exv10w16






EXHIBIT 10.16




SENIOR MANAGEMENT AGREEMENT




          THIS SENIOR MANAGEMENT AGREEMENT (this “Agreement”) is made as of May 4, 2005, by and
among Capella Holdings, Inc., a Delaware corporation (the “Company”), Capella Healthcare,
Inc., a Delaware corporation (“Employer”), and David Andrew Slusser (“Executive”).
This Agreement shall become effective as of the Employment Date (as defined below).




          The Company and Executive desire to enter into an agreement pursuant to which Executive will
purchase from the Company, and the Company will sell to Executive, up to 11.302 shares of the
Company’s Cumulative Redeemable Preferred Stock (the “Preferred Stock”), and 1,108,721
shares of the Company’s Common Stock (the “Common Stock”). All Preferred Stock and Common
Stock acquired by Executive are referred to herein as “Executive Securities”. Certain
definitions are set forth in Section 9 of this Agreement.




          The Company, Employer and Executive mutually desire to enter into an agreement pursuant to
which Employer will employ Executive.




          The execution and delivery of this Agreement by the Company and Executive is a condition to
the purchase of Preferred Stock and Common Stock by GTCR Golder Rauner II, L.L.C. (“GTCR
II”) or any other investment fund managed by GTCR II or GTCR Golder Rauner, L.L.C.
(collectively, the “Investors”, and each, an “Investor”) pursuant to a Stock
Purchase Agreement between the Company and the Investors dated as of the date hereof (the
“Purchase Agreement”). Certain provisions of this Agreement are intended for the benefit
of, and will be enforceable by, the Investors.




          NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
to this Agreement hereby agree as follows:




PROVISIONS RELATING TO EXECUTIVE SECURITIES




          1. Purchase and Sale of Executive Securities




          (a) At the Initial Closing (as defined in the Purchase Agreement), Executive will purchase,
and the Company will sell, 1,108,721 shares of Common Stock at a price of $0.08 per share. The
Company will deliver to Executive a copy of the certificate(s) representing such shares of Common
Stock, and Executive will deliver to the Company a cashier’s or certified check or wire transfer of
immediately available funds in an aggregate amount equal to $88,698.00 as payment for such shares
of Common Stock.




          (b) Upon the purchase from time to time by the Investors of shares of Preferred Stock pursuant
to Section 1B of the Purchase Agreement, Executive will purchase, and the Company will
sell, up to an aggregate of 11.302 shares of Preferred Stock at a price of $1,000 per share. The
number of shares of Preferred Stock to be sold by the Company and






 









 







purchased by Executive at any time shall equal (i) 11.302 shares of Preferred Stock,
multiplied by (ii) a fraction (A) the numerator of which will be the number of
shares of Preferred Stock to be concurrently purchased by the Investors and (B) the denominator of
which will be 196,000.000. The Company will deliver to Executive copies of the certificates
representing such Executive Securities in exchange for a purchase price equal to $1,000 per share
for each share of Preferred Stock multiplied by the number of such shares so purchased by
Executive.




          (c) 1,105,838 of the shares of Common Stock acquired pursuant to Section 1(a) above
are referred to herein as the “Carried Common Stock.” The remaining shares of Common Stock
that are acquired pursuant to Section 1(a) above are referred to herein as the
“Co-Invest Common Stock.” All Preferred Stock and the Co-Invest Common Stock acquired by
Executive hereunder are referred to herein as the “Co-Invest Stock,”




          (d) Within 30 days after the purchase of any Carried Common Stock hereunder (including,
without limitation, upon the execution hereof), Executive will make an effective election with the
Internal Revenue Service under Section 83(b) of the Internal Revenue Code and the regulations
promulgated thereunder in the form of Exhibit A attached hereto.




          (e) Until released upon the occurrence of a Sale of the Company or a Public Offering as
provided below, all stock certificates evidencing Executive Securities shall be held by the Company
for the benefit of Executive and the other holder(s) of Executive Securities. Upon the occurrence
of a Sale of the Company, the Company will return all stock certificates evidencing Executive
Securities to the record holders thereof. Upon the consummation of a Public Offering, the Company
will return to the record holders thereof stock certificates evidencing the Co-Invest Stock and the
Vested Carried Common Stock.




          (f) In connection with the purchase and sale of the Executive Securities, Executive represents
and warrants to the Company that:





     (i) The Executive Securities to be acquired by Executive pursuant to this Agreement
will be acquired for Executive’s own account and not with a view to, or intention of,
distribution thereof in violation of the Securities Act, or any applicable state securities
laws, and the Executive Securities will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.




     (ii) Executive is an executive officer of the Company and Employer, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the investment in the
Executive Securities.




     (iii) Executive is an “accredited investor” within the meaning of Securities and
Exchange Commission Rule 501 of Regulation D.




     (iv) Executive is able to bear the economic risk of his investment in the Executive
Securities for an indefinite period of time because the Executive Securities have not been
registered under the Securities Act and, therefore, cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration is available.



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     (v) Executive has had an opportunity to ask questions and receive answers concerning
the terms and conditions of the offering of Executive Securities and has had full access to
such other information concerning the Company as he has requested.




     (vi) This Agreement constitutes the legal, valid and binding obligation of Executive,
enforceable in accordance with its terms, and the execution, delivery and performance of
this Agreement by Executive does not and will not conflict with, violate or cause a breach
of any agreement. contract or instrument to which Executive is a party or any judgment,
order or decree to which Executive is subject.




     (vii) Executive is neither party to, nor bound by, any other employment agreement,
consulting agreement, noncompete agreement, non-solicitation agreement or confidentiality
agreement, except for that certain Executive Severance Agreement between Executive and
Province Healthcare Company, dated on or about October 18, 1999 (the “Severance
Agreement”). The Severance Agreement has not been amended. Without limiting the
foregoing, Executive’s duties to the Company and its Subsidiaries will not conflict with or
breach the terms of the Severance Agreement.




     (viii) Executive is a resident of the State of Tennessee.



          (g) As an inducement to the Company to issue the Executive Securities to Executive, and as a
condition thereto, Executive acknowledges and agrees that neither the issuance of the Executive
Securities to Executive nor any provision contained herein shall entitle Executive to remain in the
employment of the Company. Employer or their respective Subsidiaries or affect the right of the
Company, Employer or their respective Subsidiaries to terminate Executive’s employment at any time
for any reason.




          (h) Concurrently with the execution of this Agreement, Executive shall execute in blank ten
stock transfer powers in the form of Exhibit B attached hereto (the “Stock Powers”)
with respect to the Executive Securities and shall deliver such Stock Powers to the Company. The
Stock Powers shall authorize the Company to assign, transfer and deliver the Executive Securities
to the appropriate acquiror thereof pursuant to Section 3 below or Section 4 of the
Stockholders Agreement and under no other circumstances.




          (i) At the Closing, if Executive is lawfully married, Executive’s spouse shall execute the
Consent in the form of Exhibit C attached hereto.




          (j) At the Closing, Executive shall become a party to the Stockholders Agreement and the
Registration Agreement, in each case, in the capacity of an Executive.




          2. Vesting of Carried Common Stock.




          (a) The Co-invest Stock acquired by Executive shall be vested upon the purchase thereof. The
Carried Common Stock shall be subject to vesting in the manner specified in this Section 2.







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          (b) Except as otherwise provided in this Section 2, the Carried Common Stock shall
become vested in accordance with the following schedule, if as of each such date Executive is
employed by the Company or any of its Subsidiaries:




	 	 	 	 	 
	 	 	Cumulative Percentage of
	 	 	Carried Common Stock Vested
	First Anniversary of Initial Vesting Date
	 	 	20	%
	Second Anniversary of Initial Vesting Date
	 	 	40	%
	Third Anniversary of Initial Vesting Date
	 	 	60	%
	Fourth Anniversary of Initial Vesting Date
	 	 	80	%
	Fifth Anniversary of Initial Vesting Date
	 	 	100	%






          (c) Upon the occurrence of a Sale of the Company, all Carried Common Stock which has not yet
become vested shall become vested as of the date of consummation of the Sale of the Company, if, as
of such date, Executive has been continuously employed by the Company, Employer or any of their
respective Subsidiaries from the Initial Vesting Date and including such date.




