Exhibit 10.1

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made as of the 22nd day of February, 2006 by and
between Kindred Healthcare, Inc., a Delaware corporation (the “Company”) and
Edward L. Kuntz (“Kuntz”).

W I T N E S S E T H:

WHEREAS, Kuntz is serving as Executive Chairman of the Board and the Company
desires to continue the services of Kuntz in that capacity; and

WHEREAS, the Executive Compensation Committee (the “Executive Compensation
Committee”) of the Board of Directors (the “Board”) has determined that it is in
the best interests of the Company and its subsidiaries 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 Kuntz agree as follows:

1. Employment as Executive Chairman of the Board.

A. Term. The Company or one of its subsidiaries hereby agrees to employ Kuntz
and Kuntz hereby agrees to be employed as Executive Chairman of the Board of
Directors (“Executive Chairman”) effective on the date hereof on the terms and
conditions herein set forth. The term of this Agreement (the “Term”) shall be
for a one-year period commencing on the date hereof (the “Effective Date”). The
Term shall be automatically extended by one additional day for each day beyond
the Effective Date that Kuntz remains employed by the Company until such time as
the Board of Directors elects to cease such extension by giving written notice
of such election to Kuntz. In such an event, the Agreement shall terminate on
the first anniversary of the date of such election notice, unless a later date
is specified.

B. Duties. As Executive Chairman, Kuntz shall perform the following duties:
(i) coordinate all Board matters and committee activities and act as the
principal liaison between the Board and senior management; (ii) continue his
responsibility for public lobbying and relationships with various healthcare
related organizations; (iii) advise the chief executive officer and senior
management on strategic initiatives including financing, acquisition and
development activities; (iv) advise the chief executive officer and senior
management concerning all compliance and regulatory matters including the
Corporate Integrity Agreement; and (v) such other similar matters as reasonably
requested by the Board.

C. Extent of Services. Kuntz, subject to the direction and control of the Board,
shall have the power and authority commensurate with his status as Executive
Chairman and necessary to perform his duties hereunder. During the Chairman
Term,

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Kuntz shall devote approximately two days a week or 60 hours a month to the
business of the Company. With notice to the Board, Kuntz 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 Company’s objectives and operations.

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

(i) A salary (“Chairman Salary”) of not less than $636,525 per year payable in
equal installments in accordance with the Company’s normal payroll procedures.
Kuntz may receive increases in his Chairman Salary from time to time, as
approved by the Executive Compensation Committee.

(ii) Kuntz may be eligible to receive additional compensation as the Executive
Compensation Committee may approve from time to time but is not intended that
Kuntz will continue to participate in the Company’s standard bonus or long-term
incentive plans.

E. Benefits. During the Term:

(i) Kuntz shall be entitled to participate in any and all 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) Kuntz may incur reasonable expenses for promoting the Company’s business,
including expenses for entertainment, travel and similar items. The Company
shall reimburse Kuntz for all such reasonable expenses in accordance with the
Company’s reimbursement policies and procedures.

(iii) Kuntz will continue to vest in his existing stock options, restricted
stock and accrued long-term incentive benefits.

(iv) The Company shall provide Kuntz with an office suite in Houston, Texas and
an administrative assistant substantially comparable to his existing office
suite and administrative assistant being furnished as of the date of this
Agreement.

2. Termination of Employment.

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

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

B. Cause. The Company may terminate Kuntz’s employment during the Term for
Cause. For purposes of this Agreement, “Cause” shall mean the Kuntz’s
(i) conviction of or plea of nolo contendere to a crime involving moral
turpitude; or (ii) willful and material breach by Kuntz 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 the Kuntz 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 Kuntz in good faith and in the best interests
of the Company.

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

(i) The Company shall (A) materially reduce the compensation of Kuntz or
(B) materially reduce his benefits and perquisites;

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

(iii) If Kuntz ceases to be Chairman of the Board, for any reason, including
failing to be elected at any annual or special meeting of the shareholders of
the Company; or

(iv) the failure of the Company to obtain the assumption of this Agreement as
contemplated by Section 5(c).

For purposes of this Agreement, “Good Reason” shall not exist until after Kuntz
has given the Company notice of the applicable event within 10 days of such
event and which is not remedied within 10 days after receipt of written notice
from Kuntz specifically delineating such claimed event and setting forth Kuntz’s
intention to terminate employment if not remedied; provided, that if the
specified event cannot reasonably be remedied within such 10-day period and the
Company commences reasonable steps within such 10-day period to remedy such
event and diligently continues such steps thereafter until a remedy is effected,
such event

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shall not constitute “Good Reason” provided that such event is remedied within
30 days after receipt of such written notice.

D. Notice of Termination. Any termination by the Company for Cause, or by Kuntz
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
Kuntz’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 10 days after the giving of such notice). The
failure by Kuntz 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 Kuntz or the Company, respectively, hereunder or
preclude Kuntz or the Company, respectively, from asserting such fact or
circumstance in enforcing Kuntz’s or the Company’s rights hereunder.

E. Date of Termination. “Date of Termination” means (i) if Kuntz’s employment is
terminated by the Company for Cause, or by Kuntz 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 Kuntz’s employment is
terminated by the Company other than for Cause or Disability, or Kuntz resigns
without Good Reason, the Date of Termination shall be the date on which the
Company or Kuntz notified Kuntz or the Company, respectively, of such
termination and (iii) if Kuntz’s employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of Kuntz or the
Disability Effective Date, as the case may be.

