PSYCHIATRIC SOLUTIONS INC
INDEMNIFICATION AGREEMENT - JOEY A JACOBS
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<TYPE>EX-10.21
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<FILENAME>g81395exv10w21.txt
<DESCRIPTION>INDEMNIFICATION AGREEMENT - JOEY A JACOBS
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                                                               EXHIBIT 10.21



                            INDEMNIFICATION AGREEMENT
                  THIS AGREEMENT is entered into as of August 20, 2002 between
PSYCHIATRIC SOLUTIONS, INC., a Delaware corporation (the "CORPORATION"), and
JOEY A. JACOBS ("INDEMNITEE").

                                    RECITALS

                  A. The Corporation believes that it is essential to its best
interests to attract and retain highly capable persons to serve as directors,
officers, and agents.

                  B. Indemnitee is or has been selected to be a director,
officer, or agent of the Corporation.

                  C. The Corporation and Indemnitee recognize the increased
risk of litigation and other claims being asserted against directors, officers,
and other agents of the Corporation.

                  D. In recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's service
to the Corporation, and in order to induce Indemnitee to provide or continue to
provide services to the Corporation as a director, officer, or agent, the
Corporation wishes to provide in this Agreement for the indemnification and the
advancing of expenses to Indemnitee to the fullest extent permitted by law and
as set forth in this Agreement and, to the extent applicable, insurance is
maintained for the coverage of Indemnitee under the Corporation's policies of
directors' and officers' liability insurance.

                  IN CONSIDERATION of the foregoing and of Indemnitee's
providing services to the Corporation directly or, at its request, with another
enterprise, the parties agree as follows:

         1. DEFINITIONS.

            1.1  Board: The board of directors of the Corporation.

            1.2  Change in Control: A state of affairs that shall be deemed to
have occurred if:

                 (a) Any person becomes the "beneficial owner" (as that term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), directly or indirectly, of securities representing fifty
percent (50%) or more of the total voting power of the Corporation's
then-outstanding voting securities;

                 (b) During any period of two (2) consecutive years, individuals
who, at the beginning of such period constitute the board, together with any new
director whose election by the board or nomination for election by the
Corporation's shareholders was approved by a vote of at least two-thirds (2/3)
of the directors then in office either who were directors at the beginning of
the two-year period, or whose election or nomination was previously so approved,
cease for any reason to constitute a majority of the board;

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                 (c) The shareholders of the Corporation approve a merger or
consolidation of the Corporation with any other Corporation, other than a merger
or consolidation that would result in the voting securities of the Corporation
outstanding immediately before such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty-one percent (51%) of the
total voting power represented by the voting securities of the Corporation or
such surviving entity outstanding immediately after such merger or
consolidation; or

                 (d) The shareholders of the Corporation approve a plan of
complete liquidation of the Corporation, or an agreement for the sale or
disposition by the Corporation (whether in one transaction or a series of
transactions) of all or substantially all of the Corporation's assets.

         1.3 Expenses:

                 (a) Any expense, liability, or loss, including attorneys' fees,
judgments, fines, ERISA excise taxes and penalties, or amounts paid or to be
paid in settlement;

                 (b) Any interest, assessments, or other charges imposed on any
of the items in subparagraph (a) above; and

                 (c) Any federal, state, local, or foreign taxes imposed as a
result of the actual or deemed receipt of any payments under this Agreement paid
or incurred in connection with investigating, defending, being a witness in,
participating in (including on appeal), or preparing for any of the foregoing
in, any proceeding relating to any Indemnifiable Event.

