24 The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Underwriter's Affiliates and selling agents shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company or any Selling Stockholder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company or such Selling Stockholder, as the case may be. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint. The provisions of this Section shall not affect any agreement among the Company and the Selling Stockholders with respect to contribution. Section 8. Representations, Warranties and Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries or the Selling Stockholders submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors, any person controlling the Company or any person controlling any Selling Stockholder and (ii) delivery of and payment for the Securities. SECTION 9. Termination of Agreement. (a) Termination; General. The Representatives may terminate this Agreement, by notice to the Company and the Selling Stockholders, at any time at or prior to Closing Date (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects 25 of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the Nasdaq National Market, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (v) if a banking moratorium has been declared by either Federal or New York authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. SECTION 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail on the Closing Date or a subsequent Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (i) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (ii) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Date, the obligation of the Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Date, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell 26 the relevant Option Securities, as the case may be, either the (i) Representatives or (ii) the Company and any Selling Stockholder shall have the right to postpone the Closing Date or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10. Section 11. Default by one or more of the Selling Stockholders or the Company (a) If a Selling Stockholder shall fail on the Closing Date or at a subsequent Date of Delivery to sell and deliver the number of Securities which such Selling Stockholder or Selling Stockholders are obligated to sell hereunder, and neither the Company nor the remaining Selling Stockholders exercise the right hereby granted to increase, pro rata or otherwise, the number of Securities to be sold by them hereunder to the total number to be sold by all Selling Stockholders as set forth in Schedule B hereto, then the Underwriters may, at option of the Representatives, by notice from the Representatives to the Company and the non-defaulting Selling Stockholders, either (i) terminate this Agreement without any liability on the fault of any non-defaulting party except that the provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and effect or (ii) elect to purchase the Securities which the non-defaulting Selling Stockholders and the Company have agreed to sell hereunder. No action taken pursuant to this Section 11 shall relieve any Selling Stockholder so defaulting from liability, if any, in respect of such default. In the event of a default by any Selling Stockholder as referred to in this Section 11, each of the Representatives, the Company and the non-defaulting Selling Stockholders shall have the right to postpone the Closing Date or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required change in the Registration Statement or Prospectus or in any other documents or arrangements. (b) If the Company shall fail on the Closing Date or at a subsequent Date of Delivery to sell the number of Securities that it is obligated to sell hereunder, then this Agreement shall terminate without any liability on the part of any nondefaulting party; provided, however, that the provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and effect. No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default. Section 12. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at 4 World Financial Center, New York, New York 10080, Attention ; notices to the Company shall be directed to it at 840 Crescent Centre Drive, Suite 460 Franklin, Tennessee 37067, Attention: Brent Turner (Fax: (615) 312-5711), with copy to Waller Lansden Dortch & Davis, PLLC, 511 Union Street, Suite 2700, Nashville, Tennessee 37219, Attention: Christopher L. Howard, Esq. (Fax: (615) 244-6804); and notices to the Selling Stockholders shall be directed to the address of such Selling Stockholder set forth on Schedule B hereto or to such other address as such Selling Stockholder notifies the Underwriters, the Representatives and the Company of in writing in accordance with the provisions of this Section 12. Section 13. Parties. This Agreement shall inure to the benefit of and be binding upon each of the Underwriters, the Company and the Selling Stockholders and their respective 27 successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Company and the Selling Stockholders and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Company and the Selling Stockholders and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 15. TIME. TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. SECTION 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. SECTION 17. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 28 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company and the Attorney-in-Fact for the Selling Stockholders a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters, the Company and the Selling Stockholders in accordance with its terms. Very truly yours, PSYCHIATRIC SOLUTIONS, INC. By: ----------------------------------------- Title: By: ----------------------------------------- As Attorney-in-Fact acting on behalf of the Selling Stockholders named in Schedule B hereto. CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED CITIGROUP GLOBAL MARKETS INC. By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By ________________________________ Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. 29 SCHEDULE A

