EXHIBIT 10.2

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made as of October 30, 2014 by and between Kindred
Healthcare Operating, Inc., a Delaware corporation (the “Company”) and Paul J.
Diaz (“Diaz”).

W I T N E S S E T H:

WHEREAS, Diaz is employed by the Company, a wholly-owned subsidiary of Kindred
Healthcare, Inc. (“Parent”), as Chief Executive Officer of Parent and the
Company, and the parties hereto desire to provide for the terms of Diaz’s
continued employment by the Company on the terms and conditions set forth in
this Agreement.

WHEREAS, the parties hereto desire to provide for the transition of Diaz’s
employment from Chief Executive Officer to Executive Vice Chairman of the Board
of Directors of Parent (the “Board”) on March 31, 2015; and

WHEREAS, the Executive Compensation Committee of the Board (the “Compensation
Committee”) has determined that it is in the best interests of the Company and
Parent to enter into this Agreement.

NOW, THEREFORE, in consideration of the premises and the respective covenants
and agreements contained herein, and intending to be legally bound hereby, the
Company and Diaz agree as follows:

1. Employment as Chief Executive Officer.

A. Term. The Company hereby agrees to continue the employment of Diaz as the
Chief Executive Officer and Diaz hereby agrees to continue to serve as the Chief
Executive Officer of Parent and the Company on the terms and conditions herein
set forth. The term of Diaz’s employment as Chief Executive Officer shall be for
a period commencing on the date hereof and terminating on March 31, 2015 (the
“CEO Term”). The parties hereby agree and Diaz acknowledges that, effective
March 31, 2015, Diaz will no longer serve as the Chief Executive Officer of the
Parent or Company (the “CEO Expiration Date”).

B. Duties. Diaz is engaged as the Chief Executive Officer of the Company and
Parent and shall continue to perform such duties commensurate with his title and
as otherwise designated by the Board.

C. Extent of Services. Diaz, subject to the direction and control of the Board,
shall have the power and authority commensurate with his executive status and
necessary to perform his duties hereunder. During the CEO Term, Diaz shall
devote his full working time, attention, labor, skill and energies to the
business of the Company and Parent, and shall not, without the consent of the
Board, be actively engaged in any other

--------------------------------------------------------------------------------

business activity, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage. Notwithstanding the foregoing, it shall not
be a breach or violation of this Agreement for Diaz to (i) serve on corporate
boards with the prior approval of the Board, (ii) serve on civic or charitable
boards or committees, or (iii) manage personal investments, so long as such
activities do not reasonably interfere with or reasonably detract from the
performance of Diaz’s responsibilities to the Company in accordance with this
Agreement.

D. Compensation. As compensation for services hereunder rendered, Diaz shall
receive during the CEO Term:

(i) A base salary (“CEO Base Salary”) of no less than his current base salary
per year payable in equal installments in accordance with the Company’s normal
payroll procedures. Diaz may receive increases in his CEO Base Salary from time
to time, as approved by the Board.

(ii) In addition to the CEO Base Salary, Diaz shall be entitled to receive
bonuses and other incentive compensation as the Board may approve from time to
time, including participation in the Company’s short-term incentive plan and
long-term incentive plan for 2014, in accordance with the terms and conditions
of such plans as may be in effect from time to time, subject to the following:

(1) subject to uniform adjustments applicable to other executive officers of the
Company, Diaz’s target bonus under the short-term incentive plan will be 100% of
the CEO Base Salary.

(2) subject to uniform adjustments applicable to other executive officers of the
Company, Diaz’s target bonus under the long-term incentive plan will be 75% of
the CEO Base Salary.

E. Benefits. During the CEO Term:

(i) Diaz shall be entitled to participate in any and all pension benefit,
welfare benefit (including, without limitation, medical, dental, disability and
group life insurance coverages) and fringe benefit plans from time to time in
effect for executives of the Company and its affiliates.

(ii) Diaz shall be entitled to participate in other bonus, stock option, or
other incentive compensation plans of the Company and its affiliates in effect
from time to time for executives of the Company.

(iii) Diaz shall be entitled to paid time off benefits of the Company and its
affiliates in effect from time to time for executives of the Company but such
paid time off shall be equivalent to at least 24 days of paid time off per year.
Diaz shall schedule the timing of such paid time off in a reasonable manner.
Diaz also may be entitled to such other leave, with or without compensation, as
shall be mutually agreed by the Company and Diaz.

 

2

--------------------------------------------------------------------------------

(iv) Diaz may incur reasonable expenses for promoting the Company’s business,
including expenses for entertainment, travel and similar items. The Company
shall reimburse Diaz for all such reasonable expenses in accordance with the
Company’s reimbursement policies and procedures, as may be in effect from time
to time.

(v) The Company shall provide Diaz with (i) director’s and officer’s liability
insurance coverage; (ii) life insurance for which Diaz may designate the
beneficiary or beneficiaries; and (iii) long-term disability insurance,
consistent with the benefits provided to the Company’s executive officers.

