Document:

Exhibit 10.40

 Exhibit 10.40 
 AMENDMENT NO. 2 TO 
 AGREEMENT 

This Amendment No. 2 to Agreement, effective as of March 3, 2011 (the “Amendment”), between LCI Holding Company,
Inc., a Delaware corporation (the “Company”), LifeCare Holdings, Inc., a Delaware corporation with its principal place of business at 5340 Legacy Drive, Suite 150, Plano, TX 75024 (the “Principal Subsidiary”), and Phillip B.
Douglas, of Plano, Texas (the “Executive”), amends the Agreement between the parties dated as of January 30, 2006 and amended effective as of April 15, 2008 (the “Amended Employment Agreement”). Capitalized terms used
but not defined herein shall have the meanings set forth in the Amended Employment Agreement. 
 WHEREAS, the Company and
Executive wish to amend the terms of the Amended Employment Agreement in connection with the continuation of their employment relationship and the Executive’s appointment to the position of Chairman and Chief Executive Officer; 

WHEREAS, the Company has determined that it is in the best interests of the Company, its subsidiaries, and its stockholders to enter into
this Amendment; 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 the Amended Employment Agreement, as amended by this Amendment. 
 NOW THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions and conditions set forth in this Amendment, the parties hereby agree: 

1. Section 3(a) is hereby amended by deleting the word “President” and replacing it with “Chairman and Chief
Executive Officer”. 
 2. Section 4(a) is hereby amended by replacing “Three Hundred Twenty Five Thousand Dollars
($325,000.00)” with “Five Hundred and Fifty Thousand Dollars ($550,000.00)”. 
 3. The last sentence of
Section 4(f) is hereby deleted in its entirety and replaced with the following: “Any reimbursement for expenses that would constitute nonqualified deferred compensation subject to Section 409A (including the regulations thereunder,
“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”), shall be subject to the following additional rules: (i) no reimbursement of any such expense shall affect the Executive’s right to
reimbursement of any such expense in any other taxable year; (ii) reimbursement of the expense shall be made, if at all, promptly, but not later than the end of the calendar year following the calendar year in which the expense was incurred;
and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.” 
 4. The
third sentence of Section 5(b)(i) is hereby deleted in its entirety and replaced with the following: “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 (which shall in all events be no later than two and one-half months following the end of the fiscal year for which such
bonuses are earned) or, if later, on the sixtieth
(60th) calendar day following the date the
Executive’s employment terminates.” 
 5. The fifth sentence of Section 5(b)(i) is hereby deleted in its entirety
and replaced with the following: “Except for the payment of Final Compensation, any obligation of the Company to the Executive hereunder, however, is conditioned upon the Executive signing and returning to the Company (without revoking) a
timely and effective release of claims in the form attached hereto as Appendix A following termination of the Executive’s employment hereunder by the deadline specified therein, all of which (including the lapse of the period for revoking the
release of claims as specified in the release of claims) shall have occurred no later than the sixtieth (60th) calendar day following the date of termination (any such release submitted by such deadline, the “Employee Release”).”

 6. Section 5(d) is hereby deleted in its entirety and replaced with the following: “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 twenty-four (24) 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 under the federal law known as “COBRA”, 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 two (2) times 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 in two equal installments, with the first installment payable on the date that is sixty (60) calendar days following the date the Executive’s employment terminates (the
“First Installment Payment Date”) and the second installment payable on the date that is twelve (12) months following the First Installment Payment Date. Subject to Section 26(b) below, the Base Salary payments to which
the Executive is entitled hereunder shall be payable in accordance with the normal payroll practices of the Company for executives, with the first payment, which shall be retroactive to the day immediately following the date the Executive’s
employment terminated, being due and payable on the sixtieth (60th) calendar day following the date the Executive’s employment terminates. 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.” 
 7. The paragraph that immediately follows Section 5(e)(iii) is hereby
deleted in its entirety and replaced with: “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 limitation signing and return of a timely and effective Employee Release. 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.” 
 8. Section 5(f) is hereby amended by replacing “thirty (30) days’ notice” with “ninety (90) days’ notice”. 

9. Section 5(g)(i) is hereby deleted in its entirety and replaced with: “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 in addition to Final Compensation, and provided that the Executive signs a timely and effective Employee Release following termination of employment, on the sixtieth (60th) calendar day
following the date the Executive’s employment terminates (subject to Section 26(b) below) the Company shall pay: (A) a lump sum payment to the Executive equal to two (2) times the current annual Base Salary; and (B) a lump
sum payment to the Executive equal to the Termination Bonus. The Company will additionally pay the full cost of the Executive’s continued participation in the Company’s group health and dental insurance plans under the federal law known as
“COBRA” for so long as the Executive remains entitled to continue such participation under applicable law and plan terms, to a maximum of twenty-four (24) months. 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.” 