Sch A-1 SCHEDULE B

Sch B-1 SCHEDULE C List of Persons Subject to Lock-Up Letter Agreement Joey A. Jacobs Steven T. Davidson Jack R. Salberg Jack E. Polson Brent Turner Christopher Grant, Jr Edward K. Wissing Ann H. Lamont Richard D. Gore Mark P. Clein William F. Carpenter III William M. Petrie, MD Sch C-1 EX-5.1 3 g92111a1exv5w1.txt EX-5.1 OPINION OF WALLER LANSDEN DORTCH & DAVIS, PLLC EXHIBIT 5.1 [WALLER LANSDEN DORTCH & DAVIS LETTERHEAD] December 14, 2004 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Psychiatric Solutions, Inc. Registration Statement on Form S-3 File No. 333-120804 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 (File No. 333-120804) (the "Registration Statement") previously filed with the Securities and Exchange Commission registering up to 3,450,000 shares of Common Stock, $.01 par value per share (the "Common Stock"), of the Registrant to be sold by the Registrant and certain selling stockholders to the underwriters represented by Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Lehman Brothers Inc., Bank of America Securities LLC, Raymond James & Associates, Inc. and Avondale Partners, LLC (the "Underwriters"), pursuant to the Underwriting Agreement between the Registrant, certain selling stockholders and the Underwriters, a form of which was filed as Exhibit 1.1 to the Registration Statement (the "Underwriting 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 the shares of Common Stock being sold by the Registrant will be, when issued and delivered in the manner and on the terms described in the Registration Statement and the Underwriting Agreement (after the Registration Statement is declared effective), and the shares of Common Stock being sold by certain selling stockholders 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, /s/ Waller Lansden Dortch & Davis, PLLC EX-23.1 4 g92111a1exv23w1.txt EX-23.1 CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the reference to our firm under the caption "Experts" in the Amendment No. 1 to Registration Statement (Form S-3) and related Prospectus of Psychiatric Solutions, Inc. for the registration of 3,000,000 shares of its common stock and to the incorporation by reference therein of our report dated March 3, 2004, except for Note 4, as to which the date is November 22, 2004, with respect to the consolidated financial statements of Psychiatric Solutions, Inc. included in its Current Report on Form 8-K filed with the Securities and Exchange Commission on November 24, 2004. /s/ Ernst & Young LLP December 13, 2004 Nashville, Tennessee EX-23.2 5 g92111a1exv23w2.txt EX-23.2 CONSENT OF DELOITTE & TOUCHE LLP Exhibit 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in this Amendment No. 1 to Registration Statement No. 333-120804 of Psychiatric Solutions, Inc. on Form S-3 of our report on the consolidated financial statements of Ramsay Youth Services, Inc. and subsidiaries ("Ramsay") dated March 14, 2003, (April 8, 2003 as to Note 19) (which report expresses an unqualified opinion and includes an explanatory paragraph referring to a change in Ramsay's method of accounting for goodwill and other intangible assets , effective January 1, 2002), appearing in Amendment No. 2 to Registration Statement No. 333-110206 of Psychiatric Solutions, Inc. on Form S-2. We also consent to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. /s/ Deloitte & Touche LLP Miami, Florida December 14, 2004 EX-23.3 6 g92111a1exv23w3.txt EX-23.3 CONSENT OF SELZNICK & COMPANY, LLP Exhibit 23.3 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3 #333-120804) and related Prospectus of Psychiatric Solutions, Inc. for the registration of 3,000,000 shares of its common stock and to the incorporation by reference therein of our report dated July 12, 2004 with respect to the combined financial statements of Northern Healthcare Associates and Subsidiaries included in its Current Report on Form 8-K/A filed with the Securities and Exchange Commission on August 10, 2004. /s/ Selznick & Company, LLP December 14, 2004 Armonk, New York EX-23.4 7 g92111a1exv23w4.txt EX-23.4 CONSENT OF CROWE CHIZEK AND COMPANY LLC Exhibit 23.4 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in this Registration Statement (No. 333-120804) on Form S-3 and in the related prospectus of our report dated March 26, 2004 on the consolidated financial statements of Brentwood Health Management, LLC and subsidiaries for the year ended December 31, 2003, included in the Amended Current Report on Form 8-K/A filed by Psychiatric Solutions, Inc. on May 12, 2004. 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	Per Share	Total