2. Employment as Executive Vice Chairman of the Board.

A. Term. The Company hereby agrees to employ Diaz and Diaz hereby agrees to be
employed solely as Executive Vice Chairman of the Board (“Executive Vice
Chairman”) effective March 31, 2015 on the terms and conditions set forth
herein. The term of Diaz’s employment as Executive Vice Chairman shall be for a
period of one year commencing on March 31, 2015 (the “EVC Term”). For purposes
of this Agreement, the time periods defined as the “CEO Term” and “EVC Term”
shall be referred to collectively as the “Term.”

B. Duties. As Executive Vice Chairman, Diaz shall perform the following duties:
(i) support and advise his successor chief executive officer as needed;
(ii) serve as a resource for the Board and chief executive officer with respect
to key projects; (iii) support the Chairman of the Board as requested;
(iv) assist with Board matters as requested by the chief executive officer; and
(v) be available for such other duties as agreed upon from time to time with the
chief executive officer.

C. Extent of Services. Diaz, subject to the direction and control of the Board,
shall have the power and authority commensurate with his status as Executive
Vice Chairman and necessary to perform his duties hereunder. During the EVC
Term, Diaz shall devote such time to the business of the Parent and Company as
reasonably necessary to fulfill his duties, but in no event more than 30 hours
per week. With notice to the Board, Diaz may engage in any other business
activities, whether or not such business activities are pursued for gain, profit
or other pecuniary advantage provided such activities do not conflict with the
Parent or Company’s objectives and operations.

D. Compensation. As compensation for services rendered as Executive Vice
Chairman, Diaz shall receive during the EVC Term:

(i) A salary (“EVC Salary” and each of the CEO Base Salary and the EVC Salary,
the “Base Salary”) of $500,000 per year payable in equal installments in
accordance with the Company’s normal payroll procedures. Diaz may receive
increases in his EVC Salary from time to time, as approved by the Board, and

(ii) Participation in the Company’s annual short-term incentive plan for 2015,
with a target bonus of 100% of the EVC Salary.

 

3

--------------------------------------------------------------------------------

(iii) Diaz will not participate in any of the Company’s other short-term or
long-term incentive plans during the EVC Term.

(iv) Diaz shall not be entitled to any additional compensation for his service
on the Board during the EVC Term. If Diaz continues to serve on the Board
following serving as Executive Vice Chairman, he will be compensated for such
service in a manner consistent with the other members of the Board.

E. Benefits. During the EVC Term:

(i) On or before the CEO Expiration Date, the Compensation Committee will
approve a grant to Diaz of performance-based restricted stock of Parent with a
grant date fair value equal to $500,000 that will vest ratably over three years
and be subject to the terms and conditions of the Kindred Healthcare, Inc. 2011
Stock Incentive Plan, Amended and Restated, and any applicable award agreement
related thereto.

(ii) Diaz shall be entitled to participate in any and all pension benefit,
welfare benefit (including, without limitation, medical, dental, disability and
group life insurance coverages) and fringe benefit plans from time to time in
effect for executives of the Company and its affiliates.

(iii) Diaz may incur reasonable expenses for promoting the Company’s business,
including expenses for entertainment, travel and similar items. The Company
shall reimburse Diaz for all such reasonable expenses in accordance with the
Company’s reimbursement policies and procedures.

(iv) Any outstanding stock options, performance-based restricted stock units and
long term cash incentive awards held by Diaz will continue to vest and be
settled or paid out as set forth in Sections 5(B), (C) and (D) herein.

(v) The Company shall provide Diaz with office space in Louisville, Kentucky and
an administrative assistant substantially comparable to his existing office
space and administrative assistant being furnished as of the date of this
Agreement.

(vi) The Company shall provide Diaz with (i) director’s and officer’s liability
insurance coverage; (ii) life insurance for which Diaz may designate the
beneficiary or beneficiaries; and (iii) long-term disability insurance,
consistent with the benefits provided to the Company’s executive officers.

3. Termination of Employment.

A. Death or Disability. Diaz’s employment shall terminate automatically upon
Diaz’s death during the Term. If the Board determines in good faith that the
Disability of Diaz has occurred during the Term (pursuant to the definition of
Disability set forth below) it may give to Diaz written notice of its intention
to terminate Diaz’s employment. In such event, Diaz’s employment with the
Company shall

 

4

--------------------------------------------------------------------------------

terminate effective on the 30th day after receipt of such notice by Diaz (the
“Disability Effective Date”), provided that, within the 30 days after such
receipt, Diaz shall not have returned to performance of Diaz’s duties. For
purposes of this Agreement, “Disability” shall mean Diaz’s absence from his
duties hereunder for a period of 90 days due to disability, as defined in the
long-term disability plan provided to Diaz by the Company.

B. Cause. The Company may terminate Diaz’s employment during the Term for Cause.
For purposes of this Agreement, “Cause” shall mean Diaz’s (i) conviction of or
plea of nolo contendere to a crime involving moral turpitude; or (ii) willful
and material breach by Diaz of his duties and responsibilities, which is
committed in bad faith or without reasonable belief that such breaching conduct
is in the best interests of the Company and its affiliates, but with respect to
(ii) only if the Board adopts a resolution by a vote of at least 75% of its
members so finding after giving Diaz and his attorney an opportunity to be heard
by the Board. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or based upon advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by
Diaz in good faith and in the best interests of the Company. For the avoidance
of doubt, Diaz will not be included as a member of the Board in the
determination of whether 75% of the Board’s members adopted a resolution in
respect of Diaz’s termination for Cause.