         1.4 Indemnifiable Event: Any event or occurrence that takes place
either before or after the execution of this Agreement, related to the fact that
Indemnitee is or was a director or an officer of the Corporation; or while a
director or officer is or was serving at the request of the Corporation as a
director, officer, employee, trustee, agent, or fiduciary of another foreign or
domestic corporation, partnership, joint venture, employee benefit plan, trust,
or other enterprise; or was a director, officer, employee, or agent of a foreign
or domestic corporation that was a predecessor corporation of the Corporation or
another enterprise at the request of such predecessor corporation; or related to
anything done or not done by Indemnitee in any such capacity, whether the basis
of the proceeding is an alleged action in an official capacity as a director,
officer, employee, or agent, or in any other capacity while serving as a
director, officer, employee, or agent of the Corporation, as described in this
paragraph.

         1.5 Independent Counsel: The person or body appointed in connection
with Section 3.

         1.6 Person: "person" (as that term is used in ss.ss.13(d) and 14(d) of
the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation acting in such capacity or a
Corporation owned, directly or indirectly, by the shareholders of the
Corporation in substantially the same proportions as their ownership of shares
of the Corporation at the date of this Agreement.



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         1.7 Participant: A person who is a party to, or witness or participant
(including on appeal) in, a Proceeding.

         1.8 Potential Change in Control: A state of affairs that shall be
deemed to exist if:

                 (a) The Corporation enters into an agreement or arrangement,
the consummation of which would result in the occurrence of a Change in Control;

                 (b) Any Person (including the Corporation) announces publicly
an intention to take or to consider taking actions that, if consummated, would
constitute a Change in Control;

                 (c) Any Person who is or becomes the beneficial owner, directly
or indirectly, of securities of the Corporation representing ten percent (10%)
or more of the combined voting power of the Corporation's then-outstanding
voting securities, increases his or her beneficial ownership of such securities
by five percent (5%) or more over the percentage owned by such person on the
date of this Agreement (provided, however, that the issuance and exercise of any
warrants, options or convertible securities held by the Corporation's senior
lender or The 1818 Mezzanine Fund II, L.P., or their successors, assigns or
affiliates shall not be deemed a Potential Change of Control); or

                 (d) The Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.

         1.9 Proceeding: Any threatened, pending, or completed action, suit, or
proceeding, or any inquiry, hearing or investigation, whether conducted by the
Corporation or any other party, that Indemnitee in good faith believes might
lead to the institution of any such action, suit, or proceeding, whether civil,
criminal, administrative, investigative, or other.

         1.10 Reviewing Party: The person or body appointed in accordance with
Section 3.

         1.11 Voting Securities: Any securities of the Corporation that have the
right to vote generally in the election of directors.

      2. AGREEMENT TO INDEMNIFY.

         2.1 General Agreement. In the event Indemnitee was, is, or becomes a
participant in, or is threatened to be made a participant in, a Proceeding by
reason of (or arising in part out of) an Indemnifiable Event, the Corporation
shall indemnify the Indemnitee from and against any and all Expenses to the
fullest extent permitted by law, as the same exists or may hereafter be amended
or interpreted (but in the case of any such amendment or interpretation, only to
the extent that such amendment or interpretation permits the Corporation to
provide broader indemnification rights than were permitted before this
Agreement). The parties to this Agreement intend indemnification in excess of
that expressly permitted by statute, including, without limitation, any
indemnification provided by the Corporation's articles of incorporation, its
bylaws, a vote of its shareholders or disinterested directors, or applicable
law.


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         2.2 Initiation of Proceeding. Notwithstanding anything in this
Agreement to the contrary, Indemnitee shall not be entitled to indemnification
under this Agreement in connection with any Proceeding initiated by Indemnitee
against the Corporation or any director or officer of the Corporation unless (i)
the Corporation has joined in or the Board has consented to the initiation of
such Proceeding; (ii) the Proceeding is one to enforce indemnification rights
under Section 5; or (iii) the Proceeding is instituted after a Change in Control
and Independent Counsel has approved its initiation.

