Exhibit 10.3

AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) made and
entered into in Plano, Texas, by and between LCI Holding Company, Inc. (the
“Company”), a Delaware corporation, LifeCare Holdings, Inc., a Delaware
corporation (the “Principal Subsidiary”) with its principal place of business at
5560 Tennyson Parkway, Plano, TX 75024, and Chris Walker, of McKinney, Texas
(the “Executive”), effective as of the 15th day of April, 2008 (the “Effective
Date”), amending and restating in its entirety that certain Executive Employment
Agreement, dated as of June 22, 1998, by and between LifeCare Management
Services, L.L.C., a Louisiana limited liability company (the “LLC”), and the
Executive (the “Original Agreement”).

WHEREAS, the LLC and the Executive previously entered into the Original
Agreement;

WHEREAS, the Company and Employee wish to amend the terms of the Original
Agreement in connection with the continuation of the Executive’s employment
relationship with the Company and its subsidiaries;

WHEREAS, the operations of the Company and its subsidiaries are a complex matter
requiring direction and leadership in a variety of arenas, including financial,
strategic planning, regulatory, community relations and others;

WHEREAS, the Executive is possessed of certain experience and expertise that
qualify him to provide the direction and leadership required by the Company and
its subsidiaries; and

WHEREAS, the Company has determined that it is in the best interests of the
Company, its subsidiaries, and its stockholders to enter into this Agreement;
and

WHEREAS, the Company wishes to assure itself of the continued services of the
Executive, and the Executive is willing to be so employed by the Company, upon
the terms and conditions provided in this Agreement.

NOW THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:

1. Employment. The Original Agreement is hereby amended and restated, and
replaced, in its entirety with this Agreement and, subject to the terms and
conditions set forth in this Agreement, the Company hereby agrees to continue
the employment of the Executive and the Executive hereby agrees to continue in
the service of the Company and its subsidiaries.

2. Term. Subject to earlier termination as hereafter provided, the Executive’s
employment hereunder shall be for a term of twelve (12) months, commencing on
the Effective Date, and shall automatically renew thereafter for successive
terms of one year each unless either

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party gives notice to the other not less than ninety (90) days prior to the
expiration of the initial or any renewal term that this Agreement shall not
renew, in which event this Agreement shall expire at the end of the then-current
term. Notwithstanding anything to the contrary contained herein, however, in the
event of a Change of Control, as hereafter defined, the then-current term hereof
shall be automatically extended as required in order that the remainder of said
term shall not be less than twelve (12) months from the date of the Change of
Control. The term of this Agreement, as from time to time extended or renewed,
is hereafter referred to as “the term of this Agreement” or “the term hereof.”
Any notice of nonrenewal given pursuant to this Section 2 shall be treated for
all purposes hereunder, if given by the Company, as a termination other than for
Cause or, if given by the Executive, as a termination for other than Good
Reason.

3. Capacity and Performance.

(a) During the term hereof, the Executive shall serve the Company as its Chief
Financial Officer, subject to his appointment by the Board of Directors of the
Company (the “Board”) as a condition precedent to the effectiveness of this
Agreement, or in such other executive position as the Board may designate from
time to time. In addition, and without further compensation, the Executive shall
serve as a director and/or officer of one or more of the Company’s subsidiaries
(including the Principal Subsidiary) if so elected or appointed from time to
time.

(b) During the term hereof, the Executive shall be employed by the Company on a
full-time basis and shall perform such duties and responsibilities on behalf of
the Company and its subsidiaries as may be designated from time to time by the
Board or by its designees. During the term hereof and thereafter, the Company
will indemnify the Executive to the maximum extent permitted by the Delaware
General Corporation Law in respect of any action, suit, proceeding or claim
(other than any such action, suit, proceeding, claim or counterclaim initiated
by or on behalf of the Executive) to which the Executive is or is threatened to
be made a party by reason of the fact that the Executive is or was a director or
officer of the Company or any of its subsidiaries.

(c) During the term hereof, the Executive shall devote his full business time
and his best efforts, business judgment, skill and knowledge exclusively to the
advancement of the business and interests of the Company and its subsidiaries
and to the discharge of his duties and responsibilities hereunder. The Executive
shall not engage in any other business activity or serve in any industry, trade,
professional, governmental or academic position during the term of this
Agreement, except as may be expressly approved in advance by the Board in
writing.

4. Compensation and Benefits. As compensation for all services performed by the
Executive under and during the term hereof and subject to performance of the
Executive’s duties and of the obligations of the Executive to the Company and
its subsidiaries, pursuant to this Agreement or otherwise:

(a) Base Salary. During the term hereof, the Company shall pay the Executive a
base salary at the rate of Two Hundred Thirty Thousand Dollars ($230,000) per
annum, payable in accordance with the payroll practices of the Company for its
executives and subject to adjustment from time to time by the Board, in its sole
discretion. Such base salary, as from time to time adjusted, is hereafter
referred to as the “Base Salary”.