C. Good Reason. Diaz’s employment may be terminated by Diaz for Good Reason
during the CEO Term. “Good Reason” shall exist upon the occurrence, without
Diaz’s express written consent, of any of the following events during the CEO
Term:

(i) a material adverse change in Diaz’s authority, duties or responsibilities
during the CEO Term, including, without limitation, the Company assigning to
Diaz duties of a substantially nonexecutive or nonmanagerial nature (other than
any such change directly attributable to the fact that the Company is no longer
publicly owned);

(ii) the Company shall (A) materially reduce the compensation of Diaz or
(B) materially reduce his benefits and perquisites;

(iii) the Company shall require Diaz to relocate Diaz’s principal business
office more than 30 miles from its location on the date of this Agreement; or

(iv) the failure of the Company to obtain the assumption of this Agreement as
contemplated by Section 10(C).

For purposes of this Agreement, “Good Reason” shall not exist until after Diaz
has given the Company notice of the applicable event within 90 days of such
event and which is not remedied within 30 days after receipt of written notice
from Diaz specifically delineating such claimed event and setting forth Diaz’s
intention to terminate employment if not remedied; provided, that if the
specified

 

5

--------------------------------------------------------------------------------

event cannot reasonably be remedied within such 30-day period and the Company
commences reasonable steps within such 30-day period to remedy such event and
diligently continues such steps thereafter until a remedy is effected, such
event shall not constitute “Good Reason” provided that such event is remedied
within 60 days after receipt of such written notice.

D. Notice of Termination. Any termination by the Company for Cause, or by Diaz
for Good Reason, shall be communicated by Notice of Termination given in
accordance with this Agreement. For purposes of this Agreement, a “Notice of
Termination” means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of Diaz’s
employment under the provision so indicated and (iii) specifies the intended
termination date (which date, in the case of a termination for Good Reason,
shall be not more than 30 days after the giving of such notice). The failure by
Diaz or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of Diaz or the Company, respectively, hereunder or preclude Diaz
or the Company, respectively, from asserting such fact or circumstance in
enforcing Diaz’s or the Company’s rights hereunder.

E. Date of Termination. “Date of Termination” means (i) if Diaz’s employment is
terminated by the Company for Cause, or by Diaz for Good Reason, the later of
the date specified in the Notice of Termination or the date that is one day
after the last day of any applicable cure period, (ii) if Diaz’s employment is
terminated by the Company other than for Cause or Disability, or Diaz resigns
without Good Reason, the Date of Termination shall be the date on which the
Company or Diaz notified Diaz or the Company, respectively, of such termination,
(iii) if Diaz’s employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of Diaz or the Disability
Effective Date, as the case may be, or (iv) if Diaz’s employment is terminated
following the CEO Expiration Date, the earlier of the effective date of such
termination or March 31, 2016 (the “EVC Expiration Date”).

4. Obligations of the Company Upon Termination. Following any termination of
Diaz’s employment hereunder, the Company shall pay Diaz his Base Salary through
the Date of Termination and any amounts owed to Diaz pursuant to the terms and
conditions of the benefit plans and programs of the Company at the time such
payments are due. In addition, subject to Diaz’s execution of an irrevocable
general release of claims in a form satisfactory to the Company, Diaz shall be
entitled to the following additional payments:

A. Death or Disability. If, during the Term, Diaz’s employment shall terminate
by reason of Diaz’s death or Disability, the Company shall pay to Diaz (or his
designated beneficiary or estate, as the case may be) an amount equal to the
product of (i) the Target Bonus (as defined below) to which Diaz would have been
entitled for the year in which the Date of Termination occurs had Diaz’s
employment with the Company not been terminated, and (ii) a fraction, the
numerator of which is the number of days in the period beginning on the first
day of the calendar year in which such termination

 

6

--------------------------------------------------------------------------------

occurs and ending on the Date of Termination and the denominator of which is
365. Such amount shall be paid on the date when such amounts would otherwise
have been payable to Diaz if Diaz’s employment with the Company had not
terminated, as determined in accordance with the terms and conditions of the
applicable short-term incentive plan of the Company.

For purposes of this Agreement: “Target Bonus” shall mean the full amount of the
targeted annual short-term incentive bonus that would be payable to Diaz,
assuming the targeted performance criteria on which such short-term incentive
bonus is based were deemed to be satisfied, in respect of services for the
calendar year in which the date in question occurs.

