EXHIBIT 3
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PMR CORPORATION
0000 XXXXX XXXXXX XXXXX, 0XX XXXXX
XXX XXXXX, XX 00000
June 28, 2002
Psychiatric Solutions, Inc.
000 Xxxxxxxx Xxxx, Xxxxx X-000
Xxxxxxxx, XX 00000
The 1818 Mezzanine Fund II, L.P.
c/o Brown Brothers Xxxxxxxx & Co.
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreement, dated as of
June 28, 2002 (the "SECURITIES PURCHASE AGREEMENT"), between Psychiatric
Solutions, Inc., a Delaware corporation ("PSI"), and The 1818 Mezzanine Fund II,
L.P., a Delaware limited partnership (the "FUND"), pursuant to which the Fund
has agreed to purchase from PSI a senior subordinated promissory note in the
aggregate principal amount of up to $20,000,000 (together with all notes issued
in connection with the substitution, replacement or transfer thereof, the
"NOTE") and warrants (the "WARRANTS") exercisable to purchase shares, par value
$0.01 per share, of common stock of PSI ("PSI COMMON STOCK"). As an inducement
to the Fund to enter into the Securities Purchase Agreement, and as one of the
conditions precedent to the consummation of the transactions contemplated by the
Securities Purchase Agreement, the Fund has required the execution and delivery
of this letter agreement by PMR Corporation, a Delaware corporation ("PMR").
Capitalized terms used herein but not defined herein have the meanings assigned
to such terms in the Securities Purchase Agreement.
1. WARRANTS. PMR hereby agrees (i) to assume, effective and
contingent upon consummation of the merger (the "PMR MERGER") contemplated by
the Merger Agreement (the "PMR MERGER AGREEMENT"), the obligations of PSI under
the Warrants, including, without limitation, the obligation to issue stock,
securities, other property or cash to holders of Warrants upon exercise thereof
as provided in the Warrants, and (ii) to execute and deliver to each holder of
Warrants, simultaneously with the consummation of the PMR Merger, a certificate
contemplated by Section 2(b) of the Warrants, which shall provide, among other
things, that such holder shall have the right thereafter to exercise its
Warrants into the amount of shares, par value $0.01 per share, of common stock
of PMR ("PMR COMMON STOCK") receivable upon the PMR Merger by a holder of the
number of shares of PSI Common Stock into which such Warrants could have been
exercised immediately prior to the PMR Merger (after giving effect to the
adjustments provided for under Section 2(c) of the Warrants).
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PMR hereby further agrees (i) to assume, effective and contingent upon
consummation of the PMR Merger, the obligations of PSI to issue Additional
Warrants pursuant to the Securities Purchase Agreement, (ii) upon consummation
of the PMR Merger, to issue at each Additional Closing warrant certificates
representing the Additional Warrants to be issued at such Additional Closing, in
substantially similar form to the Warrant Certificates and (iii) that each such
warrant certificate issued by PMR shall represent Warrants to purchase the
amount of shares of PMR Common Stock receivable upon the PMR Merger by a holder
of the number of shares of PSI Common Stock into which such Warrants could have
been exercised immediately prior to the PMR Merger (assuming, for these
purposes, that such Warrants were issued and outstanding at the time of the PMR
Merger and after giving effect to the adjustments provided for under Section
2(c) of the Warrants).
2. INVESTOR RIGHTS AGREEMENT. PMR hereby agrees that, effective and
contingent upon consummation of the PMR Merger, (a) PMR shall assume all
obligations of PSI under the Investor Rights Agreement, including, without
limitation, the obligations regarding the registration of securities, the
provision of financial information and the rights of first refusal, (b) all
references in the Investor Rights Agreement to the "Company" shall be deemed to
be references to PMR, and all references to any capital stock of the "Company"
(including, without limitation, "Common Stock" and "Preferred Stock") shall be
deemed to be references to the kind and amount of shares of capital stock of PMR
receivable upon the PMR Merger by a holder of the kind and amount of such shares
of capital stock of PSI and shall also include shares of PMR Common Stock
issuable upon exercise of the Warrants, and (c) PMR shall use its reasonable
best efforts to execute, as promptly as practicable following the consummation
of the PMR Merger, an investor rights agreement substantially similar to the
Investor Rights Agreement, with PMR replacing PSI as a party thereto, provided
that the failure to do so shall not affect the validity and effectiveness of
PMR's obligations under this paragraph or the enforceability of the Investor
Rights Agreement.
3. VOTING AGREEMENT. PMR hereby agrees that, upon the consummation
of the PMR Merger, PMR shall have created a vacancy on its Board of Directors
and shall cause such vacancy to be filled, effective and contingent upon
consummation of the PMR Merger, by the designee of the Fund selected pursuant to
Section 1.2 of the Voting Agreement. At each meeting of stockholders of PMR
after the PMR Merger at which the election of directors occurs (or at any time
the stockholders of the Company act by written consent for the purpose of the
election of directors), PMR shall cause the designee of the Fund selected
pursuant to Section 1.2 of the Voting Agreement to be included in the slate of
nominees recommended by the Board of Directors of PMR to PMR's stockholders for
election as directors, and PMR shall use its reasonable best efforts to cause
the election of such designee, including voting all shares for which PMR holds
proxies (unless otherwise directed by the stockholder submitting such proxy) or
is otherwise entitled to vote, in favor of the election of such designee;
provided, that PMR's obligation under this sentence shall expire and terminate
when both of the following clauses (x) and (y) have been satisfied: (x) the
indebtedness owed to the Fund under the Securities Purchase Agreement has been
repaid in full; and (y) either of the following has happened: (i) the Fund owns
less than 50% of the shares of PSI
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Common Stock (assuming exercise of the Warrants) issued pursuant to the
Securities Purchase Agreement or (ii) the fifth anniversary of the date hereof
has occurred.