 

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(b) Incentive and Bonus Compensation. During each fiscal year completed during
the term hereof, the Executive shall be eligible to earn an annual bonus (the
“Annual Bonus”). The amount of any Annual Bonus earned hereunder shall be
determined by the Board based on the achievement of performance objectives by
the Executive and/or the Company for that year, as established by the Board, and
shall be payable not later than two and one half months following the end of the
fiscal year for which the bonus was earned. The target amount of the Annual
Bonus is 60% of Base Salary. Any compensation paid to the Executive as an Annual
Bonus shall be in addition to the Base Salary, but shall be in lieu of
participation in any other plan or compensation program, whether cash or equity,
that is intended to offer the opportunity for any incentive, bonus or commission
compensation, but excluding for the avoidance of doubt the Executive’s equity
participation in accordance with Section 4(c) hereof.

(c) Equity Awards. Promptly following the execution and delivery of this
Agreement, the Company shall grant to the Executive, pursuant to the Company’s
equity incentive plan, as from time to time in effect, an option to purchase a
total of 96,000 shares of the Company’s common stock (the “Common Stock”) at an
exercise price per share equal to the fair market value of the Common Stock on
the date of grant, as determined by the Board, and otherwise on the terms and
subject to the conditions set forth in such equity incentive plan and as
determined by the Board (such option award together with any subsequently
granted option awards, the “Option Awards”). Prior to issuing an Option Award or
any shares thereunder to the Executive, the Company may require that the
Executive provide such representations regarding the Executive’s sophistication
and investment intent and other such matters as the Company shall determine to
be legally required or otherwise appropriate. None of the Company’s securities
will be registered under applicable securities laws for the indefinite future
and there will be substantial restrictions on resale imposed by the Company’s
corporate charter, the stockholders agreement and applicable law. Option Awards
and any shares issued upon exercise of Option Awards shall be subject to the
terms of a stockholders agreement, as from time to time in effect (the
“Stockholders Agreement”).

(d) Vacations. During the term hereof, the Executive shall be entitled to four
(4) weeks of vacation per year, to be taken at such times and intervals as shall
be determined by the Executive, subject to the reasonable business needs of the
Company and such scheduling procedure as the Company may from time to time
require. Vacation shall otherwise be governed by the policies of the Company, as
in effect from time to time.

(e) Employee Benefit Plans. During the term hereof and subject to any
contribution therefor generally required of executives of the Company, the
Executive shall be entitled to participate in any and all Employee Benefit Plans
from time to time in effect for executives of the Company generally, except to
the extent such plans are duplicative of benefits otherwise provided to the
Executive under this Agreement (e.g., severance pay). Such participation shall
be subject to the terms of the applicable plan documents and generally
applicable Company policies. The Company may alter, modify, add to or delete its
Employee Benefit Plans at any time as it, in its sole judgment, determines to be
appropriate, without recourse by the Executive. For purposes of this Agreement,
“Employee Benefit Plan” shall have the meaning ascribed to such term in
Section 3(3) of ERISA, as amended from time to time.

 

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(f) Business Expenses. The Company shall pay or reimburse the Executive for all
reasonable, customary and necessary business expenses incurred or paid by the
Executive in the performance of his duties and responsibilities hereunder,
subject to any maximum annual limit and other restrictions on such expenses set
by the Board and to such reasonable substantiation and documentation as may be
specified by the Company from time to time. Any such reimbursement that would
constitute nonqualified deferred compensation subject to Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), shall be made, if at
all, not later than the end of the calendar year following the calendar year in
which the expense was incurred.

5. Termination of Employment and Severance Benefits. Notwithstanding the
provisions of Section 2 hereof, the Executive’s employment hereunder shall
terminate prior to the expiration of the term hereof under the following
circumstances:

(a) Death. In the event of the Executive’s death during the term hereof, the
Executive’s employment hereunder shall immediately and automatically terminate.
In such event, the Company shall pay to the beneficiary designated by the
Executive in writing or, if no beneficiary has been so designated by the
Executive, to his estate, (i) the Base Salary earned but not paid through the
date of termination, (ii) pay for any vacation time earned but not used through
the date of termination, (iii) any bonus compensation awarded for the fiscal
year preceding that in which termination occurs, but unpaid on the date of
termination and (iv) any business expenses incurred by the Executive but
un-reimbursed on the date of termination, provided that such expenses and
required substantiation and documentation are submitted within sixty (60) days
of termination and that such expenses are reimbursable under Company policy (all
of the foregoing, “Final Compensation”). In addition, the Company shall pay to
the Executive’s beneficiary designated by the Executive in writing or, if no
beneficiary has been so designated by the Executive, to his estate an annual
bonus for the fiscal year in which termination occurs, determined by multiplying
the target Annual Bonus the Executive would have been eligible to receive had he
continued employment through the last day of the fiscal year by a fraction, the
numerator of which is the number of days he was employed during the fiscal year,
through the date of termination, and the denominator of which is 365 (a
“Pro-Rated Annual Bonus”). Such Pro-Rated Annual Bonus will be payable at the
time annual bonuses are paid to Company executives generally under its executive
incentive plan. Further, the Board shall cause any portion of any Option Awards
granted to Executive by the Company in accordance with this Agreement or
otherwise that remains unvested on the date of termination hereunder to vest on
the date the Executive’s employment terminates (together, the “Accelerated
Awards”). Such Accelerated Awards shall be granted to the Executive’s
beneficiary designated by the Executive in writing or, if no beneficiary has
been so designated by the Executive, to his estate and shall otherwise be
governed by the terms of the applicable award and plan documents. In the event
of termination hereunder, payment by the Company of any amounts that may be due
the Executive under this Section 5(a) shall constitute the entire obligation of
the Company to the Executive.