B. Good Reason; Other than for Cause. If, during the CEO Term, the Company shall
terminate Diaz’s employment other than for Cause (but not for Disability), or
Diaz shall terminate his employment for Good Reason, in addition to the benefits
set forth in Section 4(C), Diaz shall be entitled to receive:

(i) In satisfaction of the annual bonus Diaz would otherwise be eligible to
receive under the short-term incentive plan in respect of the calendar year in
which the Date of Termination occurs, the Company shall pay to Diaz an amount
equal to the product of (i) the annual bonus, if any, to which Diaz would have
been entitled for the year in which the Date of Termination occurs had Diaz’s
employment with the Company not been terminated, as determined in accordance
with the terms and conditions of the applicable short-term incentive plan of the
Company, and (ii) a fraction, the numerator of which is the number of days in
the period beginning on the first day of the calendar year in which the Date of
Termination occurs and ending on the Date of Termination and the denominator of
which is 365. Such amount shall be paid on the date when such amounts would
otherwise have been payable to Diaz if Diaz’s employment with the Company had
not terminated as determined in accordance with the terms and conditions of the
applicable short-term incentive plan of the Company.

(ii) Within 14 days following Diaz’s Date of Termination, the Company shall pay
to Diaz a cash severance payment in an amount equal to three times the sum of
Diaz’s Base Salary and Target Bonus as of the Date of Termination.

(iii) With respect to awards granted under the Company’s long-term incentive
plans, other than the award granted to Diaz under the Parent’s 2013 Long-Term
Incentive Plan pursuant to the letter agreement dated March 25, 2013 between the
Company and Diaz (the “2013 LTIP Award”), the Company shall provide and pay the
following amounts:

(1) in respect of any awards under the Company’s long term incentive plans for
which Diaz’s Date of Termination occurs during the performance period for such
award, Diaz shall be entitled to a long-term incentive award equal to the
product of (A) the long-term incentive award,

 

7

--------------------------------------------------------------------------------

if any, Diaz would have been entitled to in respect of the performance period if
Diaz’s employment with the Company not been terminated, as determined based on
actual performance during the relevant performance period and in accordance with
the terms and conditions of the Company’s long-term incentive plans, and (B) a
fraction, the numerator of which is the number of days in the period commencing
on the first day of the relevant performance period and ending on the Date of
Termination and the denominator of which is the total number of days in the
relevant performance period. Such amounts shall be paid on the same schedule and
in the same manner as if Diaz had remained employed with the Company, as
determined in accordance with the terms and conditions of the Company’s
long-term incentive plans.

(2) in respect of any awards where Diaz’s Date of Termination occurs following
the end of the performance period that relates to such award, to the extent not
yet paid, the Company shall pay Diaz any amounts earned by Diaz in respect of
such awards, on the same schedule and in the same manner as if Diaz had remained
employed with the Company, as determined in accordance with the terms and
conditions of the Company’s long-term incentive plans.

(3) Notwithstanding anything in this Agreement to the contrary, the terms and
conditions of the 2013 LTIP Award remain in full force and effect without any
modifications or amendments whatsoever.

(iv) Any outstanding unvested stock options, performance-based restricted stock
units or similar equity awards (other than service-based restricted stock
awards) held by Diaz on the Date of Termination shall continue to vest in
accordance with their original terms (including any related performance
measures) for a three-year period beginning on the Date of Termination (such
period, the “Benefit Continuation Period”) as if Diaz had remained an employee
of the Company through the end of such period and any such stock option,
performance-based restricted stock unit or other equity award (other than
service-based restricted stock awards) that has not vested as of the conclusion
of such period shall be immediately cancelled and forfeited as of such date. In
addition, Diaz shall have the right to continue to exercise any outstanding
vested stock options held by Diaz during the Benefit Continuation Period;
provided that in no event shall Diaz be entitled to exercise any such option
beyond the original expiration date of such option. Any outstanding
service-based restricted stock award held by Diaz as of the Date of Termination
that would have vested during the Benefit Continuation Period had Diaz remained
an employee of the Company through the end of such period shall be immediately
vested as of the Date of Termination and any service-based restricted stock
award that would not have vested as of the conclusion of such period shall be
immediately cancelled and forfeited as of such date.

 

8

--------------------------------------------------------------------------------

(v) Following Diaz’s Date of Termination, Diaz shall receive the computer which
Diaz is utilizing as of the Date of Termination. In addition, Diaz shall be
entitled to the furniture in Diaz’s office suite as of the Date of Termination.

(vi) Notwithstanding anything in this Agreement to the contrary, in no event
shall the provision of in-kind benefits pursuant to this Section 4 during any
taxable year of Diaz affect the provision of in-kind benefits pursuant to this
Section 4 in any other taxable year of Diaz.

C. Benefits Upon Termination. If, during or following the Term, the Company
shall terminate Diaz’ employment other than for Cause (but not for death or
Disability), or during the CEO Term, Diaz shall terminate his employment for
Good Reason, Diaz shall be entitled to the following benefits:

(i) For the Benefit Continuation Period, Diaz shall be treated as if he had
continued to be an Executive for all purposes under the Company’s health
insurance plan and dental insurance plan; or if Diaz is prohibited from
participating in such plans, the Company shall, pursuant to Section 7 hereof,
otherwise provide such benefits. Diaz shall be responsible for any costs for
such insurance coverage; provided, however, that the Company will pay to Diaz a
lump sum payment equal to the monthly employer subsidy of such costs for the
duration of the Benefit Continuation Period, plus an amount necessary to cover
any incremental taxes incurred by Diaz related to such payment. Following the
Benefit Continuation Period, Diaz shall be entitled to receive continuation
coverage under Part 6 of Title I of ERISA by treating the end of this period as
the applicable qualifying event (i.e., as a termination of employment for
purposes of ERISA § 603(2)) and with the concurrent loss of coverage occurring
on the same date, to the extent allowed by applicable law.