10. The following sentence is hereby added to the end of Section 5(g)(ii): “Notwithstanding anything to the contrary herein, in
the event that an event (or series of events) occurs that meets the definition of “Change of Control” but that does not also constitute a “change in control event” as defined in Treasury Regulation § 1.409A-3(i)(5)(i),
amounts, if any, to be paid or provided under Section 5(g)(i) by reason of a termination following such event or series of events shall be paid or provided in accordance with the payment timing rules of Section 5(d).” 

11. Section 9(a) is hereby amended by replacing “eighteen (18) months” with “twenty-four (24) months”.

 12. The Amended Employment Agreement as amended by this Amendment (as so amended, the “Second Amended Employment
Agreement”) is confirmed as being in full force and effect. The Second Amended Employment Agreement constitutes the entire understanding 

 
of the parties with respect to the subject matter hereof and thereof and supersedes all prior and current understandings and agreements, whether written or oral. This Amendment may be executed in
any number of counterparts, which together shall constitute one instrument, and shall bind and inure to the benefit of the parties and their respective successors, executors, administrators, heirs and permitted assigns. The Second Amended Employment
Agreement 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. 

[Remainder of Page Intentionally Left Blank] 

 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/ Phillip B. Douglas	 		 	By:	 	/s/ Chris A. Walker
	Phillip B. Douglas	 		 	Name:	 	Chris A. Walker
		 		 	Title:	 	Chief Financial Officer
			
		 		 	LIFECARE HOLDINGS, INC.
				
		 		 	By:	 	/s/ Chris A. Walker
		 		 	Name:	 	Chris A. Walker
		 		 	Title:	 	Chief Financial OfficerExhibit 10.41

 Exhibit 10.41 
 AMENDED AND RESTATED TRANSACTION BONUS AGREEMENT (this “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 5340 Legacy Drive, Suite 150, Plano, TX 75024, and Phillip B. Douglas, of Plano, Texas
75024 (the “Employee”), effective as of the 3rd day of March, 2011, amending and restating in its entirety that certain Transaction Bonus Agreement, effective as of April 15, 2008, by and between the Company, the Principal
Subsidiary and the Employee (the “Original Agreement”). 
 WHEREAS, the Company, the Principal Subsidiary and
the Employee previously entered into the Original Agreement; 
 WHEREAS, the Company, the Principal Subsidiary and the 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 Employee 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, in furtherance of Employee’s
continued employment by the Company or the Principal Subsidiary, the Company desires to make available to the Employee a one-time transaction bonus opportunity on the terms, and subject to the conditions, set forth 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: 
 12. Transaction Bonus Opportunity. For so long as the Employee remains employed
by the Company or the Principal Subsidiary, the Employee shall be eligible to earn a one-time bonus (the “Transaction Bonus”) following a Change of Control based upon the Transaction Proceeds actually received by Carlyle Partners
IV, L.P. and CP IV Coinvestment, L.P. in respect of their total cash investment in the Company. Any Transaction Bonus earned under this Agreement shall be payable not later than two and one half months following the end of the fiscal year in which
such Change of Control occurs. The amount of any Transaction Bonus (and whether it is payable in cash or in securities) shall be determined in accordance with the schedule set forth on Exhibit A and any amount of such Transaction Bonus earned
in respect of Transaction Proceeds that are received after the closing date of a Change of Control shall become payable by the Company to Employee only upon receipt by Carlyle Partners IV, L.P. and CP IV Coinvestment, L.P. of such Transaction
Proceeds. 
 13. Definitions. 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) “Board” means the Board of Directors of the Company.

 (c) “Change of Control” means the occurrence, after the date hereof, of any of the following:

 (i) 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; 

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

(iii) 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 Securities Exchange Act of 1934, as amended, 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 Securities Exchange Act of 1934, as amended, 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 Securities Exchange Act of 1934, as amended, 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). 
 (d) “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 date hereof and their respective affiliates. 
 (e) “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. 
 (f) “Transaction Proceeds” means the cumulative total of
all consideration (whether cash or securities) actually received by Carlyle Partners IV, L.P. and CP IV Coinvestment, L.P. (whether received before, on or after the closing date of the Change of Control) in respect of their total cash investment in
the Company, excluding, for the avoidance of doubt, management or similar fees paid to affiliates of Carlyle Partners IV, L.P. and CP IV Coinvestment, L.P. Any securities included in Transaction Proceeds shall be deemed to have the value attributed
to such securities in the Change of Control (as determined by the Board in good faith). 

 14. Withholding. All payments made by the Company or the Principal Subsidiary under
this Agreement shall be reduced by any tax or other amounts required to be withheld under applicable law. 
 15.
Assignment. Neither the Company nor the Employee 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 Employee in the event that the Employee 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 entity or transfer all or substantially all of its properties or assets to any person or entity. This Agreement shall inure to the benefit of and be binding upon the Company,
the Principal Subsidiary and the Employee, their respective successors, executors, administrators, heirs and permitted assigns. 

16. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Employee and by an expressly
authorized representative of the Company. 
 17. 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. 
 18.
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. 

19. 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, 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. 
 20. Entire Agreement. The Original Agreement is hereby amended and restated, and replaced, in its entirety with this Agreement. This Agreement, including the exhibit attached hereto which is
incorporated herein, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the subject matter
hereof. 
 21. 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. 
 22. Code
Section 409A Compliance. The 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. To the extent a

 
payment provided for in any provision of this Agreement does not qualify for an exemption and is contrary to or fails to comply with the requirements of Code Section 409A and related
treasury regulations, this Agreement shall be construed and administered as necessary to comply with such requirements to the extent allowed under applicable treasury regulations until this Agreement is appropriately amended to comply with such
requirements, to the extent allowed under applicable treasury regulations. 
 [Remainder of Page Intentionally Left Blank]

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

							
	THE EMPLOYEE:	 		 	LCI HOLDING COMPANY, INC.
				
	/s/ Phillip B. Douglas	 		 	By:	 	/s/ Chris A. Walker
	Phillip B. Douglas	 		 	Name:	 	Chris A. Walker
		 		 	Title:	 	Chief Financial Officer
			
		 		 	LIFECARE HOLDINGS, INC.
				
		 		 	By:	 	/s/ Chris A. Walker
		 		 	Name:	 	Chris A. Walker
		 		 	Title:	 	Chief Financial Officer

 Exhibit A 
 Transaction Bonus Opportunity 
  

					
	 Multiple of Money1
	  	Transaction
Bonus2	 
	
                <[    
]
	  	$	[            	] 
	 3[    ] but
<[    ]
	  	$	[            	] 
	 3[    ] but
<[    ]
	  	$	[            	] 
	 3[    ] but
<[    ]
	  	$	[            	] 
	 3[    ] but
<[    ]
	  	$	[            	] 
	 3[    ] but
<[    ]
	  	$	[            	] 
	 3[    ] but
<[    ]
	  	$	[            	] 
	 3[    ] but
<[    ]
	  	$	[            	] 
	 3[    ] but
<[    ]
	  	$	[            	] 
	
                
3[    ]
	  	$	[            	] 

  

	1	 Determined as Transaction Proceeds actually received by Carlyle Partners IV, L.P. and CP IV Coinvestment, L.P. as a multiple of their total cash
investment in the Company, excluding, for the avoidance of doubt, management or similar fees paid to affiliates of Carlyle Partners IV, L.P. and CP IV Coinvestment, L.P. 

	2	 In the event that the amount of Transaction Proceeds used to satisfy the multiple of money condition set forth in this Exhibit A includes any
securities, the Company, in its sole discretion, may elect to pay the Transaction Bonus in a combination of cash and such securities. In such event and for purposes of determining the amount of securities to be paid out in respect of the Transaction
Bonus, such securities will be deemed to have the value given to them for purposes of the Change of Control that resulted in the Transaction Bonus becoming payable (as determined by the Board in good faith) and the amount of securities to be
received in respect of the Transaction Bonus will not exceed the portion of the Transaction Bonus equal to a fraction, the numerator of which equals the dollar value of all securities included in the Transaction Proceeds, and the denominator of
which equals the dollar value of the total Transaction Proceeds upon which the amount of the Transaction Bonus was determined. 

 In the event of a Change of Control that (i) does not result in a Transaction Bonus becoming payable under this Agreement above the <[        ] level
(whether at the closing of such Change of Control or following such closing), and (ii) either (A) any portion of the Transaction Proceeds includes securities of the surviving entity of the Change of Control, or (B) the Company is the
surviving corporation of such Change of Control and either Carlyle Partners IV, L.P. or CP IV Coinvestment, L.P. retains an equity ownership interest in the Company following such Change of Control, then this Agreement shall remain in effect
following that Change of Control such that the Employee will be eligible to earn a Transaction Bonus on the terms set forth in this Agreement (but calculated and paid net of the dollar value of the Transaction Bonus paid to such Employee in respect
of that Change of Control at the <[        ] level) based upon the Transaction Proceeds actually received by Carlyle Partners IV, L.P. and CP IV Coinvestment, L.P. in a subsequent Change of Control
involving the surviving entity of such Change of Control (in the case where clause (ii)(A) above is applicable) or in a subsequent Change of Control involving the Company (in the case where clause (ii)(B) above is applicable). In the event of a
Change of Control in which clauses (i) and (ii)(A) above are applicable, the surviving entity of such Change of Control shall expressly assume the obligations in respect of the Transaction Bonus applicable to such surviving entity as described
in this Agreement.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00187-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00187-of-00352.parquet"}]]