(b) Disability.

(i) The Company may terminate the Executive’s employment hereunder, upon notice
to the Executive, in the event that the Executive becomes disabled

 

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through any illness, injury, accident or condition of either a physical or
psychological nature and, as a result, is unable to perform substantially all of
his duties and responsibilities hereunder, notwithstanding the provision of any
reasonable accommodation, for ninety (90) days during any period of three
hundred and sixty-five (365) consecutive calendar days. In the event of such
termination, the Company shall pay the Executive all Final Compensation. In
addition, the Company will pay to the Executive a Pro-Rated Annual Bonus for the
fiscal year in which termination occurs, payable at the time annual bonuses are
paid to Company executives generally under its executive incentive plan or, if
later, on the tenth (10th) business day following the later of the effective
date of the release of claims in the form attached hereto as Appendix A (the
“Employee Release”) or the date it is received by the Chair of the Board.
Further, the Board shall cause any portion of any Option Award granted to
Executive by the Company in accordance with this Agreement or otherwise that
remains unvested on the date of termination hereunder (the “Accelerated Option”)
to vest on the date the Executive’s employment terminates, and the Executive may
exercise the Accelerated Option as of the date immediately following the later
of (i) the effective date of the Employee Release or (ii) the date that the
Chair of the Board receives the Employee Release, signed by the Executive.
Except for the payment of Final Compensation, any obligation of the Company to
the Executive hereunder, however, is conditioned upon the Executive signing a
timely and effective Employee Release following termination of the Executive’s
employment hereunder and by the deadline specified therein, and returning it to
the Company within thirty (30) calendar days of the date of termination of
employment. In the event of termination hereunder, payment by the Company of any
amounts that may be due the Executive under this Section 5(b) shall constitute
the entire obligation of the Company to the Executive.

(ii) The Board may designate another employee to act in the Executive’s place
during any period of the Executive’s disability. Notwithstanding any such
designation, the Executive shall continue to receive the Base Salary in
accordance with Section 4(a) and benefits in accordance with Section 4(e), to
the extent permitted by the then-current terms of the applicable benefit plans,
until the Executive becomes eligible for disability income benefits under the
Company’s disability income plan or until the termination of his employment,
whichever shall first occur.

(iii) While receiving disability income payments under the Company’s disability
income plan, the Executive shall not be entitled to receive any Base Salary
under Section 4(a) hereof, but shall continue to participate in Company benefit
plans in accordance with Section 4(e) and the terms of such plans, until the
termination of his employment.

(iv) If any question shall arise as to whether during any period the Executive
is disabled through any illness, injury, accident or condition of either a
physical or psychological nature so as to be unable to perform substantially all
of his duties and responsibilities hereunder, the Executive may, and at the
request of the Company shall, submit to a medical examination by a physician
selected by the Company to whom the Executive or his duly appointed guardian, if
any, has no reasonable

 

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objection to determine whether the Executive is so disabled and such
determination shall for the purposes of this Agreement be conclusive of the
issue. If such question shall arise and the Executive shall fail to submit to
such medical examination, the Company’s determination of the issue shall be
binding on the Executive.

(c) By the Company for Cause. The Company may terminate the Executive’s
employment hereunder for Cause at any time upon written notice to the Executive
setting forth in reasonable detail the nature of such Cause. The following, as
determined by the Board in its reasonable judgment, shall constitute Cause for
termination:

(i) fraud, embezzlement or other material dishonesty with respect to the Company
or any of its Affiliates;

(ii) the Executive’s breach of Section 3(c), 7, 8, 9, 10 or 12 hereof or of any
fiduciary duty of loyalty owed to the Company or any of its Affiliates;
provided, however, that with respect to a breach of Section 3(c) hereof, “Cause”
shall not exist until the Company delivers to Executive written notice of such
breach, specifying the nature of the breach, and Executive fails to cure such
breach within thirty days of delivery of such written notice; or

(iii) commission of a felony or other crime involving moral turpitude.

Upon the giving of notice of termination of the Executive’s employment hereunder
for Cause, the Company shall have no further obligation to the Executive, other
than for Final Compensation.