          (d) Carried Common Stock that has become vested (“Vested Carried Common Stock”) and
the shares of Co-Invest Stock that are shares of Common Stock are referred to herein as “Vested
Common Stock.” The Vested Common Stock and the Preferred Stock are collectively referred to
herein as “Vested Stock.” All Carried Common Stock that has not vested is referred to
herein as “Unvested Common Stock.”




          3. Repurchase of Executive Securities.




          (a) In the event Executive ceases to be employed by the Company or any of its Subsidiaries for
any reason (the “Separation”), the Executive Securities (whether held by Executive or one
or more of Executive’s transferees, other than the Company and the Investors) will be subject to
repurchase, in each case by the Company and the Investors pursuant to the terms and conditions set
forth in this Section 3 (the “Repurchase Option”). The Company may assign its
repurchase rights set forth in this Section 3 to any Person.




          (b) In the event of a Separation, (i) the purchase price for each share of Unvested Common
Stock will be the lesser of (A) Executive’s Original Cost for such share, and (B) the Fair Market
Value of such share as of the date of the Repurchase Notice (as defined in Section 3(c)
below) delivered pursuant to this Section 3, and (ii) the purchase price for each share of
Vested Stock will be the greater of (A) Executive’s Original Cost for such share and (B) the Fair
Market Value of such share as of the date of the Repurchase Notice delivered pursuant to this
Section 3 (including, in the case of Preferred Stock, all accrued dividends thereon);
provided, however, that if Executive’s employment is terminated with Cause, the purchase
price for each share of Vested Carried Common Stock will be the lesser of (A) Executive’s Original
Cost for such share and (B) the Fair Market Value of such share as of the date of the Repurchase
Notice.




          (c) In the event of a Separation, the Company (with the approval of the Board) may elect to
purchase all or any portion of the Unvested Common Stock and/or the





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Vested Stock by delivering
written notice (the “Repurchase Notice”) to the holder or holders of such Executive Securities on or prior to the date which is twelve months and one day after the
Separation; provided that the Company may not deliver the Repurchase Notice with respect to any
shares of Vested Carried Common Stock earlier than 181 days after the date such shares became
Vested Carried Common Stock. The Repurchase Notice will set forth the number of shares of Unvested
Common Stock and Vested Stock to be acquired from each holder, the aggregate consideration to be
paid for such shares in accordance with Section 3(b) above and the time and place for the
closing of the transaction. The number of Executive Securities to be repurchased by the Company
shall first be satisfied to the extent possible from the Executive Securities held by Executive at
the time of delivery of the Repurchase Notice. If the number of Executive Securities then held by
Executive is less than the total number of Executive Securities that the Company has elected to
purchase, the Company shall purchase the remaining Executive Securities elected to be purchased
from the other holder(s) of Executive Securities under this Agreement, pro rata according to the
number of Executive Securities held by such other holder(s) at the time of delivery of such
Repurchase Notice (determined as nearly as practicable to the nearest share).




          (d) If for any reason the Company issues a Repurchase Notice but does not elect to purchase
all of the Executive Securities pursuant to the Repurchase Option, the Investors shall be entitled
to exercise the Repurchase Option for all or any portion of the Executive Securities the Company
has not elected to purchase (the “Available Securities”). As soon as practicable after the
Company has determined that there will be Available Securities, but in any event within ten months
after the Separation, the Company shall give written notice (the “Option Notice”) to the
Investors setting forth the number of Available Securities and the purchase price for the Available
Securities. The Investors may elect to purchase any or all of the Available Securities by giving
written notice to the Company within one month after the Option Notice has been given by the
Company. If the Investors elect to purchase an aggregate number greater than the number of
Available Securities, the Available Securities shall be allocated among the Investors based upon
the number of shares of Common stock owned by each Investor. As soon as practicable, and in any
event within ten days after the expiration of the one month period set forth above, the Company
shall notify each holder of Executive Securities as to the number of shares being purchased from
such holder by the Investors (the “Supplemental Repurchase Notice”). At the time the
Company delivers the Supplemental Repurchase Notice to the holder(s) of Executive Securities, the
Company shall also deliver written notice to each Investor setting forth the number and type of
shares such Investor is entitled to purchase, the aggregate purchase price in accordance with
Section 3(b) above and the time and place of the dosing of the transaction. The number of
shares of Unvested Common Stock and Vested Stock to be repurchased hereunder shall be allocated
among the Company and the Investors pro rata according to the number of Executive Securities to be
purchased by each of them.




          (e) The closing of the purchase of the Executive Securities pursuant to the Repurchase Option
shall take place on the date designated by the Company in the Repurchase Notice or Supplemental
Repurchase Notice, which date shall not be more than one month nor less than 5 days after the
delivery of the later of either such notice to be delivered. The Company will pay for the Executive
Securities to be purchased by it pursuant to the Repurchase Option by first offsetting amounts
outstanding under any bona fide debts owed by Executive to the Company, and will pay the remainder
of the purchase price (if any) by, at its option, a check or






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wire transfer of funds. Each Investor
will pay for the Executive Securities purchased by it by a check or wire transfer of funds (and with no other form of consideration). The Company and the
Investors will be entitled to receive customary representations and warranties from the sellers
regarding such sale and to require that all sellers’ signatures be guaranteed.




          (f) Notwithstanding anything to the contrary contained in this Agreement, all repurchases of
Executive Securities by the Company pursuant to the Repurchase Option shall be subject to
applicable restrictions contained in the Delaware General Corporation Law or such other governing
corporate law, and in the Company’s and its Subsidiaries’ debt and equity financing agreements. In
furtherance of the foregoing, if any such restrictions prohibit (i) the repurchase of Executive
Securities hereunder which the Company is otherwise entitled or required to make or (ii) dividends
or other transfers of funds from one or more Subsidiaries to the Company to enable any such
repurchases, then the Company may make such repurchases as soon as it is permitted to do so under
such restrictions.




          (g) Notwithstanding anything to the contrary contained in this Agreement, if the Fair Market
Value of Executive Securities is finally determined to be an amount at least 10% greater than the
per share repurchase price for such share of Executive Securities in the Repurchase Notice or in
the Supplemental Repurchase Notice, each of the Company and the Investors shall have the right to
revoke its exercise of the Repurchase Option for all or any portion of the Executive Securities
elected to be repurchased by it by delivering notice of such revocation in writing to the holders
of Executive Securities during the thirty-day period beginning on the date that the Company and/or
the Investors are given written notice that the Fair Market Value of a share of Executive
Securities was finally determined to be an amount at least 10% greater than the per share
repurchase price for Executive Securities set forth in the Repurchase Notice or in the Supplemental
Repurchase Notice.




          (h) Notwithstanding anything to the contrary contained in this Agreement and consistent with
Section 12 of the Stockholders Agreement, in addition to all other rights and remedies which might
otherwise be available to the Company and the Investors, in the event Executive fails to purchase
any of the Executive Securities that he is required to purchase pursuant to Section 1(b)
above (a “Triggering Event”), the Co-Invest Stock purchased by Executive (whether held by
Executive or one or more of Executive’s transferees, other than the Company and the Investors) will
be subject to repurchase, in each case, by the Company and the Investors pursuant to the terms,
conditions and procedures set forth in this Section 3 with respect to a repurchase in the
event of a Separation. Notwithstanding anything in this Section 3 to the contrary, in
addition to all other rights and remedies which might otherwise be available to the Company and the
Investors pursuant to this Agreement, upon a Triggering Event (even if there is also a Separation),
the purchase price for each share of Co-Invest Stock to be repurchased pursuant to this Section
3(h) will be the Fair Market Value of such share as of the date of the Repurchase Notice for
any share repurchased pursuant to this Section 3(h).