3. Obligations of the Company Upon Termination. Following any termination of
Kuntz’s employment hereunder, the Company shall pay Kuntz his accrued wages
through the Date of Termination and any amounts owed to Kuntz 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 Kuntz’s execution of a
general release of claims in form satisfactory to the Company, Kuntz shall be
entitled to the following additional payments:

A. Death or Disability. Kuntz shall not be entitled to any additional benefits
by reason of his death or Disability during the Term.

B. Good Reason; Other than for Cause. If, during the Term, the Company shall
terminate Kuntz’s employment other than for Cause (but not for Disability), or
the Kuntz shall terminate his employment for Good Reason:

(i) Within 14 days of Kuntz’s Date of Termination, the Company shall pay to
Kuntz an amount equal to three times the Chairman Salary as the Date of
Termination.

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(ii) For a period of three years following the Date of Termination, the Kuntz
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 Kuntz
is prohibited from participating in such plans, the Company shall otherwise
provide such benefits. Following this continuation period, Kuntz shall be
entitled to receive continuation coverage under Part 6 of Title I or ERISA
(“COBRA Benefits”) treating the end of this period as a termination of Kuntz’s
employment if allowed by law.

(iii) For a period of three years following the Date of Termination, the Company
shall maintain in force, at its expense, Kuntz’s life insurance in effect under
the Company’s voluntary life insurance benefit plan as of the Date of
Termination.

(iv) For a period of three years following Kuntz’s Date of Termination, the
Company shall provide short-term and long-term disability insurance benefits to
Kuntz equivalent to the coverage that Kuntz would have had had he remained
employed under the disability insurance plans applicable to Kuntz on the Date of
Termination. Should Kuntz become disabled during such period, Kuntz shall be
entitled to receive such benefits, and for such duration, as the applicable plan
provides.

(v) To the extent not already vested pursuant to the terms of such plan, Kuntz’s
interests under the Company’s retirement savings plan shall be automatically
fully (i.e., 100%) vested, without regard to otherwise applicable percentages
for the vesting of employer matching contributions based upon Kuntz’s years of
service with the Company.

(vi) The Company shall adopt such amendments to its benefit plans, if any, as
are necessary to effectuate the provisions of this Agreement.

(vii) Kuntz shall be credited with an additional three years of vesting for
purposes of all outstanding stock option and restricted stock awards and Kuntz
will have an additional three years in which to exercise such stock options.

(viii) Following the Date of Termination, Kuntz shall receive the computer which
Kuntz is utilizing as of the Date of Termination. In addition, Kuntz shall be
entitled to the furniture in Kuntz’s office suite as of the Date of Termination.
In addition, for a period of three years following Kuntz’s Date of Termination,
the Company shall provide Kuntz with an office suite and administrative
assistant, each substantially

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comparable to the office suite and administrative assistant that were furnished
to Kuntz as of the date of Kuntz’s Date of Termination.

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

D. Death after Termination. In the event of the death of Kuntz during the period
Kuntz is receiving payments pursuant to this Agreement, Kuntz’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
Kuntz’s estate.

4. 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 Labor 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 Kuntz in connection therewith, including any litigation to enforce any
arbitration award.

5. Successors.

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

6. Other Severance Benefits. Kuntz hereby agrees that in consideration for the
payments to be received under this Agreement, Kuntz 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

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payments or benefits upon a termination of employment, other than the Change in
Control Severance Agreement between the Company and Kuntz dated as of February
22, 2006 (the “Severance Agreement”); provided that any payments payable to
Kuntz hereunder shall be offset by any payments payable under the Severance
Agreement.

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

8. Non-solicitation. During the Term and for a period of one year thereafter
(collectively, the “Non-solicitation Period”), Kuntz 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 Kuntz or any other person, corporation, limited
liability company, partnership, sole proprietorship or other entity. If the
restrictions set forth in this section would otherwise be determined to be
invalid or unenforceable by a court of competent jurisdiction, the parties
intend and agree that such court shall exercise its discretion in reforming the
provisions of this Agreement to the end that Kuntz will be subject to a
non-solicitation covenant which is reasonable under the circumstances and
enforceable by the Company. It is agreed that no adequate remedy at law exists
for the parties for violation of this section and that this section may be
enforced by any equitable remedy, including specific performance and injunction,
without limiting the right of the Company to proceed at law to obtain such
relief as may be available to it. The running of the Non-solicitation Period
shall be tolled for any period of time during which Kuntz is in violation of any
covenant contained herein, for any reason whatsoever.

9. No Mitigation. Kuntz shall have no duty to mitigate his damages by seeking
other employment and, should Kuntz actually receive compensation from any such
other employment, the payments required hereunder 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 Kuntz or others.

10. 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 Kuntz:

Edward L. Kuntz

8807 Stable Crest Blvd.

Houston, Texas 77024

Facsimile: 713-840-6383

If to Company:

Kindred Healthcare, Inc.

680 South Fourth Street

Louisville, KY 40202

Attn: General Counsel

Facsimile: 502-596-4075

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11. 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.

12. 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.

13. Entire Agreement; Amendment. This instrument contains the entire agreement
of the parties with respect to the subject matter hereof and supersedes all
prior agreements (including the Employment Agreement dated March 24, 2003
between the Company and Kuntz), 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 Kuntz and such officer of the
Company specifically designated by the Board.

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

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

16. 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.

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

 

KINDRED HEALTHCARE, INC. By:  

/s/ Paul J. Diaz

 

Paul J. Diaz,

President and Chief Executive Officer

 

/s/ Edward L. Kuntz

 

EDWARD L. KUNTZ