(ii) For the Benefit Continuation Period, Company shall maintain in force, at
its expense, Diaz’s life insurance in effect under the Company’s voluntary life
insurance benefit plan as of the Date of Termination. Diaz shall be responsible
for any costs for such insurance coverage; provided, however, that the Company
may pay to Diaz a lump sum payment equal to the monthly employer subsidy of such
costs for the duration of the Benefit Continuation Period, plus an amount
necessary to cover any incremental taxes incurred by Diaz related to such
payment. For purposes of clarification, the portion of the premiums in respect
of such plan for which Diaz and Company are responsible, respectively, shall be
the same as the portion for which Diaz and Company are responsible,
respectively, immediately prior to the Date of Termination.

(iii) For the Benefit Continuation Period, the Company shall provide short-term
and long-term disability insurance benefits to Diaz equivalent to the coverage
that Diaz would have had if he had remained employed under the disability
insurance plans applicable to Diaz on the Date of Termination. Diaz shall be
responsible for any costs for such insurance coverage; provided, however,

 

9

--------------------------------------------------------------------------------

that the Company may pay to Diaz a lump sum payment equal to the monthly
employer subsidy of such costs for the duration of the Benefit Continuation
Period, plus an amount necessary to cover any incremental taxes incurred by Diaz
related to such payment. Should Diaz become disabled during such period, Diaz
shall be entitled to receive such benefits, and for such duration, as the
applicable plan provides. For purposes of clarification, the portion of the
premiums in respect of such short-term and long-term disability benefits for
which Diaz and Company are responsible, respectively, shall be the same as the
portion for which Diaz and Company are responsible, respectively, immediately
prior to the Date of Termination.

(iv) Subject to compliance with applicable law, the Company shall adopt such
amendments to its benefit plans, if any, as are necessary to effectuate the
provisions of this Agreement.

(v) Until the end of the second taxable year following the year in which the
Date of Termination occurs, the Company shall provide Diaz with an office suite
and administrative assistant, each substantially comparable to the office suite
and administrative assistant that were furnished to Diaz as of the Date of
Termination.

(vi) Notwithstanding anything in this Agreement to the contrary, in no event
shall the provision of in-kind benefits pursuant to this Section 4 during any
taxable year of Diaz affect the provision of in-kind benefits pursuant to this
Section 4 in any other taxable year of Diaz.

D. Cause; Other than for Good Reason. If Diaz’s employment shall be terminated
for Cause or Diaz terminates employment without Good Reason (and other than due
to Diaz’s death or Disability) during the Term, this Agreement shall terminate
without further additional obligations to Diaz under this Agreement.

E. General Release of Claims. Notwithstanding anything herein to the contrary,
the amounts payable pursuant to this Section 4 are subject to the condition that
Diaz has delivered to the Company an executed copy of an irrevocable general
release of claims within the 60 day period immediately following Diaz’s Date of
Termination (the “Release Period”). Any payment that otherwise would be made
prior to Diaz’s delivery of such executed release pursuant to this Section 4
shall be paid on the first business day following the conclusion of the Release
Period; provided that any in-kind benefits provided pursuant to this Section 4
shall continue in effect after the Date of Termination pending the execution and
delivery of such release for a period not to exceed 60 days; provided further
that if such release is not executed and delivered within such 60-day period,
Diaz shall reimburse the Company for the full cost of providing such in-kind
benefits during such period.

 

10

--------------------------------------------------------------------------------

5. Obligations of the Company on the CEO Expiration Date. In the event Diaz is
an employee of the Company on the CEO Expiration Date, the Company shall pay
Diaz the following additional payments:

A. Within 14 days following March 31, 2015, the Company shall pay Diaz a cash
payment in the amount of $6,011,244.

B. Any outstanding unvested stock options, performance-based restricted stock
units (other than those granted under Section 2(E)(i)) or similar equity awards
(other than service-based restricted stock awards) held by Diaz on March 31,
2015 shall continue to vest in accordance with their original terms (including
any related performance measures) until March 31, 2018 as if Diaz had remained
an employee of the Company through the end of such period and any such stock
option, performance-based restricted stock unit or other equity award (other
than service-based restricted stock awards) that has not vested as of March 31,
2018 shall be immediately cancelled and forfeited as of March 31, 2015. In
addition, Diaz shall have the right to continue to exercise any outstanding
vested stock options held by Diaz until March 31, 2018; provided that in no
event shall Diaz be entitled to exercise any such option beyond the original
expiration date of such option. Any outstanding service-based restricted stock
awards held by Diaz as of March 31, 2015 that would have vested on or prior to
March 31, 2018 shall be immediately vested as of March 31, 2015 and any
restricted stock award that would not have vested on or prior to March 31, 2018
shall be immediately cancelled and forfeited as of March 31, 2015.