Public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to Psychiatric Solutions, Inc.	$	$
Proceeds, before expenses, to the selling stockholders	$	$


PROSPECTUS SUMMARY
RISK FACTORS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
MARKET PRICE OF COMMON STOCK
CAPITALIZATION
PRINCIPAL AND SELLING STOCKHOLDERS
DESCRIPTION OF CAPITAL STOCK
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INCORPORATION OF DOCUMENTS BY REFERENCE
EX-1.1 FORM OF UNDERWRITING AGREEMENT
EX-5.1 OPINION OF WALLER LANSDEN DORTCH & DAVIS, PLLC
EX-23.1 CONSENT OF ERNST & YOUNG LLP
EX-23.2 CONSENT OF DELOITTE & TOUCHE LLP
EX-23.3 CONSENT OF SELZNICK & COMPANY, LLP
EX-23.4 CONSENT OF CROWE CHIZEK AND COMPANY LLC


		High		Low

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	$	20.95	$	12.26
2004
	First Quarter	$	23.10	$	17.64
	Second Quarter	$	27.95	$	17.97
	Third Quarter	$	29.04	$	21.24
	Fourth Quarter (through December 13, 2004)	$	33.61	$	22.33



			As of September 30, 2004

					As Adjusted for
			Actual		the Offering


			(Unaudited)
			(Dollars in thousands)
Cash and cash equivalents			$	17,722	$	17,722

Debt:
	Amended and restated credit facility due January 6, 2007		$	70,000	$	41,284
	Mortgage loans due 2037 and 2038(1)			23,668		23,668
	Capital lease obligations			171		171
	10 5/8% senior subordinated notes			150,000		100,000
	Subordinated seller notes with varying maturities			513		513

		Total debt	$	244,352	$	165,636
Series A convertible preferred stock(2)				10,117		10,117
Common stockholders’ equity				119,024		196,139

		Total capitalization	$	373,493	$	371,892


Securities and Exchange Commission registration fee*	$	13,693
NASD Filing Fee*		11,307
Legal fees and expenses		60,000
Accounting fees and expenses		40,000
Printing and engraving fees		35,000
Transfer agent and registrar fees and expenses		5,000
Miscellaneous		10,000

Total	$	175,000

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Delaware (State or other jurisdiction of incorporation or organization)		23-2491707 (I.R.S. Employer Identification Number)


Christopher L. Howard, Esq. Waller Lansden Dortch & Davis, PLLC 511 Union Street, Suite 2700 Nashville, Tennessee 37219 (615) 244-6380		Alexander D. Lynch, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 (212) 310-8000


	Page

Prospectus Summary		1
Risk Factors		8
Special Note Regarding Forward-Looking Statements		16
Use of Proceeds		17
Market Price of Common Stock		18
Capitalization		19
Principal and Selling Stockholders		20
Description of Capital Stock		22
Underwriting		25
Legal Matters		27
Experts		27
Where You Can Find More Information		28
Incorporation of Documents by Reference		28


	•	Singular focus on inpatient behavioral health care — We focus exclusively on the provision of inpatient behavioral health care services. We believe this allows us to operate more efficiently and provide higher quality care than our competitors. In addition, we believe our focus and reputation have helped us to develop important relationships and extensive referral networks within our markets and to attract and retain qualified behavioral health care professionals.