4. PSI BOARD OF DIRECTORS. PMR hereby agrees that, upon the
consummation of the PMR Merger, PMR shall cause the election, effective and
contingent upon consummation of the PMR Merger, of the designee of the Fund
selected pursuant to Section 1.2 of the Voting Agreement (or any other person
designated from time to time by the Fund) to the Board of Directors of PSI. At
each meeting of stockholders of PSI after the PMR Merger at which the election
of directors occurs (or at anytime the stockholders of PSI act by written
consent for the purpose of the election of directors), PMR shall take all
necessary actions to ensure the election to the Board of Directors of PSI of
such designee. Notwithstanding anything to the contrary contained herein, the
rights granted to the Fund under this Section 4 shall terminate upon the
repayment in full by PSI of all Indebtedness owed to the Fund under the
Securities Purchase Agreement.
5. PMR GUARANTEE. PMR hereby agrees that, simultaneously with the
consummation of the PMR Merger, it shall duly execute and deliver to the Fund a
guarantee of the obligations of PSI to the Fund under the Securities Purchase
Agreement and the Note, substantially in the form attached as Exhibit H to the
Securities Purchase Agreement.
6. REPRESENTATIONS AND WARRANTIES. PMR hereby represents and
warrants to each of the other parties hereto as follows:
(a) PMR is a corporation duly organized and validly existing
under the laws of Delaware, and has the corporate power and authority
to execute, deliver and perform its obligations under this letter
agreement.
(b) The execution, delivery and performance by PMR of this
letter agreement and the transactions contemplated hereby have been
duly authorized by all necessary action of PMR, and will not violate or
conflict with the organizational documents of PMR, any material
agreement binding upon PMR or any law, regulation or order or require
any consent or approval which has not been obtained.
(c) This letter agreement has been duly executed and delivered
by PMR, and constitutes the legal, valid and binding obligation of PMR,
enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity relating to enforceability.
7. SURVIVAL. All of the representations, warranties, covenants and
agreements made herein shall survive the execution and delivery of this letter
agreement.
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8. SUCCESSORS AND ASSIGNS. This letter agreement shall inure to the
benefit of and be binding upon the successors, permitted assigns and permitted
transferees of the parties hereto. No person or entity other than the parties
hereto and their successors, permitted assigns and permitted transferees is
intended to be a beneficiary of this letter agreement.
9. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies
provided for herein are cumulative and are not exclusive of any
remedies that may be available to any party hereto at law, in equity or
otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this letter agreement, any waiver of any provision of this
letter agreement and any consent to any departure by any party hereto
from the terms of any provision of this letter agreement, shall be
effective (i) only if it is made or given in writing and signed by each
party hereto, and (ii) only in the specific instance and for the
specific purpose for which made or given.
10. COUNTERPARTS. This letter agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
11. HEADINGS. The headings in this letter agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
12. GOVERNING LAW. THIS LETTER AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED IN THE STATE OF NEW YORK, AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
13. SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
14. REMEDIES. If a breach of this letter agreement by any party
hereto occurs and is continuing, the other parties may pursue any available
remedy by proceeding at law or in equity to enforce the performance (including,
without limitation,
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the specific performance) of any provision of this letter agreement. Except as
otherwise provided by law, a delay or omission by any party hereto in exercising
any right or remedy accruing upon any such breach shall not impair the right or
remedy or constitute a waiver of or acquiescence in any such breach. No remedy
is exclusive of any other remedy. All available remedies are cumulative.
15. ENTIRE AGREEMENT. This letter agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, representations, warranties or undertakings, other than those set
forth or referred to herein. This letter agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
16. EXPENSES. PMR acknowledges and agrees that, effective and
contingent upon consummation of the PMR Merger, PMR shall reimburse the Fund for
all reasonable out-of-pocket expenses (including travel related expenses) of the
Fund and its representative incurred in connection with such representative's
duties as a member of the Boards of Directors of PMR and PSI.
17. TERMINATION. If the PMR Merger Agreement is terminated and the
PMR Merger does not occur, this letter agreement shall terminate and have no
further force and effect.
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If this letter agreement correctly sets forth your understanding of our
agreement with respect to the foregoing, please so indicate by signing below on
the lines provided for your signatures.
Sincerely,
PMR CORPORATION
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------
Name: Xxxx X. Xxxxxx
Title: President
Acknowledged and agreed to
as of the date above written:
PSYCHIATRIC SOLUTIONS, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
-------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Chief Development Officer
THE 1818 MEZZANINE FUND II, L.P.
By: Xxxxx Brothers Xxxxxxxx & Co.,
its General Partner
By: /s/ Xxxxxx X. Xxxxxx
-------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Managing Director