C. To the extent not yet paid, the Company shall pay Diaz any amounts earned by
Diaz prior to the CEO Expiration Date under the Company’s long-term incentive
plans in respect of any awards where the CEO Expiration Date occurs following
the end of the performance period that relates to such award. Such amounts shall
be paid on the originally scheduled payment dates for such awards, as determined
in accordance with the terms and conditions of the Company’s long-term incentive
plans.

D. In respect of any outstanding award under the Company’s long-term incentive
plans where the CEO Expiration Date occurs prior to the end of the applicable
performance period, Diaz shall be entitled to an amount equal to the product of
(A) the long-term incentive award, if any, Diaz would have been entitled to in
respect of such performance period if Diaz had remained an employee of the
Company for the duration of such performance period, as determined based on
actual performance during the relevant performance period and in accordance with
the terms and conditions of the Company’s long-term incentive plan, and (B) a
fraction, the numerator of which is the number of days in the period commencing
on the first day of the relevant performance period and ending on the CEO
Expiration Date and the denominator of which is the total number of days in the
relevant performance period. Such amounts shall be paid on the originally
scheduled payment date for such awards, as determined in accordance with the
terms and conditions of the Company’s long-term incentive plan.

 

11

--------------------------------------------------------------------------------

E. General Release of Claims. Notwithstanding anything herein to the contrary,
the amounts payable pursuant to this Section 5 are subject to the condition that
Diaz has delivered to the Company an executed copy of an irrevocable general
release of claims within the 60 day period immediately following the CEO
Expiration Date (the “CEO Release Period”). Any payment that otherwise would be
made prior to Diaz’s delivery of such executed release pursuant to this
Section 5 shall be paid on the first business day following the conclusion of
the CEO Release Period.

6. Death after Termination. In the event of the death of Diaz during the period
Diaz is receiving payments pursuant to this Agreement, Diaz’s designated
beneficiary shall be entitled to receive the balance of the payments; or in the
event of no designated beneficiary, the remaining payments shall be made to
Diaz’s estate.

7. Payment of Cash Equivalent. If the Company is unable to provide Diaz with any
in-kind benefits required hereunder by reason of the termination of Diaz’s
employment pursuant to Section 4, then the Company shall pay Diaz cash equal to
the value of the benefit that otherwise would have accrued for Diaz’s benefit
under the plan, for the period during which such in-kind benefits could not be
provided under the plans, said cash payments to be made within 45 days after the
end of the year for which such contributions would have been made or would have
accrued.

8. Six Month Delay for Specified Employees. Notwithstanding anything herein to
the contrary, if at the time of Diaz’s separation from service Diaz is a
“specified employee” as defined in Section 409A of the Internal Revenue Code of
1986, as amended and the regulations promulgated thereunder (the “Code”) and the
deferral of the payment payable pursuant to Section 7(b)(2) is necessary in
order to prevent any accelerated or additional tax under Section 409A of the
Code, then the payment to which Diaz would otherwise be entitled during the
first six months following his separation from service shall be deferred and
accumulated (without any reduction in such payment ultimately paid to Diaz) for
a period of six months from the date of separation from service and paid in a
lump sum on the first day of the seventh month following such separation from
service (or, if earlier, the date of Diaz’s death), together with interest
during such period at a rate computed by adding 2.00% to the Prime Rate as
published in the Money Rates section of the Wall Street Journal, or other
equivalent publication if the Wall Street Journal no longer publishes such
information, on the first publication date of the Wall Street Journal or
equivalent publication after the date of Diaz’s separation from service
(provided that if more than one such Prime Rate is published on any given day,
the highest of such published rates shall be used).

9. Disputes. Any dispute or controversy arising under, out of, or in connection
with this Agreement shall, at the election and upon written demand of either
party, be finally determined and settled by binding arbitration in the City of
Louisville, Kentucky, in accordance with the National Employment Arbitration
rules and procedures of the American Arbitration Association, and judgment upon
the award may be entered in any court having jurisdiction thereof. The Company
shall pay all costs of the arbitration and all reasonable attorneys’ and
accountants’ fees of Diaz in connection therewith, including any litigation to
enforce any arbitration award.

 

12

--------------------------------------------------------------------------------

10. Successors.

A. This Agreement is personal to Diaz and without the prior written consent of
the Company shall not be assignable by Diaz otherwise than by will or the laws
of descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by Diaz’s legal representatives.

B. This Agreement shall inure to the benefit of and be binding upon the Company
and its successors and assigns.

C. The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, or any business of the Company for which
Diaz’s services are principally performed, to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used this Agreement, “Company” shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.

11. Other Severance Benefits. Diaz hereby agrees that in consideration for the
payments to be received under this Agreement, Diaz waives any and all rights to
any payments or benefits under any plans, programs, contracts or arrangements of
the Company or their respective affiliates that provide for severance payments
or benefits upon a termination of employment, other than (i) the 2013 LTIP Award
and (ii) the Change in Control Severance Agreement between the Company and Diaz
dated as of November 13, 2009 (the “Severance Agreement”); provided that any
payments payable to Diaz hereunder shall be offset by any payments payable under
the Severance Agreement.