          (i) If Executive’s employment is terminated by Employer without Cause or if Executive resigns
for Good Reason, then within thirty days after such termination, Executive shall have the right to
require the Company to repurchase all of the Co-Invest Stock then held by Executive by delivering a
written notice to the Company (the “Put Notice”) at the Fair Market Value of such shares as
of the date of the Put Notice, subject to the terms of this paragraph. The






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closing of the purchase
of the Executive Securities pursuant to the Put Notice (the “Put Closing”) shall take place on the date designated by the Company, which date shall not be more than
ninety days nor less than 5 days after the delivery of the Put Notice by Executive. At the Put
Closing, Executive shall deliver to the Company certificates representing all of the outstanding
Co-Invest Stock to be repurchased by the Company free and clear of all liens and encumbrances and
duly endorsed in blank or accompanied by duly executed forms of assignment (with signatures
guaranteed), and the Company will pay for the Co-Invest Stock to be purchased by it pursuant to
this paragraph by (1) first, offsetting amounts outstanding under any bona fide debts owed by
Executive to the Company and (2) second, paying the remainder (if any) of the purchase price by a
check or wire transfer of funds. The Company will be entitled to receive customary representations
and warranties from Executive regarding such sale. Notwithstanding anything to the contrary
contained in this Agreement, all repurchases of Co-Invest Stock by the Company pursuant to this
paragraph shall be subject to applicable restrictions contained in the Delaware General Corporation
Law or such other governing corporate law, and in the Company’s and its Subsidiaries’ debt and
equity financing agreements. In furtherance of the foregoing, if any such restrictions prohibit (i)
the repurchase of Co-Invest Stock hereunder which the Company is otherwise required to make or (ii)
dividends or other transfers of funds from one or more Subsidiaries to the Company to enable any
such repurchases, then the Company shall make such repurchases as soon as it is permitted to do so
under such restrictions.




          (j) The provisions of this Section 3 shall terminate with respect to Vested Stock upon
the consummation of a Public Offering.




          4. Restrictions on Transfer of Executive Securities.




          (a) Transfer of Executive Securities. The holders of Executive Securities shall not
Transfer any interest in any shares of Executive Securities, except pursuant to (i) the provisions
of Section 3 hereof, (ii) the provisions of Section 3 of the Stockholders Agreement
(Participation Rights) (a “Participating Sale”), (iii) an Approved Sale (as defined in
Section 5 of the Stockholders Agreement (Sale of the Company)), or (iv) the provisions of
Section 4(b) below.




          (b) Certain Permitted Transfers. The restrictions in this Section 4 will not
apply with respect to any Transfer of Executive Securities made (i) pursuant to applicable laws of
descent and distribution or to such Person’s legal guardian in the case of any mental incapacity or
among such Person’s Family Group, or (ii) of shares of Common Stock at such time as the Investors
sell Common Stock in a Public Sale, but in the case of this clause (ii) only an amount of
shares (the “Transfer Amount”) equal to the lesser of (A) the sum of the number of shares
of Vested Common Stock owned by Executive and (B) the result of the number of shares of Common
Stock owned by Executive multiplied by a fraction (the “Transfer Fraction”), the numerator
of which is the number of shares of Common Stock sold by the Investors in such Public Sale and the
denominator of which is the total number of shares of Common Stock held by the Investors prior to
the Public Sale; provided that, if at the time of a Public Sale of stock by the Investors,
Executive chooses not to Transfer the Transfer Amount, Executive shall retain the right to Transfer
an amount of Common Stock at a future date equal to the lesser of (x) the sum of the number of shares of Vested Common Stock owned by Executive at such future date and (y) the result of the
number of the shares of Common Stock owned by Executive at such future





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date multiplied by the
Transfer Fraction; provided further that the restrictions contained in this
Section 4 will continue to be applicable to the Executive Securities after any
Transfer of the type referred to in clause (i) above and the transferees of such Executive
Securities must agree in writing to be bound by the provisions of this Agreement. Any transferee of
Executive Securities pursuant to a Transfer in accordance with the provisions of clause (i)
of this Section 4(b) is herein referred to as a “Permitted Transferee.” Upon the
Transfer of Executive Securities pursuant to this Section 4(b), the transferring holder of
Executive Securities will deliver a written notice to “Transfer Notice”) to the Company. In
the case of a Transfer pursuant to clause (i) hereof, the Transfer Notice will disclose in
reasonable detail the identity of the Permitted Transferee(s).




          (c) Termination of Restrictions. The restrictions set forth in this Section 4
will continue with respect to each share of Executive Securities until the earlier of (i) the date
on which such share of Executive Securities has been transferred in a Public Sale permitted by this
Section 4, or (ii) the consummation of a Sale of the Company.




          5. Additional Restrictions on Transfer of Executive
Securities.




          (a) Legend. The certificates representing the Executive Securities will bear a legend
in substantially the following form:





“THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED AS OF MAY
__, 2005, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER
AGREEMENTS SET FORTH IN A SENIOR MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND AN
EXECUTIVE OF THE COMPANY AND OTHER PARTIES, DATED AS OF MAY ___, 2005. A COPY OF
SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY’S PRINCIPAL
PLACE OF BUSINESS WITHOUT CHARGE.




THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS. A FULL
STATEMENT OF ALL OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES
THEREON AUTHORIZED TO BE ISSUED BY THE COMPANY AND THE QUALIFICATIONS, LIMITATIONS
OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.”



          (b) Opinion of Counsel. No holder of Executive Securities may Transfer any Executive
Securities (except pursuant to Section 3 or 4(b) of this Agreement, Section 5 of
the Stockholders Agreement (Sale of the Company) or an effective registration statement under the






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Securities Act) without first delivering to the Company a written notice describing in reasonable
detail the proposed Transfer, together with an opinion of counsel (reasonably acceptable in
form and substance to the Company) that neither registration nor qualification under the
Securities Act and applicable state securities laws is required in connection with such transfer.
In addition, if the holder of the Executive Securities delivers to the Company an opinion of
counsel that no subsequent Transfer of such Executive Securities shall require registration under
the Securities Act, the Company shall promptly upon such contemplated Transfer deliver new
certificates for such Executive Securities that do not bear the Securities Act portion of the
legend set forth in Section 5(a). If the Company is not required to deliver new
certificates for such Executive Securities not bearing such legend, the holder thereof shall not
Transfer the same until the prospective transferee has confirmed to the Company in writing its
agreement to be bound by the conditions contained in this Section 5.




PROVISIONS RELATING TO EMPLOYMENT




          6. Employment. Employer agrees to employ Executive and Executive accepts such
employment for the period beginning as of the Employment Date and ending upon his Separation (the
“Employment Period”). Notwithstanding anything in this Agreement to the contrary, express
or implied, (i) the Employment Period shall terminate immediately upon Executive’s resignation (for
Good Reason or without Good Reason), death or Disability and (ii) the Employment Period may be
terminated by Employer at any time for Cause or without Cause. Except as otherwise provided herein,
any termination of the Employment Period by Employer shall be effective as of the date specified in
a written notice from Employer to Executive.




          (a) Position and Duties.





     (i) During the Employment Period, Executive shall serve as the Senior Vice President of
Acquisitions and Development of the Company and shall have the normal duties,
responsibilities and authority implied by such position, including, without limitation, the
responsibilities associated with all aspects of the daily operations of Employer and the
identification, negotiation, completion and integration of any acquisitions made by the
Company, Employer or their Subsidiaries, subject to the power of the Board or the Chief
Executive Officer to expand or limit such duties, responsibilities and authority and to
override actions of the Senior Vice President of Acquisitions and Development of the
Company.




     (ii) Executive shall report to the Chief Executive Officer, and Executive shall devote
his best efforts and his full business time and attention to the business and affairs of the
Company, Employer and their Subsidiaries.