(d) By the Company Other than for Cause. The Company may terminate the
Executive’s employment hereunder other than for Cause at any time upon notice to
the Executive. In the event of such termination, in addition to Final
Compensation, then until the conclusion of the period of twelve (12) months
following the date of termination (the “Severance Pay Period”), the Company
shall pay the Executive the Base Salary at the rate in effect on the date of
termination and, subject to any employee contribution applicable to the
Executive on the date of termination, shall continue to contribute to the
premium cost of the Executive’s participation in the Company’s group medical and
dental plans, provided that the Executive is entitled to continue such
participation under applicable law and plan terms. In addition, the Company
shall pay the Executive a bonus (the “Termination Bonus”) equal to the lesser of
(i) 60% of the Executive’s Base Salary in effect on the date of termination, or
(ii) the Annual Bonus paid to the Executive in respect of the immediately
preceding fiscal year (or if no such Annual Bonus was paid to the Executive in
respect of the preceding fiscal year, $0). The Termination Bonus shall be
payable at the time during the Severance Pay Period that annual bonuses are paid
to Company executives generally under its executive incentive plan, provided,
however, that no Termination Bonus payment shall be made until the later of the
effective date of the Employee Release or the date the Employee Release, signed
by the Executive, is received by the Chair of the Board. The Base Salary payment
to which the Executive is entitled hereunder shall be payable in accordance with
the normal payroll practices of the Company and will begin at the Company’s next
regular payroll period which is at least five business days following the later
of the effective date of the Employee Release or the date the Employee Release,
signed by the

 

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Executive, is received by the Chair of the Board, but shall be retroactive to
the next business day following the date of termination. In the event of
termination hereunder, payment by the Company of any amounts that may be due the
Executive under this Section 5(d) shall constitute the entire obligation of the
Company to the Executive and, except for Final Compensation, any obligation of
the Company to the Executive hereunder is conditioned upon the Executive signing
a timely and effective Employee Release following termination of the Executive’s
employment hereunder and by the deadline specified therein and returning it to
the Company within thirty (30) calendar days of the date of termination of
employment.

(e) By the Executive for Good Reason. The Executive may terminate his employment
hereunder for Good Reason if (1) the Executive provides written notice to the
Company setting forth in reasonable detail the condition giving rise to the Good
Reason not later than 60 days following the date on which the Executive first
obtains knowledge of the occurrence of the condition, (2) the Company fails to
remedy such condition within 30 days (or ten business days in the case of an
inadvertent failure as contemplated by clause (ii) below) of receipt of such
written notice, and (3) such termination of employment by the Executive for Good
Reason occurs within 30 days of the expiration of the 30 day period referred to
in clause (2) above. The following conditions arising without the Executive’s
prior written consent shall constitute Good Reason for termination by the
Executive:

(i) material diminution, without his consent (not to be unreasonably withheld),
in the nature or scope of the Executive’s responsibilities, duties or authority
attendant to the Executive’s position, other than as is materially consistent
with the Executive’s assignment to another executive position in accordance with
Section 3(a) hereof; provided, however, that the Company’s failure to continue
the Executive’s appointment or election as a director or officer of any of its
subsidiaries, a change in reporting relationships resulting from a Change of
Control, any diminution of the business of the Company or any of its
subsidiaries, any sale or transfer of equity, property or other assets of the
Company or any of its subsidiaries or, during the first twelve months following
a Change of Control, any diminution in Executive’s title or duties, including
but not limited to a change in reporting relationships, whether or not
materially consistent with Section 3(a) hereof, shall not constitute “Good
Reason”; or

(ii) material failure of the Company to provide the Executive the Base Salary in
accordance with the terms of Section 4(a) hereof, excluding an inadvertent
failure which is cured within ten business days following notice from the
Executive specifying in detail the nature of such failure; or

(iii) Executive is required to relocate his business office to a place more than
30 miles from both Dallas, Texas and the Company’s existing office in Plano,
Texas.

In the event of termination in accordance with this Section 5(e), then the
Executive will be entitled to the same pay and benefits he would have been
entitled to receive had the Executive been terminated by the Company other than
for Cause in accordance with Section 5(d) above; provided that the Executive
satisfies all conditions to such entitlement, including without

 

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limitation signing and return of a timely and effective Employee Release
following termination of the Executive’s employment hereunder and by the
deadline specified therein and returning it to the Company within thirty
(30) calendar days of the date of termination of employment. In the event of
termination hereunder, payment by the Company of any amounts that may be due the
Executive under this Section 5(e) shall constitute the entire obligation of the
Company to the Executive and, except for Final Compensation, any obligation of
the Company to the Executive hereunder is conditioned upon the Executive signing
a timely and effective Employee Release in accordance with the timing
requirements set forth in the immediately preceding sentence.

(f) By the Executive Other than for Good Reason. The Executive may terminate his
employment hereunder at any time upon thirty (30) days’ notice to the Company.
In the event of termination of the Executive pursuant to this Section 5(f), the
Board may elect to waive the period of notice, or any portion thereof, and, if
the Board so elects, the Company will pay the Executive his Base Salary for the
first thirty (30) days of the notice period (or for any remaining portion of
that period). The Company shall have no further obligation to the Executive,
other than for any Final Compensation due to him.

(g) Upon a Change of Control.