12. Withholding. All payments to be made to Diaz hereunder will be subject to
all applicable required withholding of taxes.

13. Non-Competition. The provisions of this Section 13 and any related
provisions shall survive termination of this Agreement and/or Diaz’s employment
with the Company and do not supersede, but are in addition to and not in lieu
of, any other agreements signed by Diaz concerning non-competition,
confidentiality, solicitation of employees, or trade secrets, and are included
in consideration for the Company entering into this Agreement. Diaz’s right to
receive and retain the benefits specified in this Agreement is conditioned upon
Diaz’s compliance with the terms of this Section 13:

A. Non-Compete.

(i) During Diaz’s employment with the Company and during the period beginning on
the Date of Termination and ending one (1) year thereafter

 

13

--------------------------------------------------------------------------------

(the “Non-Compete Period”), Diaz shall not, without prior written approval of
the Board, become an officer, employee, agent, partner, or director of, or
provide any services or advice to or for or on behalf of, any business
enterprise in substantial direct competition (as defined in Section 13(A)(ii))
with the Company. The above constraint shall not prevent Diaz from making
passive investments, not to exceed five percent (5%) of the total equity value,
in any enterprise where Diaz’s services or advice is not required or provided.

(ii) For purposes of this Section 13(A), a business enterprise with which Diaz
becomes an officer, employee, agent, partner, or director of, or provide any
services or advice to or for or on behalf of, shall be considered in substantial
direct competition with the Company if such entity owns, operates or manages
long-term acute care hospitals, nursing facilities, inpatient rehabilitation
hospitals, or provides contract rehabilitation therapy services, home health
services or hospice services within any state or country where the Company or
any of its direct or indirect subsidiaries or affiliates has operations as of
the Date of Termination.

(iii) During Diaz’s employment with the Company and during the Non-Compete
Period, Diaz shall not, without prior written approval of the Board, directly or
indirectly, solicit, provide to, take away, or attempt to take away or provide
to any customer or solicited prospect of the Company or any of its direct or
indirect subsidiaries any business of a type which the Company or such
subsidiary provides or markets or which is competitive with any business then
engaged in (or product or services marketed or planned to be marketed) by the
Company or any of its direct or indirect subsidiaries; or induce or attempt to
induce any such customer to reduce such customer’s business with that business
entity, or divert any such customer’s business from the Company and its direct
or indirect subsidiaries; or discuss that subject with any such customer.

B. Non-Solicit. During Diaz’s employment with the Company and during the
Non-Compete Period, Diaz shall not directly or indirectly, individually or on
behalf of any person other than the Company, aid or endeavor to solicit or
induce any of the Company’s or its affiliates’ employees to leave their
employment with the Company or such affiliates in order to accept employment
with Diaz or any other person, corporation, limited liability company,
partnership, sole proprietorship or other entity.

14. Confidential Information. At no time shall Diaz divulge, furnish or make
accessible to anyone any confidential or proprietary knowledge or information
about the Parent, the Company or any of their affiliates, including without
limitation any confidential or proprietary information concerning the
operations, plans or methods of the Company (except as required by law or order
of court or other governmental agency) or any of the employees, clients,
patients, customers or suppliers of the Parent or Company or any of their
affiliates.

 

14

--------------------------------------------------------------------------------

15. Provisions Relating To Non-Competition, Non-Solicitation and
Confidentiality. The provisions of Sections 13 and 14 shall survive the
termination of Diaz’s employment and this Agreement and shall not be affected by
any subsequent changes in employment terms, positions, duties, responsibilities,
authority, or employment termination, permitted or contemplated by this
Agreement. To the extent that any restrictive covenant set forth in Sections 13
and 14 of this Agreement shall be determined to be invalid or unenforceable,
such restrictive covenant shall be modified so that the scope of the restrictive
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable and as will grant the Company the maximum
protection and restrictions on Diaz’s activities permitted by applicable law in
such circumstances. The Company shall have the right to advise any prospective
or then current employer of Diaz of the provisions of this Agreement without
liability. The Company’s right to enforce the provisions of this Agreement shall
not be affected by the existence, or non-existence, of any other similar
agreement for any other executive, or by the Company’s failure to exercise any
of its rights under this Agreement or any other similar agreement or to have in
effect a similar agreement for any other employee. Given the potential
irreparable harm to the Parent, Company or their affiliates, Diaz expressly
acknowledges and agrees that Parent and Company shall have the right to
injunctive relief, a restraining order or such other equitable relief,
including, but not limited to, specific performance (without the requirement to
post bond) to restrain any breach or threatened breach of any provisions in
Sections 13 and 14 in addition to pursue all appropriate legal relief, including
but not limited to attorneys’ fees, costs, damages and recoupment of amounts
paid hereunder for any and all violations of such provisions. If the Company
shall institute any action or proceeding to enforce the provisions in
Sections 13 and 14, Diaz hereby waives the claim or defense that the Company has
an adequate remedy at law and agrees not to assert in any such action or
proceeding the claim or defense that the Company has an adequate remedy at law.
The parties hereby agree that the Non-Compete Period shall be extended by any
period during which Diaz is found to be in violation of, or to have violated,
any provisions in Sections 13 and 14.