         2.3 Expense Advances. If so requested by Indemnitee, the Corporation
shall within ten (10) business days of such request, advance all Expenses to
Indemnitee (an "EXPENSE ADVANCE"). Notwithstanding the foregoing, to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Corporation shall be entitled to be
reimbursed by Indemnitee for all such amounts, and Indemnitee hereby agrees to
reimburse the Corporation promptly for the same. If Indemnitee has commenced
legal proceedings in a court of competent jurisdiction to secure a determination
that Indemnitee should be indemnified under applicable law as provided in
Section 4, any determination made by the Reviewing Party that Indemnitee would
not be permitted to be indemnified under applicable law shall not be binding,
and Indemnitee shall not be required to reimburse the Corporation for any
Expense Advance until a final judicial determination is made (as to which all
rights of appeal have been exhausted or have lapsed). Indemnitee's obligation to
reimburse the Corporation for Expense Advances shall be unsecured and no
interest shall be charged thereon.

         2.4 Mandatory Indemnification. Notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the merits
in defense of any Proceeding relating in whole or in part to an Indemnifiable
Event or in defense of any issue or matter in such Proceeding, Indemnitee shall
be indemnified against all Expenses incurred in connection with such issue,
matter, or event.

         2.5 Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for a portion
of Expenses, but not for the total amount of Expenses, the Corporation shall
indemnify the Indemnitee for the portion to which Indemnitee is entitled.

         2.6 Prohibited Indemnification. No indemnification under this Agreement
shall be paid by the Corporation on account of any Proceeding in which judgment
is rendered against Indemnitee for an accounting of profits made from the
purchase or sale by Indemnitee of securities of the Corporation under the
provisions of Section 16(b) of the Exchange Act or similar provisions of any
federal, state, or local laws.

      3. REVIEWING PARTY. Before any Change in Control, the Reviewing Party
shall be any appropriate person or body consisting of a member or members of the
Board or any other person or body appointed by the Board who is not a party to
the Proceeding with respect to which Indemnitee is seeking indemnification;
after a Change in Control, the reviewing party shall be the Independent Counsel.
With respect to all matters arising after a Change in Control concerning the
rights of Indemnitee to indemnity payments and Expense Advances under this
Agreement or any other agreement or under applicable law or the Corporation's
articles of



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incorporation or bylaws now or hereafter in effect relating to indemnification
for Indemnifiable Events, the Corporation shall seek legal advice only from
Independent Counsel selected by Indemnitee and approved by the Corporation, the
approval of whom shall not be unreasonably withheld, and who has not otherwise
performed services for the Corporation or Indemnitee (other than in connection
with indemnification matters) within the last five (5) years. The Independent
Counsel shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Corporation or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The counsel, among other things, shall
render a written opinion to the Corporation and Indemnitee as to whether and to
what extent Indemnitee should be permitted to be indemnified under applicable
law. The Corporation agrees to pay the reasonable fees of the Independent
Counsel and to indemnify fully such counsel against any and all expenses,
including attorneys' fees, claims, liabilities, loss, and damages arising out of
or relating to this Agreement or the engagement of Independent Counsel under
this Agreement.

      4. INDEMNIFICATION PROCESS AND APPEAL.

         4.1 Indemnification Payment. Indemnitee shall receive indemnification
of Expenses from the Corporation in accordance with this Agreement as soon as
practicable after Indemnitee has made written demand on the Corporation for
indemnification, unless the Reviewing Party has given a written opinion to the
Corporation that Indemnitee is not entitled to indemnification under this
Agreement or applicable law.

         4.2 Suit To Enforce Rights. Regardless of any action by the Reviewing
Party, if Indemnitee has not received full indemnification within thirty (30)
days after making a demand in accordance with Section 4.1 above, Indemnitee
shall have the right to enforce its indemnification rights under this Agreement
by commencing litigation in any court in which the Corporation has an office
seeking an initial determination by the court or challenging any determination
by the Reviewing Party or any aspect of the Agreement. The Corporation hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party not challenged by Indemnitee shall be
binding on the Corporation and Indemnitee. The remedy provided in this Section
4.2 shall be in addition to any other remedies available to Indemnitee in law or
equity.

