exv10w18






EXHIBIT 10.18




SENIOR MANAGEMENT AGREEMENT




          THIS SENIOR MANAGEMENT AGREEMENT (this “Agreement”) is made as of October 17, 2005, by
and among Capella Holdings, Inc., a Delaware corporation (the “Company”), Capella
Healthcare, Inc., a Delaware corporation (“Employer”), and Denise Wilder Warren
(“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 789,896 shares of the
Company’s Common Stock (the “Common Stock”). All 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 consent of the Majority Holders (as defined in the Purchase Agreement) pursuant to Section 3C
of the Purchase Agreement. For purposes of this Agreement, the “Purchase Agreement” shall
mean that certain Stock Purchase Agreement, dated as of May 4, 2005, among the Company and the
other parties set forth therein. For purposes of this Agreement, “GTCR II” shall mean GTCR
Golder Rauner II, L.L.C. and the “Investors” shall mean GTCR II or any other investment
fund managed by GTCR II or GTCR Golder Rauner, L.L.C. 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, 789,896 shares of Common Stock at a price of $0.50 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 promissory note in the form of Exhibit A
attached hereto (the “Executive Note”) in an aggregate principal amount equal to
$394,948.00 as payment for such shares of Common Stock.



          (b) Within 30 days after the purchase of the Executive Securities 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 B attached hereto.



          (c) 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



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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 Vested Common Stock (as defined in
Section 2(d) below).




          (d) 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 her 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.




          (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 she 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.




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




          (ix) This Agreement has been executed and delivered, and the Executive Securities have
been granted hereunder, in connection with and as a part of the compensation and incentive
arrangements between the Company and Executive and the issuance of the Executive Securities
hereunder is intended to qualify for an exemption (the “Exemption”) from the
registration requirements under the Act (as defined in Section 5(a) below), pursuant
to Rule 701 thereof, and under applicable state securities laws. In the event that any
provision of this Agreement would cause the Executive Securities hereunder to not qualify
for the Exemption, Executive agrees that this Agreement shall be deemed automatically
amended to the extent necessary to cause the Executive Securities to qualify for the
Exemption.



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          (e) 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.



          (f) Concurrently with the execution of this Agreement, Executive shall execute in blank ten
stock transfer powers in the form of Exhibit C 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.



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



          (h) 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 Common Stock.



          (a) The Executive Securities shall be subject to vesting in the manner specified in this
Section 2.



          (b) Except as otherwise provided in this Section 2, the Executive Securities 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 
	 	 	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 Executive Securities which have 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) Executive Securities that have become vested are referred to herein as “Vested Common
Stock.” All Executive Securities that have not vested is referred to herein as “Invested
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





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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 Common 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; provided, however, that if Executive’s employment is terminated with
Cause, the purchase price for each share of Vested 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 Vested Common 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 Common Stock earlier than 181 days after the date such shares became Vested
Common Stock. The Repurchase Notice will set forth the number of shares of Unvested Common Stock
and Vested Common 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 closing of the transaction. The number of
shares of Unvested Common Stock and Vested Common 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.






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          (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 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) The provisions of this Section 3 shall terminate with respect to Vested Common
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





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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 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
(a “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 OCTOBER 17,
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 OCTOBER 17, 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
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



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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 her 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,
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 Senior Vice President and
Chief Financial Officer 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 and Chief Financial Officer of the Company.




          (ii) Executive shall report to the Chief Executive Officer, and Executive shall devote
her best efforts and her 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 $300,000 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). In addition to the Annual Base Salary, Executive shall be eligible for an annual base
bonus (the “Annual Bonus”) following the end of 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 75% 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). 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 fiscal year
ending on or after the fiscal year ending December 31, 2006, in which the Company has achieved
consolidated EBITDA in an amount to be determined by the by Board (after



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giving effect to any acquisitions or dispositions by the Company or any of its subsidiaries
that have been consummated).




          (c) During the Employment Period, Employer shall reimburse Executive for all reasonable
business expenses incurred by her in the course of performing her 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, then during the
one-year period commencing on the date of termination (the “Severance Period”). Executive
shall be entitled to receive her 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 her during the course of her
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
Affiliates, other than information already known by Executive prior to her 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 she will not, during the Employment Period and
thereafter, disclose to any unauthorized Person or use for her 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 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 she may then
possess or have under her control.




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          (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 her 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 she does not now nor has she ever owned, nor has she 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 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 her 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



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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 her 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
her 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) 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
her employment with Employer she will become familiar with Confidential Information concerning the
Company, Employer and such Subsidiaries and that her 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.



-10-









 





          (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
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 her 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 she 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.



-11-









 





          “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.



          “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.