16. No Mitigation. Diaz shall have no duty to mitigate his damages by seeking
other employment and, should Diaz actually receive compensation from any such
other employment, the payments required hereunder (including, without
limitation, the provision of any in-kind benefits) shall not be reduced or
offset by any such compensation. Further, the Company’s obligations to make any
payments hereunder shall not be subject to or affected by any setoff,
counterclaims or defenses which the Company may have against Diaz or others.

17. Notices. Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
or sent by telephone facsimile transmission, personal or overnight couriers, or
registered mail with confirmation or receipt, addressed as follows:

If to Diaz:

Paul J. Diaz

680 South Fourth Street

Louisville, KY 40202

Facsimile: 502-596-4141

If to Company:

Kindred Healthcare, Inc.

680 South Fourth Street

Louisville, KY 40202

Attn: General Counsel

Facsimile: 866-866-3426

 

15

--------------------------------------------------------------------------------

18. Assignment to Subsidiary. The Company may assign its obligations under this
Agreement to one or more of its subsidiaries but such assignment will not
relieve the Company of its obligations and liabilities hereunder.

19. Waiver of Breach and Severability. The waiver by either party of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by either party. In the event any
provision of this Agreement is found to be invalid or unenforceable, it may be
severed from the Agreement and the remaining provisions of the Agreement shall
continue to be binding and effective.

20. Entire Agreement; Amendment. This instrument and the Severance Agreement
contain the entire agreement of the parties with respect to the subject matter
hereof and supersede all prior agreements, promises, covenants, arrangements,
communications, representations and warranties between them, whether written or
oral with respect to the subject matter hereof. No provisions of this Agreement
may be modified, waived or discharged unless such modification, waiver or
discharge is agreed to in writing signed by Diaz and such officer of the Company
specifically designated by the Board. Notwithstanding the foregoing, nothing
contained in this Agreement amends or otherwise modifies the Letter Agreement
dated March 25, 2013 between the Company and Diaz.

21. Termination of Severance Agreement. Notwithstanding anything herein to the
contrary, Company and Diaz acknowledge and agree that the Severance Agreement,
along with all of the rights, duties and obligations thereunder, will terminate
upon expiration of the CEO Term, unless a Change in Control (as defined in the
Severance Agreement) shall have occurred prior to the expiration of the CEO
Term.

22. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware.

23. Headings. The headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.

24. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.

 

16

--------------------------------------------------------------------------------

25. Indemnification.

A. Company and Diaz agree that the Indemnification Agreement previously entered
into between the Company and Diaz shall remain in full force and effect.

B. No claim, action, suit or proceeding of any kind related to this Agreement,
Diaz’s employment with the Company, or otherwise may be asserted or brought by
the Company or any of its affiliates more than one year after the date that the
Company or any of its affiliate first obtains knowledge of, or should have
obtained knowledge of, any facts or allegations giving rise to such claim,
action, suit or proceeding, and any such claim, action, suit or proceeding
asserted or brought after such one-year period shall be barred. This
Section 25(B) shall survive the expiration or termination, for any reason, of
this Agreement.

26. Cancellation of Prior Agreement. Diaz hereby acknowledges and agrees that
this Agreement is intended to and does hereby replace that certain employment
agreement dated May 17, 2012, and any amendments thereto, between the Company
and Diaz, and that such agreement is cancelled, terminated and of no further
force and effect.

27. Section 409A. If any provision of this Agreement (or any award of
compensation or benefits provided under this Agreement) would cause Diaz to
incur any additional tax or interest under Section 409A of the Code, the Company
shall reform such provision to comply with 409A and agrees to maintain, to the
maximum extent practicable without violating 409A of the Code, the original
intent and economic benefit to Diaz of the applicable provision; provided that
nothing herein shall require the Company to provide Diaz with any gross-up for
any tax, interest or penalty incurred by Diaz under Section 409A of the Code.
All reimbursements or payments under this Agreement in respect of taxes will be
made no later than the end of Diaz’s taxable year next following Diaz’s taxable
year in which the taxes (and any income or other related taxes or interest or
penalties thereon) on such payments are remitted to the Internal Revenue Service
or any other applicable taxing authority. Furthermore, notwithstanding anything
herein to the contrary, no payment or benefit payable under this Agreement shall
be required to be paid or provided in any calendar year if the payment of such
payment or benefit would constitute an impermissible acceleration under
Section 409A of the Code and the transition guidance thereunder and such payment
shall instead be paid as soon as practicable, without interest.

 

17

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

KINDRED HEALTHCARE OPERATING, INC. By:   /s/ Stephen R. Cunanan  

Stephen R. Cunanan,

Chief People Officer

For the purpose of Sections 4, 5, 6, 7 and 10, and as guarantor of Company’s
obligations under this Agreement KINDRED HEALTHCARE, INC. By:   /s/ Stephen R.
Cunanan  

Stephen R. Cunanan,

Chief People Officer

/s/ Paul J. Diaz PAUL J. DIAZ

 

18