(i) If a Change of Control occurs hereafter and within twelve months following
such Change of Control, the Company terminates the Executive’s employment other
than for Cause or the Executive terminates his employment for Good Reason, then,
in lieu of any payments to or on behalf of the Executive under Section 5(d) or
Section 5(e) hereof, and provided that the Executive signs a timely and
effective Employee Release following termination of employment, within ten
business days following the later of the effective date of the Employee Release
or the date the Employee Release, signed by the Executive, is received by the
Chair of the Board, the Company shall pay (A) all Final Compensation; (B) a lump
sum payment to the Executive equal to the current annual Base Salary; (C) the
full cost of the Executive’s continued participation in the Company’s group
health and dental insurance plans for so long as the Executive remains entitled
to continue such participation under applicable law, to a maximum of twelve
(12) months; and (D) a lump sum amount to the Executive equal to the Termination
Bonus. In addition, the Board shall cause the Accelerated Option to vest on the
date the Executive’s employment terminates, and the Executive may exercise the
Accelerated Option as of the date immediately following the later of (i) the
effective date of the Employee Release or (ii) the date that the Chair of the
Board receives the Employee Release, signed by the Executive. In the event of
termination hereunder, payment by the Company of any amounts that may be due the
Executive under this Section 5(g) shall constitute the entire obligation of the
Company to the Executive and, except for Final Compensation, any obligation of
the Company to the Executive hereunder is conditioned upon the Executive signing
a timely and effective Employee Release following termination of the Executive’s
employment hereunder and by the deadline specified therein and returning it to
the Company within thirty (30) calendar days of the date of termination of
employment.

 

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(ii) “Change of Control” means the occurrence hereafter of any of the following:

(1) the sale, lease or transfer (other than by way of merger or consolidation),
in one or a series of related transactions, of all or substantially all of the
assets of the Company and its direct and indirect subsidiaries, taken as a
whole, to any Person other than one or more Permitted Holders;

(2) the Board’s adoption of a plan relating to the liquidation or dissolution of
the Company;

(3) the acquisition by (x) any Person (other than one or more Permitted Holders
and other than in connection with the initial public offering of the Company’s
Common Stock) or (y) any Persons (other than one or more Permitted Holders and
other than in connection with the initial public offering of the Company’s
Common Stock) that together (A) are a group (within the meaning of
Section 13(d)(3), Section 14(d)(2) of the Exchange Act, or any successor
provision) or (B) are acting, for purposes of acquiring, holding or disposing of
securities, as a group (within the meaning of Rule 13d-5(b)(1) of the Exchange
Act, or any successor provision), in a single transaction or in a related series
of transactions, by way of merger, consolidation or other business combination
or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act, or any successor provision), of more than 50% or more of the total
voting power of the Common Stock of the Company (or the surviving company of
such merger, consolidation or other business combination transaction, as
applicable); or

(4) the first day on which a majority of the members of the Board (or the board
of directors of the surviving company in any merger, consolidation or other
business combination transaction) cease to be Continuing Directors.

(h) Post-Agreement Employment. In the event the Executive remains in the employ
of the Company or any of its subsidiaries following termination of this
Agreement, by the expiration of the term hereof or otherwise, then such
employment shall be at will.

6. Effect of Termination. The provisions of this Section 6 shall apply to any
termination, whether pursuant to Section 5 or otherwise.

(a) Payment by the Company of any amounts that may be due the Executive, in each
case under the applicable termination provision of Section 5 shall constitute
the entire obligation of the Company to the Executive. The Executive shall
promptly give the Company notice of all facts necessary for the Company to
determine the amount and duration of its obligations in connection with any
termination pursuant to Section 5(d), 5(e) or 5(g) hereof.

 

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(b) Except for any right the Executive has to continue participation in the
Company’s medical and dental plans pursuant to COBRA or any successor law,
benefits shall terminate pursuant to the terms of the applicable benefit plans
based on the date of termination of the Executive’s employment without regard to
any continuation of Base Salary or other payment to the Executive following such
date of termination.

(c) Provisions of this Agreement shall survive any termination if so provided
herein or if necessary or desirable to accomplish the purposes of other
surviving provisions, including without limitation the obligations of the
Executive under Sections 7, 8 and 9 hereof. The obligation of the Company to
make payments to or on behalf of the Executive under Section 5(b), 5(d), 5(e) or
5(g) hereof is expressly conditioned upon the Executive’s continued full
performance of obligations under Sections 7, 8 and 9 hereof. The Executive
recognizes that, except as expressly provided in Section 5(b), 5(d), 5(e) or
5(g), no compensation is earned after termination of employment.

7. Confidential Information.

(a) The Executive acknowledges that the Company and its subsidiaries continually
develop Confidential Information and that the Executive may develop Confidential
Information for the Company or its subsidiaries. The Company and its
subsidiaries promise to provide the Executive with Confidential Information to
enable the Executive to perform his duties and responsibilities hereunder during
the course of his employment. The Executive acknowledges that the disclosure of
such Confidential Information would be harmful to the Company and its
subsidiaries, including without limitation if such Confidential Information were
made known to any Person or entity engaged in business activities that are in
competition with the Company and/or its subsidiaries. The Executive will comply
with the policies and procedures of the Company for protecting Confidential
Information and shall not disclose to any Person or use, other than as required
by applicable law or for the proper performance of his duties and
responsibilities to the Company and its subsidiaries, any Confidential
Information obtained by the Executive incident to his employment or other
association with the Company or any of its subsidiaries. The Executive
understands that this restriction shall continue to apply after his employment
terminates, regardless of the reason for such termination.