         4.3 Defense to Indemnification, Burden of Proof, and Presumptions. It
shall be a defense to any action brought by Indemnitee against the Corporation
to enforce this Agreement (other than an action brought to enforce a claim for
Expenses incurred in defending a proceeding in advance of its final disposition
when the required undertaking has been tendered to the Corporation) that it is
not permissible under this Agreement or applicable law for the Corporation to
indemnify the Indemnitee for the amount claimed. In connection with any such
action or any determination by the Reviewing Party or otherwise as to whether
Indemnitee is entitled to be indemnified under this Agreement, the burden of
proving such a defense or determination shall be on the Corporation. Neither the
failure of the Reviewing Party or the Corporation (including its Board,
Independent Counsel, or its shareholders) to have made a determination prior to
the commencement of such action by Indemnitee that indemnification is proper
under the circumstances because Indemnitee has met the standard of conduct set
forth in applicable law, nor an actual determination by the Reviewing Party or
Corporation (including its



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Board, Independent Counsel, or its shareholders) that Indemnitee had not met
such applicable standard of conduct shall be a defense to the action or create a
presumption that Indemnitee has not met the applicable standard of conduct. For
purposes of this Agreement, the termination of any claim, action, suit, or
proceeding, by judgment, order, settlement (whether with or without court
approval), conviction, or on a plea of nolo contendere, or its equivalent, shall
not create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief, or that a court has determined that
indemnification is not permitted by applicable law.

      5. INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING RIGHTS. The
Corporation shall indemnify the Indemnitee against, and if requested by
Indemnitee, the Corporation shall, within ten (10) business days of such
request, advance to Indemnitee, all Expenses as are incurred by Indemnitee in
connection with any claim asserted against or action brought by Indemnitee for:

         5.1 (a) Indemnification of Expenses or an Expense Advance by the
Corporation under this Agreement or any other agreement or under applicable law
or the Corporation's articles of incorporation or bylaws now or hereafter in
effect relating to indemnification for Indemnifiable Events, or

         5.2 (b) Recovery under directors' and officers' liability insurance
policies maintained by the Corporation for amounts paid in settlement if the
Independent Counsel has approved the settlement.

The Corporation shall not settle any Proceeding in any manner that would impose
any penalty or limitation on Indemnitee without Indemnitee's written consent.
Neither the Corporation nor Indemnitee will unreasonably withhold its consent to
any proposed settlement. The Corporation shall not be liable to indemnify the
Indemnitee under this Agreement with regard to any judicial award if the
Corporation was not given a reasonable and timely opportunity, at its expense,
to participate in the defense of such action; however, the Corporation's
liability under this Agreement shall not be excused if its participation in the
Proceeding was barred by this Agreement.

      6. ESTABLISHMENT OF TRUST. In the event of a Change in Control or a
Potential Change in Control, the Corporation shall, upon written request by
Indemnitee, create a trust for the benefit of the Indemnitee ("the Trust") and
from time to time, upon written request of Indemnitee, shall fund the Trust in
an amount sufficient to satisfy any and all Expenses reasonably anticipated at
the time of each such request to be incurred in connection with investigating,
preparing for, participating in, and/or defending any Proceeding relating to an
Indemnifiable Event. The amount or amounts to be deposited in the Trust under
the foregoing funding obligation shall be determined by the Reviewing Party. The
terms of the Trust shall provide that on a Change in Control, (i) the Trust
shall not be revoked or the principal invaded without the written consent of the
Indemnitee, (ii) the Trustee shall advance, within ten (10) business days of a
request by the Indemnitee, all Expenses to the Indemnitee (provided that the
Indemnitee hereby agrees to reimburse the Trust under the same circumstances for
which the Indemnitee would be required to reimburse the Corporation under
Section 2.3 above), (iii) the Trust shall continue to be funded by the
Corporation in accordance with the funding obligation