          (b) Salary, Bonus and Benefits. During the Employment Period, Employer will pay
Executive a base salary of $200,000 per annum or such other higher rate as the Board may determine
from time to time (the “Annual Base Salary”), which salary shall be payable by Employer in
regular installments in accordance with Employer’s general payroll practices (in effect from time
to time); provided that commencing on the Initial Vesting Date, the Annual Base Salary
shall be increased to $250,000 per annum. In addition to the Annual Base Salary, Executive shall be
eligible for an annual base bonus (the “Annual Bonus”) following the end of






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each fiscal
year of the Company during the Employment Period commencing on the first fiscal
year of the Company after the Initial EBITDA Condition Date (as hereinafter defined) of up to
100% of the Annual Base Salary, as determined by the Board in its sole discretion based upon
achievement by Executive and achievement by the Company, Employer and their Subsidiaries of
performance criteria and other goals established by the Board (or the Compensation Committee
established by the Board); provided that with respect to the first year for which Executive
is eligible for a bonus, such bonus shall be paid on a pro rata basis based upon that portion of
the year that remained after the Initial EBITDA Condition Date. Any bonus with respect to any
fiscal year shall be payable on or prior to March 15 of the following fiscal year. In addition,
during the Employment Period, Executive will be entitled to such other benefits approved by the
Board and made available to the senior management of the Company, Employer and their Subsidiaries.
For purposes of this Agreement. the “Initial EBITDA Target” shall mean first month-end in
which the Company has achieved consolidated EBITDA of at least $30 million on a pro forma basis
(after giving effect to any acquisitions or dispositions by the Company or any of its subsidiaries
that have been consummated) over the full twelve calendar month period ending on such day.




          (c) During the Employment Period, Employer shall reimburse Executive for all reasonable
business expenses incurred by him in the course of performing his duties and responsibilities under
this Agreement which are consistent with Employer’s policies in effect from time to time with
respect to travel, entertainment and other business expenses, subject to Employer’s requirements
with respect to reporting and documentation of such expenses.




          (d) All amounts payable to Executive as compensation hereunder shall be subject to all
required and customary withholding by Employer.




          (e) Separation. The Employment Period will continue until (i) Executive’s Disability
or death, (ii) Executive’s termination of the Employment Period for any reason or (iii) the Board’s
or Employer’s termination of the Employment Period with or without Cause. If Executive’s employment
is terminated by Employer without Cause or as a result of Disability or death or Executive resigns
for Good Reason, then during the one-year period commencing on the date of termination (the
“Severance Period”), Executive shall be entitled to receive his Annual Base Salary, in each
case payable by Employer in regular installments in accordance with Employer’s general payroll
practices (in effect from time to time). Notwithstanding the foregoing, (A) Executive shall not be
entitled to receive any severance payments pursuant to this Section 6(e) unless Executive
has executed and delivered to Employer a general release in form and substance satisfactory to
Employer and (B) Executive shall be entitled to receive such severance payments only so long as
Executive has not breached the provisions of Sections 7 or 8 hereof. Except as
otherwise expressly provided in this Section 6(e), Executive shall not be entitled to
receive any severance payments from and after the date of termination.




          7. Confidential Information.




          (a) Obligation to Maintain Confidentiality. Executive acknowledges that any trade
secrets or other information, observations and data obtained by him during the course of his
performance under this Agreement (or during any pre-employment discussions or negotiations)
concerning the business or affairs of the Company, Employer or their respective Subsidiaries or






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Affiliates, other than information already known by Executive prior to his employment with
Employer (other than any pre-employment discussions or negotiations) (“Confidential
Information”) are the property of the Company, Employer or such Subsidiaries or Affiliates,
including information concerning Work Product (as defined below) and acquisition opportunities in
or reasonably related to the Company’s and Employer’s business or industry of which Executive
becomes aware during the Employment Period. Therefore, Executive agrees that he will not, during
the Employment Period and thereafter, disclose to any unauthorized Person or use for his own
account, or the account of any unauthorized Person, any Confidential Information without the
Board’s written consent, unless and to the extent that the Confidential Information, (i) becomes
generally known to and available for use by the public other than as a result of Executive’s acts
or omissions to act or (ii) is required to be disclosed pursuant to any applicable law or court
order, provided that Executive uses all reasonable efforts to obtain confidential treatment of such
information. Executive shall deliver to the Company at a Separation, or at any other time the
Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and
software and other documents and data (and copies thereof) relating to the Confidential
Information, Work Product (as defined below) or the business of the Company, Employer and their
respective Subsidiaries and Affiliates (including, without limitation, all acquisition prospects,
lists and contact information) which he may then possess or have under his control.




          (b) Ownership of Property. Executive acknowledges that all discoveries, concepts,
ideas, inventions, innovations, improvements, developments, methods, processes, programs, designs,
analyses, drawings, reports, invention disclosures, patent applications, copyrightable works
(including mask works), trademarks, trade names and other source identifiers, and all registrations
or applications related to the foregoing and all other proprietary information and all similar or
related information (whether or not patentable and whether or not including trade secrets or other
confidential information) that relate to the Company’s, Employer’s or any of their respective
Subsidiaries’ or Affiliates’ actual or anticipated business, research and development, or existing
or planned future products or services and that are conceived, developed, designed, made authored,
contributed to, or reduced to practice by Executive (either solely or jointly with others) while
employed by the Company, Employer or any of their respective Subsidiaries or Affiliates (“Work
Product”) belong to the Company, Employer or such Subsidiary or Affiliate, and Executive hereby
assigns, and agrees to assign, all Work Product, and all intellectual property embodied therein, to
the Company, Employer or to such Subsidiary or Affiliate. Notwithstanding the foregoing, any
copyrightable work authored or prepared in whole or in part by Executive in the course of his work
for any of the foregoing entities shall be deemed a “work made for hire” under the copyright laws
of the United States, and the Company, Employer or such Subsidiary or Affiliate shall own all
rights therein. To the extent that any such copyrightable work is deemed not to be a “work made for
hire,” Executive hereby assigns and agrees to assign to the Company, Employer or such Subsidiary or
Affiliate all right, title, and interest, in and to such copyrightable work and all intellectual
property embodied therein. Executive shall promptly disclose all Work Product to the Board.
Executive represents and warrants to the Company and Employer that he does not now nor has he ever
owned, nor has he ever made, any materials prior to the Employment Period that relate to the
Company’s, Employer’s or their respective Subsidiaries’ or Affiliates’ actual or anticipated
business, research and development or existing or planned future products or services. Executive
hereby agrees to perform all actions reasonably requested by the Board (whether during or after the
Employment





11









 







Period) to establish and confirm the Company’s, Employer’s or such Subsidiary’s or
Affiliate’s
ownership of any Work Product (including, without limitation, by executing assignments,
consents, powers of attorney, and other instruments). Should the Company, Employer or such
Subsidiary or Affiliate be unable to secure Executive’s signature on any document necessary to
apply for, prosecute, obtain, or enforce any patent, copyright, or other right or protection
relating to any Work Product, whether due to Executive’s mental or physical incapacity or any other
cause, Executive hereby irrevocably designates and appoints the Company, Employer or such
Subsidiary or Affiliate and each of its duly authorized officers and agents as his agent and
attorney-in-fact, to act for an in Executive’s behalf and stead, to execute and file any such
document, and to do all other lawfully permitted acts to further the prosecution, issuance, and
enforcement of patents, copyrights, trademarks or other rights or protections with the same force
and effect as if executed and delivered by Executive.




          (c) Notice of Statutory Exception. In accordance with certain state laws, Executive is
hereby advised that the foregoing Section 7(b) regarding ownership of Work Product does not
apply to any invention for which no equipment, supplies, facilities or trade secret information of
Company or its Subsidiaries or Affiliates was used and that was developed entirely on Executive’s
own time, unless (a) the invention relates to the business or actual or demonstrably anticipated
research or development of the Company or any Subsidiary or Affiliate, or (b) the invention results
from any work performed by Executive for the Company or any Subsidiary or Affiliate.




          (d) Third Party Information. Executive understands that the Company, Employer and
their respective Subsidiaries and Affiliates will receive from third parties confidential or
proprietary information (“Third Party Information”) subject to a duty on the Company’s,
Employer’s and/or their respective Subsidiaries’ and/or Affiliates’ part to maintain the
confidentiality of such information and to use it only for certain limited purposes. During the
Employment Period and thereafter, and without in any way limiting the provisions of Section
7(a) above, Executive will hold Third Party Information in the strictest confidence and will
not disclose to anyone (other than personnel and consultants of the Company, Employer or their
respective Subsidiaries or Affiliates who need to know such information in connection with their
work for the Company, Employer or their respective Subsidiaries and Affiliates) or use, except in
connection with his work for the Company, Employer or their respective Subsidiaries or Affiliates,
Third Party Information unless expressly authorized by a member of the Board in writing.