(b) All documents, records, tapes and other media of every kind and description
relating to the business, present or otherwise, of the Company or its
subsidiaries and any copies, in whole or in part, thereof (the “Documents”),
whether or not prepared by the Executive, shall be the sole and exclusive
property of the Company and its subsidiaries. The Executive shall safeguard all
Documents and shall surrender to the Company at the time his employment
terminates, or at such earlier time or times as the Board or its designee may
specify, all Documents then in the Executive’s possession or control.

8. Assignment of Rights to Intellectual Property. The Executive shall promptly
and fully disclose all Intellectual Property to the Company. The Executive
hereby assigns and agrees

 

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to assign to the Company (or as otherwise directed by the Company) the
Executive’s full right, title and interest in and to all Intellectual Property.
The Executive agrees to execute any and all applications for domestic and
foreign patents, copyrights or other proprietary rights and to do such other
acts (including without limitation the execution and delivery of instruments of
further assurance or confirmation) requested by the Company to assign the
Intellectual Property to the Company and to permit the Company to enforce any
patents, copyrights or other proprietary rights to the Intellectual Property.
The Executive will not charge the Company for time spent in complying with these
obligations. All copyrightable works that the Executive creates shall be
considered “work made for hire”.

9. Restricted Activities. The Executive acknowledges the highly competitive
nature of the industry in which the Company and its subsidiaries are involved,
and agrees that during his employment with the Company, he will have access to
the Confidential Information of the Company and its subsidiaries, will benefit
from the Company’s goodwill and will obtain a competitive advantage as to the
Company, its subsidiaries, customers and prospective customers and employees.
The Company agrees, in consideration of the Executive’s acceptance of the
restrictions set forth below, to grant the Executive access to trade secrets and
other Confidential Information of the Company and its Affiliates and to the
Company’s valuable business relationships and goodwill. The Executive agrees
that some restrictions on his activities during and after his employment
therefore are necessary to protect the goodwill, Confidential Information and
other legitimate interests of the Company and its subsidiaries.

(a) While the Executive is employed by the Company and during the twelve
(12) months immediately following termination thereof (in the aggregate, the
“Non-Competition Period”), the Executive shall not, directly or indirectly,
whether as owner, partner, investor, consultant, agent, employee, co-venturer or
otherwise, engage in any business that owns or operates, directly or indirectly,
any long-term acute care hospital, including without limitation any facility
that meets or intends to meet the requirements in 42 C.F.R. §412.23(e) (or any
successor law, rule or regulation relating to long-term acute care hospitals) to
qualify as a long-term care hospital, or undertake any planning for any such
business. Specifically, but without limiting the foregoing, the Executive agrees
not to engage in any manner in any activity that is directly or indirectly
competitive or potentially competitive with the business of the Company or any
of its subsidiaries as conducted at any time during the Executive’s employment.
Restricted activity includes without limitation accepting employment or a
consulting position with any Person who is, or at any time within twelve
(12) months prior to termination of the Executive’s employment has been, an
affiliated hospital, a service provider, or a supplier to the Company or any of
its subsidiaries. For the purposes of this Section 9, the business of the
Company and its subsidiaries shall include all Services and the Executive’s
undertaking shall encompass all items, products and services that may be used in
substitution for Services.

(b) The Executive agrees that, during his employment with the Company, he will
not undertake any outside activity, whether or not competitive with the business
of the Company or its subsidiaries, that could reasonably give rise to a
conflict of interest or otherwise interfere with his duties and obligations to
the Company or any of its subsidiaries.

 

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(c) The Executive further agrees that during the Non-Competition Period, the
Executive will not hire or attempt to hire any employee of the Company or any of
its subsidiaries, assist in such hiring by any Person, encourage any such
employee to terminate his or her relationship with the Company or any of its
subsidiaries, or solicit or encourage any customer or vendor of the Company or
any of its subsidiaries to terminate or diminish its relationship with them, or,
in the case of a customer, to conduct with any Person any business or activity
which such customer conducts or could conduct with the Company or any of its
subsidiaries.

10. Notification Requirement. Until ninety (90) days after the conclusion of the
Non-Competition Period, the Executive shall give notice to the Company of each
new business activity he plans to undertake, at least thirty (30) days prior to
beginning any such activity. Such notice shall state the name and address of the
Person for whom such activity is undertaken and the nature of the Executive’s
business relationship(s) and position(s) with such Person. The Executive shall
provide the Company with such other pertinent information concerning such
business activity as the Company may reasonably request in order to determine
the Executive’s continued compliance with his obligations under Sections 7, 8
and 9 hereof.