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set forth in this Section 6, (iv) the Trustee shall promptly pay to the
Indemnitee all amounts for which the Indemnitee shall be entitled to
indemnification under this Agreement or otherwise, and (v) all unexpended funds
in the Trust shall revert to the Corporation on a final determination by the
Reviewing Party or a court of competent jurisdiction, as the case may be, that
the Indemnitee has been fully indemnified under the terms of this Agreement. The
Trustee shall be chosen by the Indemnitee. Nothing in this Section 6 shall
relieve the Corporation of any of its obligations under this Agreement. All
income earned on the assets held in the Trust shall be reported as income by the
Corporation for federal, state, local, and foreign tax purposes. The Corporation
shall pay all costs of establishing and maintaining the Trust, and shall
indemnify the Trustee against any and all expenses (including attorneys' fees),
claims, liabilities, loss, and damages arising out of or relating to this
Agreement or the establishment and maintenance of the Trust.

      7. NONEXCLUSIVITY. The rights of Indemnitee under this Agreement shall be
in addition to any other rights Indemnitee may have under the Corporation's
articles of incorporation, bylaws, applicable law, or otherwise. To the extent
that a change in applicable law (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Corporation's articles of incorporation, bylaws, applicable law, or
this Agreement, it is the intent of the parties that Indemnitee enjoy by this
Agreement the greater benefits afforded by such change.

      8. LIABILITY INSURANCE. To the extent the Corporation maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
corporation director or officer.

      9. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of
action shall be asserted by or on behalf of the Corporation or any affiliate of
the Corporation against Indemnitee, Indemnitee's spouse, heirs, executors, or
personal or legal representatives after the expiration of two (2) years from the
date of accrual of such cause of action, or such longer period as may be
required by state law under the circumstances. Any claim or cause of action of
the Corporation or its affiliate shall be extinguished and deemed released
unless asserted by the timely filing of a legal action within such period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, the shorter period shall govern.

      10. AMENDMENT OF THIS AGREEMENT. No supplement, modification, or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties to this Agreement. No waiver of any of the provisions of this Agreement
shall operate as a waiver of any other provisions (whether or not similar), nor
shall such waiver constitute a continuing waiver. Except as specifically
provided in this Agreement, no failure to exercise or any delay in exercising
any right or remedy shall constitute a waiver.

      11. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.



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      12. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, bylaw, or otherwise) of the amounts otherwise indemnifiable
under this Agreement.

      13. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Corporation), assigns, spouses, heirs, and personal and legal
representatives. The Corporation shall require and cause any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all,
substantially all, or a substantial part, of the business or assets of the
Corporation or both, by written agreement, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform if no such succession had taken place.
The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity pertaining to an Indemnifiable Event even though Indemnitee may have
ceased to serve in such capacity at the time of any proceeding.

      14. SEVERABILITY. If any portion of this Agreement shall be held by a
court of competent jurisdiction to be invalid, void, or otherwise unenforceable,
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void, or otherwise unenforceable,
that is not itself invalid, void, or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, void, or
unenforceable.

      15. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.

      16. NOTICES. All notices, demands, and other communications required or
permitted under this Agreement shall be made in writing and shall be deemed to
have been duly given if delivered by hand, against receipt, or mailed, postage
prepaid, certified or registered mail, return receipt requested, and addressed
to the Corporation at:

                   Psychiatric Solutions, Inc.
                   113 Seaboard Lane, Suite C-100
                   Franklin, Tennessee 37067
                   Attn: President

and to Indemnitee at:

                   Joey A. Jacobs
                   c/o Psychiatric Solutions, Inc.
                   113 Seaboard Lane, Suite C-100
                   Franklin, Tennessee 37067



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         Notice of change of address shall be effective only when given in
accordance with this agreement. All notices complying with this paragraph shall
be deemed to have been received on the date of delivery or on the third business
day after mailing.

         IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day specified above.


                                           PSYCHIATRIC SOLUTIONS, INC.


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

                                           Its:
                                               -------------------------------


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






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