          (e) Use of Information of Prior Employers. During the Employment Period, Executive
will not improperly use or disclose any trade secrets or other confidential information, if any, of
any former employers or any other Person to whom Executive has an obligation of confidentiality,
and will not bring onto the premises of the Company, Employer or any of their respective
Subsidiaries or Affiliates any unpublished documents or any property belonging to any former
employer or any other Person to whom Executive has an obligation of confidentiality unless
consented to in writing by the former employer or Person. Executive will use in the performance of
his duties only information which is (i) generally known and used by persons with training and
experience comparable to Executive’s and which is (x) common knowledge in the industry or (y) is
otherwise legally in the public domain, (ii) is otherwise provided or developed by the Company,
Employer or any of their respective Subsidiaries or Affiliates or (iii)






12









 







in the case of materials,
property or information belonging to any former employer or other Person to whom Executive has an obligation of confidentiality, approved for such use in
writing by such former employer or Person.




          8. Noncompetition and Nonsolicitation. Executive acknowledges that in the course of
his employment with Employer he will become familiar with Confidential Information concerning the
Company, Employer and such Subsidiaries and that his services will be of special, unique and
extraordinary value to the Company. Employer and such Subsidiaries. Therefore, Executive agrees
that:




          (a) Noncompetition. During the Employment Period and for a period of one year
thereafter, Executive shall not directly or indirectly, anywhere in the United States, directly or
indirectly own, manage, control, participate in, consult with, render services for, or in any
manner engage in any business competing with the businesses of the Company, Employer or any of
their respective Subsidiaries in the acute care hospital industry. Nothing herein shall prohibit
Executive from being a passive owner of not more than 2% of the outstanding stock of any class of a
corporation that is publicly traded, so long as Executive has no active participation in the
business of such corporation.




          (b) Nonsolicitation. During the Employment Period and for a period of one year
thereafter, Executive shall not directly or indirectly through another entity (i) induce or attempt
to induce any employee or consultant of the Company, Employer or their respective Subsidiaries to
leave the employ of the Company, Employer or such Subsidiary, or in any way interfere with the
relationship between the Company, Employer and any of their respective Subsidiaries and any
employee or consultant thereof, (ii) hire any person who was an employee or consultant of the
Company, Employer or any of their respective Subsidiaries within 180 days after such person ceased
to be an employee or consultant of the Company, Employer or any of their respective Subsidiaries,
(iii) induce or attempt to induce any customer, supplier, licensor, licensee or other business
relation of the Company, Employer or any of their respective Subsidiaries to cease doing business
with the Company, Employer or such Subsidiary or in any way interfere with the relationship between
any such customer, supplier, licensee or business relation and the Company, Employer and any
Subsidiary or (iv) directly or indirectly acquire or attempt to acquire an interest in any business
relating to the business of the Company, Employer or any of their respective Subsidiaries and with
which the Company, Employer and any of their respective Subsidiaries has entertained discussions or
has requested and received information relating to the acquisition of such business by the Company,
Employer or any of their respective Subsidiaries in the two year period immediately preceding a
Separation.




          (c) Enforcement. If, at the time of enforcement of Section 7 or this
Section 8, a court holds that the restrictions stated herein are unreasonable under
circumstances then existing, the parties hereto agree that the maximum duration, scope or
geographical area reasonable under such circumstances shall be substituted for the stated period,
scope or area and that the court shall be allowed to revise the restrictions contained herein to
cover the maximum duration, scope and area permitted by law. Because Executive’s services are
unique and because Executive has access to Confidential information, the parties hereto agree that
money damages would be an inadequate remedy for any breach of this Agreement. Therefore, in the
event a breach or threatened breach of this Agreement, the Company, Employer, their respective




13









 







Subsidiaries or their successors or assigns may, in addition to other rights and remedies existing
in their favor, apply to any court of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce, or prevent any violations of the provisions hereof
(without posting a bond or other security).




          (d) Additional Acknowledgments. Executive acknowledges that the provisions of this
Section 8 are in consideration of: (i) employment with Employer, (ii) the issuance of the
Executive Securities by the Company and (iii) additional good and valuable consideration as set
forth in this Agreement. In addition, Executive agrees and acknowledges that the restrictions
contained in Section 7 and this Section 8 (x) are necessary to protect the
Company’s and Employer’s interest in their Confidential Information and other intellectual
property, and (y) do not preclude Executive from earning a livelihood, nor do they unreasonably
impose limitations on Executive’s ability to earn a living. In addition, Executive acknowledges (i)
that the business of the Company, Employer and their respective Subsidiaries will be conducted
throughout the United States, (ii) notwithstanding the state of incorporation or principal office
of the Company, Employer or any of their respective Subsidiaries, or any of their respective
executives, consultants or employees (including the Executive), it is expected that the Company and
Employer will have business activities and have valuable business relationships within its industry
throughout the United States, and (iii) as part of his responsibilities, Executive will be
traveling throughout the United States in furtherance of Employer’s business and its relationships.
Executive agrees and acknowledges that the potential harm to the Company and Employer of the
non-enforcement of Section 7 and this Section 8 outweighs any potential harm to
Executive of its enforcement by injunction or otherwise. Executive acknowledges that he has
carefully read this Agreement and has given careful consideration to the restraints imposed upon
Executive by this Agreement, and is in full accord as to their necessity for the reasonable and
proper protection of confidential and proprietary information of the Company and Employer now
existing or to be developed in the future. Executive expressly acknowledges and agrees that each
and every restraint imposed by this Agreement is reasonable with respect to subject matter, time
period and geographical area.




GENERAL PROVISIONS




          9. Definitions.




          “Affiliate” means, (i) with respect to any Person, any Person that controls, is
controlled by or is under common control with such Person or an Affiliate of such Person, and (ii)
with respect to any Investor, any general or limited partner of such Investor, any employee or
owner of any such partner, or any other Person controlling, controlled by or under common control
with such Investor; it being understood and agreed that GTCR Golder Rauner, L.L.C, and its
Affiliates shall for all purposes hereunder shall be Affiliates of GTCR II and its Affiliates.




          “Base Acquisition” means the first acquisition by the Company or any of its
Subsidiaries of one or more hospitals.




          “Board” means the Company’s board of directors.




14









 








          “Cause” means (i) the commission of, or entry of a plea of guilty or nolo contendere,
to a felony or a crime involving moral turpitude or any act or any other act or
omission involving dishonesty or fraud with respect to the Company, Employer or any of their
respective Subsidiaries or any of their customers or suppliers or stockholders, (ii) reporting to
work repeatedly under the influence of alcohol or reporting to work under the influence of illegal
drugs, the use of illegal drugs (whether or not at the workplace) or other repeated conduct causing
the Company, Employer or any of their respective Subsidiaries substantial public disgrace or
disrepute or substantial economic harm which, if curable, is not cured within 15 days following
written notice thereof to the Executive, (iii) substantial and repeated failure to perform duties
of the office held by the Executive as reasonably directed by the Board or the Chief Executive
Officer which is not cured within 15 days following written notice thereof to the Executive, (iv) a
breach of Executive’s duty of loyalty to the Company, Employer or any of their respective
Subsidiaries or Affiliates or any act of fraud or material dishonesty with respect to the Company,
Employer or any of their respective Subsidiaries or (v) any material breach of this Agreement or
any other agreement between Executive and the Company, Employer or any of their respective
Affiliates which is not cured within 15 days after written notice thereof to Executive.




          “Disability” means the disability of Executive caused by any physical or mental
injury, illness or incapacity as a result of which Executive is unable to effectively perform the
essential functions of Executive’s duties as determined by the Board in good faith.




          “EBITDA” means, with respect to any Person(s) for any period, the consolidated
earnings of such Person(s) for such period before interest, taxes, depreciation and amortization
for such period, determined on a consolidated basis in accordance with United States generally
accepted accounting principles as in effect from time to time.