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



-12-









 





          “Original Cost” means, with respect to each share of Common Stock purchased hereunder,
$0.50 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 dated as of May 4, 2005
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 dated as of May 4, 2005
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, 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.



-13-









 





          “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.

Two Corporate Centre

501 Corporate Centre Drive, Suite 200

Franklin, TN 37067

Attention: Chief Executive Officer

Facsimile: (615) 764-3030



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.

Two Corporate Centre

501 Corporate Centre Drive, Suite 200

Franklin, TN 37067

Attention: Chief Executive Officer

Facsimile: (615) 764-3030





-14-









 







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:



Denise Wilder Warren

4943 Tyne Valley Boulevard

Nashville, Tennessee 37220




          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 of 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



-15-









 




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 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
construction 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
bind 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.



          (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



-16-









 




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 attorney’s 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 she
has no reason to believe that her life is not insurable at rates now prevailing for healthy women
of her 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, 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 sucli 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.



-17-









 





          (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 faun provided in this Agreement, the consideration for the Executive Securities to
be 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 mariner and respects as an original agreement
or instrument and shall be considered to have the same binding legal effect as 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.



* * * * *





-18-












 





     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/ Denise Wilder Warren
 	 
	 	Denise Wilder Warren 	 
	 	 	 



-19-









 






	 	 	 	 	 



EXHIBIT
A




Form of Executive Note




PROMISSORY NOTE



			
	$394,948.00
	 	October 17, 2005






     For value received, Denise Wilder Warren (“Executive”) promises to pay to the order of
Capella Holdings, Inc., a Delaware corporation (the “Company”), at its principal offices or
at such other place as designated in writing by the holder hereof, the aggregate principal amount
of $394,948.00. This Note is a full recourse note and was issued pursuant to and is subject to the
terms of the Senior Management Agreement, dated as of October 17, 2005, by and between the Company
and Executive (the “Senior Management Agreement”). Certain terms used herein and not
otherwise defined shall have the meanings given to such terms in the Senior Management Agreement.



     Subject to the terms of this Note, on the date that is the third anniversary of the Employment
Date, Executive shall pay the entire principal amount of this Note then outstanding to the holder
of this Note, together with all accrued and unpaid interest on the principal amount of this Note.
Executive shall prepay the entire outstanding principal amount of this Note and all accrued and
unpaid interest thereon upon the earlier of (i) the effective date of Executive’s termination for
any reason unless Executive’s employment is terminated by the Company without Cause, (ii) an
initial Public Offering or (iii) the sale or transfer of the Executive Securities purchased with
this Note. In addition, the payment of the principal amount and accrued interest and the other
amounts owing under this Note is subject to certain offset rights under the Senior Management
Agreement.



     Interest shall accrue on the outstanding principal amount of this Note at a rate equal to the
prime rate at date of issuance plus one percent (1%) per annum and shall be payable at such time as
the principal of this Note becomes due and payable.



     In the event the Executive fails to pay any amounts due hereunder when due, Executive shall
pay to the holder hereof, in addition to such amounts due all costs of collection, including
reasonable attorneys’ fees.



     Executive, or her successors and assigns, hereby waives diligence, presentment, protest and
demand and notice of protest, demand, dishonor and nonpayment of this Note, and expressly agrees
that this Note, or any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all without in any way
affecting the liability of Executive hereunder.



     This Note shall be governed by the internal laws, not the laws of conflicts, of the State of
Delaware.



	 	 	 	 	 
	 	 	 
	 	
 	 
	 	Denise Wilder Warren 	 
	 	 	 



 









 






	 	 	 	 	 



EXHIBIT B




October 17, 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 October 17, 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 she 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
October 17, 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:



Denise Wilder Warren

4943 Tyne Valley Boulevard

Nashville, Tennessee 37220

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




          2. A description of the property with respect to which the election is being made: 789,896
shares of Common Stock of the Company.




          3. The date on which the property was transferred October 17, 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 October 17, 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, all 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 October 17, 2005 of the property with respect to which the
election is being made, determined without regard to any lapse restrictions: $0.50 per share of
Common Stock.




          6. The amount paid for such property: $0.50 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: October  ___, 2005 	
 	 
	 	Denise Wilder Warren 	 
	 	 	 



 









 






	 	 	 	 	 



EXHIBIT C




ASSIGNMENT SEPARATE FROM CERTIFICATE




          FOR VALUE RECEIVED, Denise Wilder Warren (“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 October
___, 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 4, 2005, as amended from time to time pursuant to its terms.




	 	 	 

	Dated: ____________________

	 	________________________________________
	 

	 	Denise Wilder Warren






 









 






EXHIBIT D




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 _______________________