11. Enforcement of Covenants. The Executive acknowledges that he has carefully
read and considered all the terms and conditions of this Agreement, including
the restraints imposed upon him pursuant to Sections 7, 8 and 9 hereof. The
Executive agrees that said restraints are necessary for the reasonable and
proper protection of the Company and its subsidiaries and that each and every
one of the restraints is reasonable in respect to subject matter, length of time
and geographic area. The Executive further acknowledges that, were he to breach
any of the covenants contained in Section 7, 8 or 9 hereof, the damage to the
Company and its subsidiaries would be irreparable. The Executive therefore
agrees that the Company, in addition to any other remedies available to it,
shall be entitled to preliminary and permanent injunctive relief against any
breach or threatened breach by the Executive of any of said covenants, without
having to post bond. The parties further agree that, in the event that any
provision of Section 7, 8 or 9 hereof shall be determined by any court of
competent jurisdiction to be unenforceable by reason of its being extended over
too great a time, too large a geographic area or too great a range of
activities, such provision shall be deemed to be modified to permit its
enforcement to the maximum extent permitted by law.

12. Conflicting Agreements. The Executive hereby represents and warrants that
the execution of this Agreement and the performance of his obligations hereunder
will not breach or be in conflict with any other agreement to which the
Executive is a party or is bound and that the Executive is not now subject to
any covenants against competition or similar covenants or any court order or
other legal obligation that would affect the performance of his obligations
hereunder. The Executive will not disclose to or use on behalf of the Company
any proprietary information of a third party without such party’s consent.

13. Certain Expenses. In the event that the Executive brings any Claim against
the Company in an action, suit or other proceeding in law or in equity to
enforce a right granted to him under this Agreement, and prevails on any such
Claim, resulting in the award of judgment in favor of the Executive on the
Claim, the Company, upon demand of the Executive, shall pay all

 

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expenses (including reasonable attorneys’ fees) of the Executive in pursuing
such Claim. In the event the Executive fails to obtain a judgment in his favor
on any Claim, all expenses (including reasonable attorneys’ fees) of the
Executive in pursuing such Claim shall be paid by the Executive. For the
purposes of this Section 13, Claim shall refer to any single claim or count in
law or in equity.

14. Definitions. Words or phrases which are initially capitalized or are within
quotation marks shall have the meanings provided in this Section and as provided
elsewhere herein. For purposes of this Agreement, the following definitions
apply:

(a) “Affiliates” means all persons and entities directly or indirectly
controlling, controlled by or under common control with the Company, where
control may be by either management authority, contract or equity interest.

(b) “Confidential Information” means any and all information of the Company and
its subsidiaries that is not generally known by others with whom they compete or
do business or with whom any of them plans to compete or do business and any and
all information, publicly known in whole or in part or not, which, if disclosed
by the Company or its subsidiaries would assist in competition against them.
Confidential Information includes without limitation such information relating
to (i) the development, research, testing, manufacturing, marketing and
financial activities of the Company and its subsidiaries, (ii) the Services,
(iii) the costs, sources of supply, financial performance and strategic plans of
the Company and its subsidiaries, (iv) the identity and special needs of the
customers of the Company and its subsidiaries and (v) the people and
organizations with whom the Company and its subsidiaries have business
relationships and the nature and substance of those relationships. Confidential
Information also includes any information that the Company or any of its
subsidiaries have received, or may receive hereafter, belonging to customers or
others with any understanding, express or implied, that the information would
not be disclosed.

(c) “Continuing Director” means, as of any date of determination, any member of
the Board who (1) was a member of the Board on the Effective Date; (2) was
nominated for election or elected to such Board with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election; or (3) was designated or appointed by TC Group, L.L.C.
(which operates under the trade name “The Carlyle Group”) or any of its
affiliates.

(d) “Intellectual Property” means inventions, discoveries, developments,
methods, processes, compositions, works, concepts and ideas (whether or not
patentable or copyrightable or constituting trade secrets) conceived, made,
created, developed or reduced to practice by the Executive (whether alone or
with others, whether or not during normal business hours or on or off Company
premises) during the Executive’s employment and during the period of six
(6) months immediately following termination of his employment that relate to
either the Services or any prospective activity of the Company or any of its
subsidiaries or that make use of Confidential Information or any of the
equipment or facilities of the Company or any of its subsidiaries.

 

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(e) “Permitted Holders” means, directly or indirectly, (i) TC Group, L.L.C.,
Carlyle Partners IV, L.P. and CP IV Coinvestment, L.P. and their affiliates (but
excluding any portfolio companies of the foregoing) and (ii) any members of the
management of the Company on the Effective Date and their respective affiliates.

(f) “Person” means an individual, a corporation, a limited liability company, an
association, a partnership, an estate, a trust and any other entity or
organization, other than the Company or any of its Affiliates.

(g) “Services” mean all services provided or planned by the Company or any of
its subsidiaries during the Executive’s employment together with any products
planned, researched, developed, tested, manufactured, sold, licensed, leased or
otherwise distributed or put into use by the Company or any of its subsidiaries
during the term of this Agreement.

15. Withholding. All payments made by the Company under this Agreement shall be
reduced by any tax or other amounts required to be withheld by the Company under
applicable law.