          “Employment Date” means the date of this Agreement.




          “Executive Securities” will continue to be Executive Securities in the hands of any
holder other than Executive (except for the Company and the Investors and except for transferees in
a Public Sale), and except as otherwise provided herein, each such other holder of Executive
Securities will succeed to all rights and obligations attributable to Executive as a holder of
Executive Securities hereunder. Executive Securities will also include equity of the Company (or a
corporate successor to the Company or a Subsidiary of the Company) issued with respect to Executive
Securities (i) by way of a stock split, stock dividend, conversion, or other recapitalization, (ii)
by way of reorganization or recapitalization of the Company in connection with the incorporation of
a corporate successor prior to a Public Offering or (iii) by way of a distribution of securities of
a Subsidiary of the Company to the members of the Company following or with respect to a Subsidiary
Public Offering. Notwithstanding the foregoing, all shares of Unvested Common Stock shall remain
Unvested Common Stock after any Transfer thereof.




          “Fair Market Value” of each share of Executive Securities means the fair market value
of such Executive Securities as determined in good faith by the Board; provided that the
fair market value of the Executive Securities shall not be discounted based on the minority
ownership of the Executive. If Executive reasonably disagrees with such determination in the



15









 






event
of Executive’s termination of the Employment Period for any reason other than in connection with a
Sale of the Company or a Public Offering, Executive shall deliver to the Board
a written notice of objection within 10 days after delivery of the Repurchase Notice (or if no
Repurchase Notice is delivered, then within 10 days after delivery of the Supplemental Repurchase
Notice). Upon receipt of Executive’s written notice of objection, the Board and Executive will
negotiate in good faith to agree on such Fair Market Value. If such agreement is not reached within
30 days after the delivery of the Repurchase Notice (or if no Repurchase Notice is delivered, then
within 30 days after the delivery of the Supplemental Repurchase Notice), Fair Market Value shall
be determined by an appraiser jointly selected by the Board and Executive, which appraiser shall
submit to the Board and Executive a report within 30 days of its engagement setting forth such
determination. If the parties are unable to agree on an appraiser within 45 days after delivery of
the Repurchase Notice or the Supplemental Repurchase Notice, within 7 days, each party shall submit
the names of four nationally recognized firms that are engaged in the business of valuing
non-public securities, and each party shall be entitled to strike two names from the other party’s
list of firms, and the appraiser shall be selected by lot from the remaining four investment
banking firms. The appraiser shall not discount the fair market value of the Executive Securities
based upon the minority ownership of the Executive. The expenses of such appraiser shall be borne
by the Employer. The determination of such appraiser as to Fair Market Value shall be final and
binding upon all parties. If Executive is terminated within the 60-day period prior to the
Company’s initial Public Offering or Sale of the Company, then the fair market value shall be
determined based on the price per share applicable to the initial Public Offering or Sale of the
Company, as applicable.




          “Family Group” means a Person’s spouse and descendants (whether natural or adopted),
and any trust, family limited partnership, limited liability company or other entity wholly owned,
directly or indirectly, by such Person or such Person’s spouse and/or descendants that is and
remains solely for the benefit of such Person and/or such Person’s spouse and/or descendants and
any retirement plan for such Person.




          “Good Reason” shall mean (a) any decision by the Board which results in the primary
business of the Company being a business other than acquiring or operating acute-care hospitals,
(b) substantial detrimental change in the positions or responsibilities of the Executive without
the consent of Executive, (c) where the Executive’s benefits under the employee benefit or health
or welfare plans or programs of the Company are in the aggregate materially decreased (excluding
reductions due to general benefit plan changes applicable to Company employees generally, (d) the
failure by the Company to pay the Executive’s Base Salary or to provide for the Executive’s Annual
Bonus if and when due, (e) the relocation of Executive’s primary place of employment to a location
which is more than one hundred (100) miles from the city limits of Nashville, Tennessee, if any of
the foregoing (a) through (e) are not cured or remedied by Company (if capable of cure or remedy)
within 30 days after receiving notice thereof from the Executive.




          “Initial Vesting Date” means the date of the consummation of a Base Acquisition.




          “Original Cost” means, with respect to each share of Common Stock purchased hereunder,
$0.08 per share (as proportionately adjusted for all subsequent stock splits, stock dividends and
other recapitalizations), and with respect to each share of Preferred Stock




16









 







purchased hereunder,
$1,000.00 per share (as proportionately adjusted for all subsequent stock splits, stock dividends
and other recapitalizations).




          “Person” means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated
organization, investment fund, any other business entity and a governmental entity or any
department, agency or political subdivision thereof.




          “Public Offering” means the sale in an underwritten public offering registered under
the Securities Act of equity securities of the Company or a corporate successor to the Company.




          “Public Sale” means (i) any sale pursuant to a registered public offering under the
Securities Act or (ii) any sale to the public pursuant to Rule 144 promulgated under the Securities
Act effected through a broker, dealer or market maker (other than pursuant to Rule 144(k) prior to
a Public Offering).




          “Registration Agreement” means the Registration Agreement of even date herewith among
the Company and certain of its stockholders, as amended from time to time in accordance with its
terms.




          “Sale of the Company” means any transaction or series of transactions pursuant to
which any Person or group of related Persons other than the Investors or their Affiliates in the
aggregate acquire(s) (i) equity securities of the Company possessing the voting power (other than
voting rights accruing only in the event of a default, breach or event of noncompliance) to elect a
majority of the Board (whether by merger, consolidation, reorganization, combination, sale or
transfer of the Company’s equity, stockholder or voting agreement, proxy, power of attorney or
otherwise) or (ii) all or substantially all of the Company’s assets determined on a consolidated
basis; provided that a Public Offering shall not constitute a Sale of the Company.




          “Securities Act” means the Securities Act of 1933, as amended from time to time.




          “Stockholders Agreement” means the Stockholders Agreement of even date herewith among
the Company and certain of its stockholders, as amended from time to time pursuant to its terms.




          “Subsidiary” means, with respect to any Person, any corporation, limited liability
company, partnership, association, or business entity of which (i) if a corporation, a majority of
the total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company,
partnership, association, or other business entity (other than a corporation), a majority of
partnership or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination
thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership
interest in a limited liability company, partnership, association, or other business entity (other
than a corporation) if such Person or Persons shall be allocated a majority of limited liability
company,






17









 







partnership, association, or other business entity gains or losses or shall be or control
any managing director or general partner of such limited liability company, partnership,
association, or other business entity. For purposes hereof, references to a “Subsidiary” of any
Person shall be given effect only at such times that such Person has one or more Subsidiaries, and,
unless otherwise indicated, the term “Subsidiary” refers to a Subsidiary of the Company.




          “Subsidiary Public Offering” means the sale in an underwritten public offering
registered under the Securities Act of equity securities of Employer or another Subsidiary of the
Company.




          “Transfer” means to sell, transfer, assign, pledge or otherwise dispose of (whether
with or without consideration and whether voluntarily or involuntarily or by operation of law).




          10. Notices. Any notice provided for in this Agreement must be in writing and must be
either personally delivered, mailed by first class mail (postage prepaid and return receipt
requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the
address below indicated:




	 	 	 	 	 

	 

	 	If to the Company:
	 	Capella Holdings, Inc.
	 

	 	 	 	214 Overlook Circle #250
	 

	 	 	 	Brentwood, TN 37027
	 

	 	 	 	Attention: Chief Executive Officer
	 

	 	 	 	Facsimile: (615) 221-8735
	 
	 	 	 	 
	 

	 	with copies to:
	 	GTCR Golder Rauner, L.L.C.
	 

	 	 	 	6100 Sears Tower
	 

	 	 	 	Chicago, Illinois 60606-6402
	 

	 	 	 	Attention: Joseph P. Nolan
	 

	 	 	 	Peter M. Stavros
	 

	 	 	 	Facsimile: (312) 382-2201
	 
	 	 	 	 
	 

	 	 	 	Kirkland & Ellis LLP
	 

	 	 	 	200 East Randolph Drive
	 

	 	 	 	Chicago, Illinois 60601
	 

	 	 	 	Attention: Kevin R. Evanich, P.C.
	 

