PSYCHIATRIC SOLUTIONS INC
INDEMNIFICATION AGREEMENT - DAVID S HEER
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>11
<FILENAME>g81395exv10w20.txt
<DESCRIPTION>INDEMNIFICATION AGREEMENT - DAVID S HEER
<TEXT>
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                                                                  EXHIBIT 10.20


                            INDEMNIFICATION AGREEMENT

                  THIS AGREEMENT is entered into as of August 20, 2002 between
PSYCHIATRIC SOLUTIONS, INC., a Delaware corporation (the "CORPORATION"), and
DAVID S. HEER ("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:

                           David S. Heer
                           c/o Acacia Venture Partners
                           101 California Street, Suite 3160
                           San Francisco, California 94111






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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 Jacobs
                                           -------------------------------------

                                       Its: Chairman, CEO and President
                                            ------------------------------------


                                       /s/ David S. Heer
                                       -----------------------------------------
                                       David S. Heer











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