16. Assignment. Neither the Company nor the Executive may make any assignment of
this Agreement or any interest herein, by operation of law or otherwise, without
the prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without the consent of
the Executive in the event that the Executive is transferred to a position with
any of the Company’s subsidiaries or in the event that the Company shall
hereafter affect a reorganization, consolidate with, or merge into, any Person
or transfer all or substantially all of its properties or assets to any Person.
This Agreement shall inure to the benefit of and be binding upon the Company and
the Executive, their respective successors, executors, administrators, heirs and
permitted assigns.

17. Severability. If any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.

18. Waiver. No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of either party to require
the performance of any term or obligation of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.

19. Notices. Any and all notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be effective when
delivered in person, consigned to a reputable national courier service or
deposited in the United States mail, postage prepaid, registered or certified,
and addressed to the Executive at his last known address on the books of the
Company or, in the case of the Company, at its principal place of business,
attention of Chair of the Board, or to such other address as either party may
specify by notice to the other actually received.

 

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20. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by an expressly authorized representative
of the Company.

21. Headings. The headings and captions in this Agreement are for convenience
only and in no way define or describe the scope or content of any provision of
this Agreement.

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

23. Obligations of the Company and the Principal Subsidiary. Each of the Company
and the Principal Subsidiary shall be jointly and severally liable for any
payment obligation of the Company or the Principal Subsidiary pursuant to this
Agreement. In connection with a Change of Control transaction, the Company and
the Principal Subsidiary shall require any successor entity to the Company or
the Principal Subsidiary, as applicable, to expressly assume and agree to
perform this Agreement in accordance with the terms hereof.

24. Entire Agreement. This Agreement constitutes the entire agreement between
the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Executive’s employment.

25. Governing Law. This is a Texas contract and shall be construed and enforced
under and be governed in all respects by the laws of the State of Texas, without
regard to the conflict of laws principles thereof.

26. Application of Section 409A of the Internal Revenue Code.

(a) The compensation, benefits, and other payments described in this Agreement
are intended either to comply with the requirements of Code Section 409A and the
treasury regulations and other guidance issued thereunder, as in effect from
time to time, to the extent they are subject to Code Section 409A, or to be
exempt from such requirements, regulations and guidance (where an exemption is
available), and shall be construed accordingly. For purposes of Code
Section 409A, all references herein to termination of employment or similar
terms, when used in a context that bears upon the payment or timing of payment
of any amounts or benefits that constitute or could constitute “nonqualified
deferred compensation” within the meaning of Code Section 409A, shall be
construed to require a “separation from service” (as that term is defined in
Treasury Regulation Section 1.409A-1(h)) from the Company and from all other
corporations and trades or businesses, if any, that would be treated as a single
“service recipient” with the Company under Treasury Regulation
Section 1.409A-1(h)(3). The Company may, but need not, elect in writing, subject
to the applicable limitations under Code Section 409A, any of the special
elective rules prescribed in Treasury Regulation Section 1.409A-1(h) for
purposes of determining whether a “separation from service” has occurred. Any
such written election shall be deemed part of this Agreement. In addition, each
payment made

 

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under this Agreement shall be treated as a separate payment and the right to a
series of installment payments under this Agreement is to be treated as a right
to a series of separate payments. In no event may the Executive, directly or
indirectly, designate the calendar year of payment.

(b) Notwithstanding any provision of this Agreement to the contrary, if, at the
time of the Executive’s termination of employment with the Company the Executive
is a “specified employee” (as hereinafter defined), any and all amounts payable
in connection with such separation from service that constitute “nonqualified
deferred compensation” subject to Code Section 409A, as determined by the
Company in its sole discretion, and that would (but for this sentence) be
payable within six months following such separation from service, shall instead
be paid in a lump sum on the first payroll date after the date that follows the
Executive’s separation from service by six (6) months, or, if the Executive dies
before such payment, within sixty (60) days after the Executive’s death. For
purposes of this Section 26(b), “specified employee” means an individual
determined by the Company to be a specified employee as defined in subsection
(a)(2)(B)(i) of Code Section 409A. The Company may, but need not, elect in
writing, subject to the applicable limitations under Code Section 409A, any of
the special elective rules prescribed in Treasury Regulation Section 1.409A-1(i)
for purposes of determining “specified employee” status. Any such written
election shall be deemed part of this Agreement.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by
the Company, by its duly authorized representative, and by the Executive, as of
the date first above written.

 

THE EXECUTIVE:     LCI HOLDING COMPANY, INC.

/s/ Chris Walker

    By:  

/s/ Wayne McAlister

Chris Walker     Name:   Wayne McAlister     Title:   Chief Executive Officer  
  LIFECARE HOLDINGS, INC.     By:  

/s/ Wayne McAlister

    Name:   Wayne McAlister     Title:   Chief Executive Officer     SOLELY FOR
PURPOSES OF ACKNOWLEDGING THE     REPLACEMENT OF THE ORIGINAL AGREEMENT     AS
PROVIDED FOR IN SECTION 1 OF THIS AGREEMENT     LIFECARE MANAGEMENT SERVICES,
L.L.C.     By:  

/s/ Wayne McAlister

    Name:   Wayne McAlister     Title:   Chief Executive Officer