	 	 	 	Jeffrey A. Fine, Esq.
	 

	 	 	 	Facsimile: (312) 861-2200
	 
	 	 	 	 
	 

	 	If to Employer:
	 	Capella Healthcare, Inc.
	 

	 	 	 	214 Overlook Circle #250
	 

	 	 	 	Brentwood, TN 37027
	 

	 	 	 	Attention: Chief Executive Officer
	 

	 	 	 	Facsimile: (615) 221-8735






18









 






	 	 	 	 	 

	 

	 	with copies to:
	 	GTCR Golder Rauner, L.L.C.
	 

	 	 	 	6100 Sears Tower
	 

	 	 	 	Chicago, Illinois 60606-6402
	 

	 	 	 	Attention: Joseph P. Nolan
	 

	 	 	 	Peter M. Stavros
	 

	 	 	 	Facsimile: (312) 382-2201
	 
	 	 	 	 
	 

	 	 	 	Kirkland & Ellis LLP
	 

	 	 	 	200 East Randolph Drive
	 

	 	 	 	Chicago, Illinois 60601
	 

	 	 	 	Attention: Kevin R. Evanich, P.C.
	 

	 	 	 	Jeffrey A. Fine, Esq. Facsimile:
	 

	 	 	 	(312) 861-2200
	 
	 	 	 	 
	 

	 	If to Executive:
	 	David Andrew Slusser
	 

	 	 	 	9218 Concord Road
	 

	 	 	 	Brentwood, Tennessee 37027
	 
	 	 	 	 
	 

	 	If to the Investors:
	 	GTCR Golder Rauner, L.L.C.
	 

	 	 	 	6100 Sears Tower
	 

	 	 	 	Chicago, Illinois 60606-6402
	 

	 	 	 	Attention: Joseph P. Nolan
	 

	 	 	 	Peter M. Stavros
	 

	 	 	 	Facsimile: (312) 382-2201
	 
	 	 	 	 
	 

	 	 	 	Kirkland & Ellis LLP
	 

	 	 	 	200 East Randolph Drive
	 

	 	 	 	Chicago, Illinois 60601
	 

	 	 	 	Attention: Kevin R. Evanich, P.C.
	 

	 	 	 	Jeffrey A. Fine, Esq.
	 

	 	 	 	Facsimile: (312) 861-2200





or such other address or to the attention of such other Person as the recipient party shall have
specified by prior written notice to the sending party. Any notice under this Agreement will be
deemed to have been given when so delivered or sent or, if mailed, 5 days after deposit in the U.S.
mail.




          11. General Provisions.




          (a) Transfers in Violation of Agreement. Any Transfer or attempted Transfer of any
Executive Securities in violation of any provision of this Agreement shall be void, and the Company
shall not record such Transfer on its books or treat any purported transferee of such Executive
Securities as the owner or such equity for any purpose.




          (b) Severability. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will
not




19









 







affect any other provision or any other jurisdiction, but this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision
had never been contained herein.




          (c) Complete Agreement. This Agreement, those documents expressly referred to herein
and other documents of even date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.




          (d) No Strict Construction. The language used in this Agreement shall be deemed to be
the language chosen by the parties hereto to express their mutual intent, and no rule of strict
constriction shall be applied against any party.




          (e) Counterparts. This Agreement may be executed in separate counterparts (including
by means of facsimile), each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.




          (f) Successors and Assigns. Except as otherwise provided herein, this Agreement shall
hind and inure to the benefit of and be enforceable by Executive, the Company, Employer, the
Investors and their respective successors and assigns (including subsequent holders of Executive
Securities); provided that the rights and obligations of Executive under this Agreement
shall not be assignable except in connection with a permitted transfer of Executive Securities
hereunder.




          (g) Choice of Law. The law of the State of Delaware will govern all questions
concerning the relative rights of the Company, Employer and its stockholders. All other questions
concerning the construction, validity and interpretation of this Agreement and the exhibits hereto
will be governed by and construed in accordance with the internal laws of the State of Delaware,
without giving effect to any choice of law or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.




          (h) MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE
PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH
PARTY TO THIS AGREEMENT HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE BETWEEN OR AMONG ANY OF THE PARTIES HERETO, WHETHER
ARISING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY AND/OR THE RELATIONSHIP ESTABLISHED AMONG THE
PARTIES HEREUNDER.




20









 








          (i) Executive’s Cooperation. During the Employment Period and thereafter, Executive
shall cooperate with the Company, Employer and their respective Subsidiaries and Affiliates in any
disputes with third parties, internal investigation or administrative, regulatory or judicial
proceeding as reasonably requested by the Company (including, without limitation, Executive being
available to the Company upon reasonable notice for interviews and factual investigations,
appearing at the Company’s request to give testimony without requiring service
of a subpoena or other legal process, volunteering to the Company all pertinent information
and turning over to the Company all relevant documents which are or may come into Executive’s
possession, all at times and on schedules that are reasonably consistent with Executive’s other
permitted activities and commitments). In the event the Company requires Executive’s cooperation in
accordance with this paragraph after the Employment Period, the Company shall reimburse Executive
solely for reasonable travel expenses (including lodging and meals, upon submission of receipts).




          (j) Remedies. Each of the parties to this Agreement (and the investors as third-party
beneficiaries) will be entitled to enforce its rights under this Agreement specifically, to recover
damages and costs (including attorneys fees) caused by any breach of any provision of this
Agreement and to exercise all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of the provisions of
this Agreement and that any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific performance and/or other
injunctive relief in order to enforce or prevent any violations of the provisions of this
Agreement.




          (k) Amendment and Waiver. The provisions of this Agreement may be amended and waived
only with the prior written consent of the Company, Employer, Executive and the Majority Holders
(as defined in the Purchase Agreement).




          (l) Insurance. The Company, at its discretion, may apply for and procure in its own
name and for its own benefit life and/or disability insurance on Executive in any amount or amounts
considered available. Executive agrees to cooperate in any medical or other examination, supply any
information, and to execute and deliver any applications or other instruments in writing as may be
reasonably necessary to obtain and constitute such insurance. Executive hereby represents that he
has no reason to believe that his life is not insurable at rates now prevailing for healthy men of
his age.




          (m) Business Days. If any time period for giving notice or taking action hereunder
expires on a day which is a Saturday, Sunday or holiday in the state in which the Company’s chief
executive office is located, the time period shall be automatically extended to the business day
immediately following such Saturday, Sunday or holiday.




          (n) Indemnification and Reimbursement of Payments on Behalf of Executive. The Company
and its Subsidiaries shall be entitled to deduct or withhold from any amounts owing from the
Company or any of its Subsidiaries to Executive any federal, state, local or foreign withholding
taxes, excise taxes, or employment taxes (“Taxes”) imposed with respect to Executive’s
compensation or other payments from the Company or any of its Subsidiaries or Executive’s ownership
interest in the Company, including, without limitation, wages, bonuses,




21









 







dividends, the receipt or
exercise of equity options and/or the receipt or vesting of restricted equity. In the event the
Company or its Subsidiaries does not make such deductions or withholdings, Executive shall
indemnify the Company and its Subsidiaries for any amounts paid with respect to any such Taxes,
together with any interest, penalties and related expenses thereto.




          (o) Reasonable Expenses. The Company agrees to pay the reasonable fees and expenses of
Executive’s counsel arising in connection with the negotiation and execution of this Agreement and
the consummation of the transactions contemplated by this Agreement.




          (p) Termination. This Agreement (except for the provisions of Sections 6(a)
and (b)) shall survive a Separation and shall remain in full force and effect after such
Separation.




          (q) Adjustments of Numbers. All numbers set forth herein that refer to share prices or
amounts will be appropriately adjusted to reflect stock splits, stock dividends, combinations of
stock and other recapitalizations affecting the subject class of equity.