	•	Strong and sustainable market position — Our inpatient facilities have an established presence in each of our markets, and we believe that the majority of our owned and leased


	•	Continue to Drive Same-Facility Growth — We increased our revenue by approximately 8.5% for the nine months ended September 30, 2004 as compared to our revenue for the nine months ended September 30, 2003 through same-facility growth. We intend to continue


	—	building relationships that enhance our presence in local and regional markets;

	—	developing formal marketing initiatives and expanding referral networks;

	—	continuing to provide high quality service; and

	—	expanding our services and developing new services to take advantage of increased demand in select markets where we operate.


	•	Grow Through Strategic Acquisitions — Our industry is highly fragmented and we plan to selectively pursue the acquisition of additional inpatient behavioral health care facilities. There are approximately 500 acute and residential treatment facilities in the United States and the top three providers operate approximately 20% of these facilities. We believe there are a number of acquisition candidates available at attractive valuations, and we have a number of potential acquisitions that are in various stages of development and consideration. We believe our focus on inpatient behavioral health care provides us with a strategic advantage when assessing a potential acquisition. We employ a disciplined acquisition strategy that is based on defined criteria, including quality of service, return on invested capital and strategic benefits.

	•	Enhance Operating Efficiencies — Our management team has extensive experience in the operation of multi-facility health care services companies. We intend to focus on improving our profitability by optimizing staffing ratios, controlling contract labor costs and reducing supply costs through group purchasing. We believe that our focus on efficient operations increases our profitability and will attract qualified behavioral health care professionals and patients.


	•	shares issuable by us upon exercise of the underwriters’ overallotment option;


	•	1,793,426 shares issuable upon exercise of outstanding stock options granted under our Amended and Restated Psychiatric Solutions, Inc. Equity Incentive Plan and our Amended and Restated Psychiatric Solutions, Inc. Outside Directors’ Non-Qualified Stock Option Plan with a weighted average exercise price of $13.93 per share;


	•	11,391 shares issuable upon exercise of outstanding stock options granted separately from our stock option plans with a weighted average exercise price of $28.10; and

	•	3,666 shares issuable upon the exercise of outstanding warrants with a weighted average exercise price of $14.69 per share.


	*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.*


	We may be required to spend substantial amounts to comply with legislative and regulatory initiatives relating to privacy and security of patient health information and standards for electronic transactions.


	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.


	*As a provider of health care services, we are subject to claims and legal actions by patients and others.*


	*If federal or state health care programs or managed care companies reduce reimbursement rates for services provided, revenues may decline.*


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


	*Our substantial indebtedness could adversely affect our financial condition.*


	*Additional financing may be necessary to fund our acquisition program and capital expenditures, and additional financing may not be available when needed.*


	State efforts to regulate the sale of inpatient facilities operated by not-for-profit entities could prevent us from acquiring additional inpatient facilities and executing our business strategy.


	*Recently acquired businesses and businesses acquired in the future will expose us to increased operating risks.*


	*If we fail to improve the operations of acquired inpatient facilities, we may be unable to achieve our growth strategy.*


	*We depend on our relationships with physicians who use our inpatient facilities.*


	While we believe that we currently have adequate internal controls in place, we are exposed to potential risks from recent legislation requiring companies to evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002.


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


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


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


	*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.*


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


	(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 13, 2004. Shares of common stock subject to options that are currently exercisable or will be exercisable within 60 days of December 13, 2004 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.


	*Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws*


	Number
Underwriter	of Shares

Merrill Lynch, Pierce, Fenner & Smith Incorporated
Citigroup Global Markets Inc.
Lehman Brothers Inc.
Raymond James & Associates, Inc.
Banc of America Securities LLC
Avondale Partners, LLC
J.P. Morgan Securities Inc.
Piper Jaffray & Co.
Stephens Inc.

Total		3,000,000


Item 14.	*Other Expenses of Issuance and Distribution.*