          (r) Deemed Transfer of Executive Securities. If the Company (and/or the Investors
and/or any other Person acquiring securities) shall make available, at the time and place and in
the amount and form provided in this Agreement, the consideration for the Executive Securities to
he repurchased in accordance with the provisions of this Agreement, then from and after such time,
the Person from whom such shares are to be repurchased shall no longer have any rights as a holder
of such shares (other than the right to receive payment of such consideration in accordance with
this Agreement), and such shares shall be deemed purchased in accordance with the applicable
provisions hereof and the Company (and/or the Investors and/or any other Person acquiring
securities) shall be deemed the owner and holder of such shares, whether or not the certificates
therefor have been delivered as required by this Agreement.




          (s) No Pledge or Security Interest. The purpose of the Company’s retention of
Executive’s stock certificates and executed stock powers is solely to facilitate the provisions set
forth in Section 3 herein and Sections 4 and 5 of the Stockholders Agreement and does not
constitute a pledge by Executive of, or the granting of a security interest in, the underlying
equity.




          (t) Rights Granted to GTCR and its Affiliates. Any rights granted to GTCR and its
Affiliates hereunder may also be exercised (in whole or in part) by their designees.




          (u) No Third-Party Beneficiaries. Except as specifically provided in this Agreement,
nothing herein expressed or implied is intended or shall be construed to confer upon or give to any
Person other than the parties hereto and their respective permitted successors and assigns, any
rights or remedies under or by reason of this Agreement, such third parties specifically including
employees, consultants and creditors of the Company, Employer and their respective Subsidiaries.




          (v) Delivery by Facsimile. This Agreement, the agreements referred to herein, and each
other agreement or instrument entered into in connection herewith or therewith or contemplated
hereby or thereby, and any amendments hereto or thereto, to the extent signed and delivered by
means of a facsimile machine, shall be treated in all manner and respects as an original agreement
or instrument and shall be considered to have the same binding legal effect as




22









 







if it were the
original signed version thereof delivered in person. At the request of any party hereto or to any
such agreement or instrument, each other party hereto or thereto shall reexecute original forms
thereof and deliver them to all other parties. No party hereto or to any such agreement or
instrument shall raise the use of a facsimile machine to deliver a signature or the
fact that any signature or agreement or instrument was transmitted or communicated through the
use of a facsimile machine as a defense to the formation or enforceability of a contract and each
such party forever waives any such defense.




*           *           *           *           *







23









 








          IN WITNESS WHEREOF, the parties hereto have executed this Senior Management Agreement on the
date first written above.




	 	 	 	 	 

	 	 	CAPELLA HOLDINGS, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Daniel S. Slipkovich
	 

	 	 	 	 
	 

	 	Name:
	 	Daniel S. Slipkovich
	 

	 	Its:
	 	Chief Executive Officer
	 
	 	 	 	 
	 	 	CAPELLA HEALTHCARE, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Daniel S. Slipkovich
	 

	 	 	 	 
	 

	 	Name:
	 	Daniel S. Slipkovich
	 

	 	Its:
	 	Chief Executive Officer
	 
	 	 	 	 
	 

	 	/s/ David Andrew Slusser
	 	 	 
	 	 	David Andrew Slusser






24









 






EXHIBIT A




May __, 2005




ELECTION TO INCLUDE SECURITIES IN GROSS

INCOME PURSUANT TO SECTION 83(b) OF THE

INTERNAL REVENUE CODE




          The undersigned purchased shares of Common Stock (the “Shares”), of Capella Holdings,
Inc., a Delaware corporation (the “Company”) on May ___, 2005 (the “Closing Date”).
Under certain circumstances, the Company has the right to repurchase certain of the Shares at cost
from the undersigned (or from the holder of the Shares, if different from the undersigned) should
the undersigned cease to be employed by the Company and its subsidiaries or upon certain other
events. Hence, the Shares are subject to a substantial risk of forfeiture and are non-transferable.
The undersigned desires to make an election to have the Shares taxed under the provision of Code
§83(b) at the time he purchased the Shares.




          Therefore, pursuant to Code §83(b) and Treasury Regulation § 1.83-2 promulgated thereunder,
the undersigned hereby makes an election, with respect to the Shares (described below), to report
as taxable income for calendar year 2005 the excess (if any) of the Shares’ fair market value on
May ___, 2005 over the purchase price thereof.




          The following information is supplied in accordance with Treasury Regulation § 1.83-2(e):




          1. The name, address and social security number of the undersigned:




David Andrew Slusser

9218 Concord Road

Brentwood, Tennessee 37027

SSN: ###-##-####




          2. A description of the property with respect to which the election is being made: 1,105,838
shares of Common Stock of the Company.




          3. The date on which the property was transferred May ___, 2005. The taxable year for which
such election is made: calendar year 2005.




          4. The restrictions to which the Shares are subject are set forth in a Senior Management
Agreement, dated May ___, 2005, between the Company, a subsidiary of the Company, and the
undersigned. A copy of the Senior Management Agreement is available upon request. In general, under
the Senior Management Agreement, 1,105,838 of the Shares are subject to a five-year vesting
schedule, with 20% of such Shares becoming vested on each anniversary of the purchase date if the
undersigned remains employed as of such date. The Company has an option to repurchase any unvested
Shares upon a termination of the undersigned’s employment prior to vesting, with a purchase price
equal to the undersigned’s original cost for the Shares or, if less, the fair market value of the
unvested Shares.







 









 








          5. The fair market value on May ___, 2005 of the property with respect to which the election
is being made, determined without regard to any lapse restrictions: $0.08 per share of Common
Stock.




          6. The amount paid for such property: $0.08 per share of Common Stock.




*           *           *           *           *







 









 








     A copy of this election has been furnished to the Secretary of the Company pursuant to
Treasury Regulations §1.83-2(e)(7). A copy of this election will be submitted with the 2005 federal
income tax return of the undersigned pursuant to Treasury Regulation §1.83-2(c).


Dated: May ___, 2005




	 	 	 	 	 
	 	
David Andrew Slusser

 	 



 









 






	 	 	 	 	 



EXHIBIT B




ASSIGNMENT SEPARATE FROM CERTIFICATE




          FOR VALUE RECEIVED, David Andrew Slusser (“Executive”) does hereby sell, assign and
transfer unto _________, a ________________, ______________ shares of _________________ of Capella
Holdings, Inc., a Delaware corporation (the “Company”), standing in the
undersigned’s name on the books of the Company represented by Stock Certificate Nos.
_________________ herewith and does hereby irrevocably constitute and appoint each principal of
GTCR Golder Rauner, L.L.C. or GTCR Golder Rauner II, L.L.C. (acting alone or with one or more other
such principals) as attorney to transfer the said securities on the books of the Company with full
power of substitution in the premises.




          This Assignment Separate from Certificate may be used only for purposes of or in connection
with transfers made in connection with Section 3 of that certain Senior Management Agreement among
the Company, Capella Healthcare, Inc., a Delaware corporation, and Executive, dated as of May __,
2005, as amended from time to time pursuant to its terms, or Section 4 of that certain Stockholders
Agreement, among the Company, Executive and certain stockholders of the Company, dated as of May
___, 2005, as amended from time to time pursuant to its terms.



Dated:                                         




	 	 	 	 	 
	 	
David Andrew Slusser

 	 



 









 







	 	 	 	 	 



EXHIBIT C




SPOUSAL CONSENT




          The undersigned spouse of Executive hereby acknowledges that I have read the foregoing Senior
Management Agreement and the Registration Agreement and the Stockholders Agreement referred to
therein, each executed by Executive and dated as of the date hereof, and that I understand their
contents. I am aware that the foregoing Senior Management Agreement and the Stockholders Agreement
provide for the repurchase of my spouse’s Executive Securities under certain circumstances and/or
impose other restrictions on such securities (including, without limitation, restrictions on
transfer). I agree that my spouse’s interest in these securities is subject to these restrictions
and any interest that I may have in such securities shall be irrevocably bound by these agreements
and further, that my community property interest, if any, shall be similarly bound by these
agreements.




	 	 	 	 

	 	 
	 	Date:                                          , 2005
	 	 	 	 
	 	 	 	 
	 	Spouse’s Name:	 	 






 






	 	 	 	 

	 	 
	 	Date:                                          , 2005
	 	 	 	 
	 	 	 	 
	 	Witness’ Name: