Document:

Exhibit 10.3

 

EMPLOYMENT
AGREEMENT

 

THIS
EMPLOYMENT AGREEMENT (“Employment Agreement”) is executed as
of the Execution Date (as defined in Section 1 below) but made effective
as of January 1, 2008, between RES-CARE, INC.,
a Kentucky corporation (the “Company”), and DAVID W.
MILES (the “Employee”).

 

RECITALS:

 

WHEREAS, the
Company and Employee previously entered into that certain Employment Agreement
effective January 1, 2006 (the “Prior Agreement”);

 

WHEREAS, the
initial term of the Prior Agreement is scheduled to expire on December 31,
2008;

 

WHEREAS, the
Company wishes to offer the Employee a new long-term employment agreement which
will supersede the Prior Agreement; and

 

WHEREAS, the
Company and the Employee have reached agreement on the terms and conditions of
such agreement.

 

AGREEMENT:

 

NOW, THEREFORE, in
consideration of the premises and the mutual agreements set forth herein, the
parties agree as follows:

 

1.             Employment
and Term.  The Company
hereby employs the Employee, and the Employee accepts such employment, upon the
terms and conditions herein set forth for an initial term commencing effective January 1,
2008 (the “Commencement Date”), and ending on December 31, 2011, subject
to earlier termination only in accordance with the express provisions of this
Employment Agreement (“Initial Term”). 
At the option of the Company and with the consent of the Employee, this
Employment Agreement may be extended for successive periods of one (1) year
each (the “Additional Term(s)”) on the same terms and conditions.  The Company’s option to extend this
Employment Agreement for any Additional Term shall be exercisable by written
notice to Employee no later than thirty (30) days prior to the end of the
Initial Term or any then effective Additional Term.  The Initial Term and any effective Additional
Terms shall be collectively referred to as the “Term.”  For purposes of this Employment Agreement,
the term “Execution Date” shall mean the later of (i) the date this
Employment Agreement is signed by the Employee and (ii) the date this
Employment Agreement is signed on behalf of the Company.

 

 

2.           Duties.

 

(a)           Employment as Executive Vice
President and Chief Financial Officer. 
During the Term, the Employee shall serve as the Executive Vice
President and Chief Financial Officer of the Company and its subsidiaries.  During the Term, subject to the supervision
and control of the President and Chief Executive Officer of the Company (the “President”),
or his designee, the Employee shall have the responsibility for and oversight
of the corporate financial functions of the Company and its subsidiaries,
including the following: (i) treasury and cash management; (ii) corporate
accounting and fixed asset management; (iii) reimbursement; (iv) tax;
(v) external audit; (vi) financial reporting to the Securities and
Exchange Commission; (vii) risk management; (viii) accounts payable
and consolidation of financial statements; (ix) budgeting and assistance
with strategic planning; and (x) investor relations.  The Employee shall perform such additional
duties as may be prescribed from time to time by the President or his designee,
including, without limitation, serving as an officer or director of the Company
and/or one or more subsidiaries or affiliates of the Company, if elected to such
positions, without any additional salary or other compensation.  The Employee shall serve as a member of the
Resource Center’s Leadership Team.

 

(b)           Time and Effort.  The Employee shall devote his best efforts on
a full-time basis and all of his business time, energies and talents
exclusively to the business of the Company and to no other business during the
Term of this Employment Agreement; provided, however, that subject to the
restrictions in Section 7 hereof, the Employee may (i) invest his
personal assets in such form or manner as will not require his services in the
operation of the affairs of the entities in which such investments are made and
(ii) subject to satisfactory performance of the duties described in Section 2(a) hereof,
devote such time as may be reasonably required for him to continue to maintain
his current level of participation in various civic and charitable activities.

 

(c)           Employee Certification of
Eligibility.  Not less frequently
than annually and upon the termination of the Employee’s employment hereunder
for any reason other than Employee’s death, the Employee shall execute and
deliver to the President and/or any other authorized officer designated by the
Company a certificate (ResCare Annual Employment Re-Certification Eligibility
Form) confirming, to the best of the Employee’s knowledge, that the Employee
remains eligible for employment with the Company.  This same certificate will certify that the
Employee has complied with applicable laws, regulations and Company policies
regarding the provision of services to clients and billings to its paying
agencies, Company policies on training, Drug and Alcohol-Free Program,
Prohibition of Harassment, Affirmative Action Equal Employment Opportunity and
Violence in the Workplace.  This statement
shall state that the Employee is not aware of any such violation by other
employees, independent contractors, vendors, or other individuals performing
services for the Company and its subsidiaries that they did not report as
appropriate.

 

2

 

3.           Compensation and Benefits.

 

(a)           Base Salary.  The Company shall pay to the Employee during
the Term an annual salary (the “Base Salary”), which initially shall be
$300,000.  The Base Salary shall be due
and payable in substantially equal bi-weekly installments or in such other
installments as may be necessary to comport with the Company’s normal pay
periods for all employees.

 

Provided that this
Employment Agreement or Employee’s employment hereunder shall not have been
terminated for any reason, the Base Salary shall be increased, effective as of
the first day of each January, commencing January 1, 2009 by the greater
of (i) five percent (5%) and (ii) the percentage by which the
Consumer Price Index for all Urban Consumers (CPI-U), All-Items, 1982-1984=100,
as published by the Bureau of Labor Statistics (the “CPI”) established for the
month of December immediately preceding the date on which the adjustment
is to be made exceeds the CPI published for the month of December of the
immediately preceding year.  If the
Bureau of Labor Statistics suspends or terminates its publication of the CPI,
the parties agree that a reasonably comparable price index shall be substituted
for the CPI.

 

(b)           Incentive Plan.  During the Term, the Employee shall be
eligible for incentive compensation in accordance with the following incentive
plan (the “Incentive Plan”).  Shortly
after the beginning of each calendar year, the Company’s Board of Directors
will establish a target of the Company Net Income (as defined below) for such
calendar year (the “Annual Net Income Target”). 
In no event shall Employee earn any amount under the Incentive Plan for
any calendar year during the Term unless the actual Company Net Income for such
calendar year equals or exceeds ninety percent (90%) of the Annual Net Income
Target for such calendar year.  The
threshold referred to in the immediately preceding sentence shall hereinafter
be referred to as the “Annual Net Income Threshold.”  For all purposes of this Employment
Agreement, “Company Net Income” shall mean the net income of the Company and
its subsidiaries on a consolidated basis, determined in accordance with
generally accepted accounting principles consistently applied, as adjusted to
exclude (x) any extraordinary non-cash or nonrecurring non-cash charges or
losses incurred by the Company and its subsidiaries other than in the ordinary
course of business, including but not limited to losses or expenses resulting
from redemptions or repayments of indebtedness, or modifications or amendments
of the Company’s credit facility, in each case net of related tax benefit, and (y) other
appropriate items as determined by the Board of Directors or the Executive
Compensation Committee of the Board of Directors (the “Compensation Committee”).  The amount payable under the Incentive Plan
to Employee for each full calendar year during the Term shall equal the Base
Salary actually paid to the Employee for such calendar year multiplied by the
sum of the Department Performance Percentage and the Company Performance
Percentage (as determined below) for such calendar year.  Not later than March 15 of each calendar
year, the maximum percentages for each of the Department Performance Percentage
(the “Department Maximum Performance Percentage”) and the Company Performance
Percentage (the “Company Maximum 

 

3

 

Performance
Percentage”) shall be established by the Compensation Committee for such
calendar year within a range of forty percent (40%) and sixty percent (60%);
provided that the sum of such percentages shall equal one hundred percent
(100%) each calendar year. If the Compensation Committee shall not timely
establish either or both of the Department Maximum Performance Percentage or
the Company Maximum Performance Percentage for the calendar year 2008, each of
such percentages shall be fifty percent (50%). If the Compensation Committee
shall not timely establish either or both of the Department Maximum Performance
Percentage or the Company Maximum Performance Percentage for any future
calendar year during the Term, the respective percentages that were applicable
for the prior calendar year shall apply for such calendar year. The sum of the
Department Performance Percentage and the Company Performance Percentage for
each calendar year shall be referred to herein as the “Incentive
Percentage.”  For each calendar year the
maximum Incentive Percentage shall be one hundred percent (100%).

 

(i)            The
Department Performance Percentage for each calendar year during the Term shall
be equal to the sum of a specified number of percentages that are each
determined based upon the Company functions for which Employee is responsible
satisfying certain performance criteria in categories established by the
Compensation Committee on an annual basis. For each calendar year, the relative
weight of the performance criteria as well as the performance criteria may
change for each calendar year and shall be established by the Compensation
Committee at the same time as its establishment of the Company Maximum
Performance Percentage. The manner in which the percentage for each such
category shall be determined for each calendar year shall be established by the
Compensation Committee at the same time as its establishment of the Company
Maximum Performance Percentage. Notwithstanding anything in this Employment
Agreement to the contrary, the Department Performance Percentage shall be zero
unless the actual Company Net Income for the respective calendar year equals or
exceeds the Annual Net Income Threshold for such calendar year.

 

(ii)           The
Company Performance Percentage shall be determined for each calendar year
during the Term based upon the Company and its subsidiaries having met or
exceeded the Annual Net Income Threshold for such calendar year.
Notwithstanding anything in this Employment Agreement to the contrary, the
Company Performance Percentage shall be zero unless the actual Company Net
Income for the respective calendar year equals or exceeds the Annual Net Income
Threshold for such calendar year. The Company Performance Percentage for each
calendar year shall be equal to the Company Maximum Performance Percentage for
such calendar year multiplied by the Net Income Factor (as determined below).
The excess of the Annual Net Income Target over the Annual Net Income Threshold
shall be referred to as the “Incentive Range.” 
The Net Income Factor for each calendar year shall be equal to:  (A) the amount by which the actual
Company Net Income for the calendar year exceeds the Annual Net Income
Threshold for such calendar year (but not more than the Incentive Range for
such calendar year), divided by (B) the Incentive Range for such calendar
year.

 

4

 

After
any target or percentage described in this paragraph (b) has been
established by the Company’s Board of Directors or Compensation Committee, as
applicable, for any calendar year, such target or percentage shall not be
increased or decreased for such calendar year for purposes of this paragraph
(b) or for purposes of paragraph (c) of this Section 4. Any
annual incentive earned by the Employee under the Incentive Plan for any
calendar year during the Term shall be paid by the Company in cash to the Employee
not later than the later of (x) seventy-four (74) days after the end of
the applicable calendar year or (y) the date of delivery to the Company of
the audited financial statements of the Company and its subsidiaries for such
calendar year. Any amounts earned by the Employee under the Incentive Plan
shall be hereinafter referred to as the “Incentive Bonus.”

 

(c)          Restricted
Stock Awards.

 

(i)            The
restricted shares of common stock of the Company awarded under this paragraph
(c) (collectively, the “Restricted Shares”) shall be awarded pursuant to
and, to the extent not expressly inconsistent herewith, governed by the Company
stock option and incentive compensation plan as in effect as the effective date
of the respective award (the “Stock Plan”). All grants described in this
paragraph (c) shall be conditioned upon the approval of the shareholders
of the Company at the annual shareholders’ meeting in 2008 of (A) an
increase in the maximum number of shares that may be issued pursuant to awards
under the Stock Plan, or (B) a new or amended plan authorizing grants of
restricted shares of the Company. The number of Restricted Shares shall be
adjusted in accordance with the terms of the Stock Plan for stock splits, stock
dividends, recapitalizations and the like. Until and only to the extent the
Restricted Shares shall vest as provided herein, all stock certificates
evidencing the Restricted Shares owned by Employee shall be held by the Company
for the benefit of Employee. As and to the extent any Restricted Shares shall
vest as provided herein, the Company will promptly deliver certificates
representing such vested shares to Employee.

 

(ii)           Provided
Employee shall continue to be employed hereunder, effective on July 15,
2008, the Company shall award to Employee 5,000 restricted shares of common
stock of the Company. The restricted shares awarded as provided in the
preceding sentence shall be referred to as the “Fixed Restricted Shares.”  The Fixed Restricted Shares shall be subject
to vesting as provided below. Provided Employee shall continue to be employed
hereunder, one-fourth (1/4) of the Fixed Restricted Shares shall vest on
June 1, 2009, an additional one-fourth (1/4) of the Fixed Restricted
Shares shall vest on June 1, 2010, an additional one-fourth (1/4) of the Fixed
Restricted Shares shall vest on June 1, 2011, and the final one-fourth
(1/4) of the Fixed Restricted Shares shall vest on June 1, 2012.

 

5

 

(iii)          Provided
Employee shall continue to be employed hereunder, and further provided that the
applicable Annual Performance Award Test (as defined below) has been satisfied,
on the Performance Award Date (as defined below) each year during the Term,
commencing in 2009, the Company shall award to Employee that number of shares
of common stock of the Company as is equal to $100,000 divided by the
Performance Award Price (as defined below), with any fractional share resulting
therefrom being rounded up to one whole share if 0.5 or more and eliminated if
less than 0.5. For each year, the “Performance Award Date” shall be that date
the Company files its Annual Report on Form 10-K with the Securities and
Exchange Commission for the immediately preceding calendar year. Satisfaction
of the “Annual Performance Award Test” shall be determined as of each
Performance Award Date and measured based upon the Company Net Income for the
immediately preceding calendar year. The Annual Performance Award Test shall be
satisfied for a calendar year if (A) the Annual Net Income Target for the
calendar year being measured is at least ten percent (10%) higher than the
actual Company Net Income for the immediately preceding calendar year, and
(B) the actual Company Net Income for the calendar year being measured
equals or exceeds ninety-five percent (95%) of the Annual Net Income Target for
the calendar year being measured. The “Performance Award Price” shall be equal
to the closing sale price of Company common stock as reported on the Nasdaq
National Market on the respective Performance Award Date (or if the respective
Performance Award Date is not a trading date for the Company common stock, on
the immediately preceding trading date). Any Restricted Shares awarded pursuant
to this subparagraph (iii) shall be immediately vested in full on the
respective date such shares are awarded.

 

(iv)          Notwithstanding
any provision in this paragraph (c) to the contrary, all of the Restricted
Shares that have not been previously vested shall immediately vest if Employee
shall continue to be employed hereunder and (A) Employee shall die,
(B) Employee shall be subject to a “permanent disability” as described in
Section 4(b) hereof, or (C) a Change of Control (as defined
below) has occurred with respect to the Company. A “Change of Control” for
purposes of this subparagraph (iv) shall have the same meaning as that
term is given in the Stock Plan.

 

(d)           Participation
in Benefit Plans. During the Term, Employee shall be entitled to
participate in all employee benefit plans and programs (including but not
limited to paid time off policies, retirement and profit sharing plans, health
insurance, etc.) provided by the Company under which the Employee is eligible
in accordance with the terms of such plans and programs. The Company reserves
the right to amend, modify or terminate in their entirety any of such programs
and plans.

 

(e)           Out-of-Pocket
Expenses. The Company shall promptly pay the ordinary, necessary and
reasonable expenses incurred by the Employee in the performance of the
Employee’s duties hereunder (or if such expenses are paid directly by the
Employee shall 

 

6

 

promptly
reimburse him for such payment), consistent with the reimbursement policies
adopted by the Company from time to time and subject to the prior written
approval by the President.

 

(f)          Withholding
of Taxes; Income Tax Treatment. If, upon the payment of any compensation or
benefit to the Employee under this Employment Agreement (including, without
limitation, in connection with the award of any Restricted Shares or payment of
any bonus or benefit), the Company determines in its discretion that it is
required to withhold or provide for the payment in any manner of taxes,
including but not limited to, federal income or social security taxes, state
income taxes or local income taxes, the Employee agrees that the Company may
satisfy such requirement by:

 

(i)            withholding
an amount necessary to satisfy such withholding requirement from the Employee’s
compensation or benefit; or

 

(ii)           conditioning
the payment or transfer of such compensation or benefit upon the Employee’s
payment to the Company of an amount sufficient to satisfy such withholding
requirement.

 

The
Employee agrees that he will treat all of the amounts payable pursuant to this
Employment Agreement as compensation for income tax purposes.

 

4.           Termination. The Employee’s
employment hereunder may be terminated under this Employment Agreement as
follows, subject to the Employee’s rights pursuant to Section 5 hereof:

 

(a)           Death.
The Employee’s employment hereunder shall terminate upon his death.

 

(b)           Disability.
The Employee’s employment shall terminate hereunder at the earlier of
(i) immediately upon the Company’s determination (conveyed by a Notice of
Termination (as defined in paragraph (f) of this Section 4)) that the
Employee is permanently disabled, and (ii) the Employee’s absence from his
duties hereunder for 180 days. “Permanent disability” for purposes of this
Employment Agreement shall mean the onset of a physical or mental disability
which prevents the Employee from performing the essential functions of the
Employee’s duties hereunder, which is expected to continue for 180 days or
more, subject to any reasonable accommodation required by state and/or federal
disability anti-discrimination laws, including, but not limited to, the
Americans With Disabilities Act of 1990, as amended.

 

(c)           Cause.
The Company may terminate the Employee’s employment hereunder for Cause. For
purposes of this Employment Agreement, the Company shall have “Cause” to
terminate the Employee’s employment because of the Employee’s personal
dishonesty, intentional misconduct, breach of fiduciary duty involving personal
profit, conviction of, or plea of nolo  contendere to, any law,
rule or regulation (other than 

 

7

 

traffic
violations or similar offenses) or breach of any provision of this Employment
Agreement.

 

(d)           Without
Cause. The Company may terminate the Employee’s employment under this
Employment Agreement at any time without Cause (as defined in paragraph
(c) of this Section 4) by delivery of a Notice of Termination
specifying a date of termination at least thirty (30) days following delivery
of such notice.

 

(e)           Voluntary
Termination. By not less than thirty (30) days prior written notice to the
President, Employee may voluntarily terminate his employment hereunder.

 

(f)            Notice
of Termination. Any termination of the Employee’s employment by the Company
during the Term pursuant to paragraphs (b), (c) or (d) of this
Section 4 shall be communicated by a Notice of Termination from the
Company to the Employee. Any termination of the Employee’s employment by the
Employee during the Term pursuant to paragraph (e) of this Section 4
shall be communicated by a Notice of Termination from Employee to the Company.
For purposes of this Employment Agreement, a “Notice of Termination” shall mean
a written notice which shall indicate the specific termination provision in
this Employment Agreement relied upon and in the case of any termination for
Cause shall set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Employee’s employment.

 

(g)           Date
of Termination. The “Date of Termination” shall, for purposes of this
Employment Agreement, mean:  (i) if
the Employee’s employment is terminated by his death, the date of his death;
(ii) if the Employee’s employment is terminated on account of disability
pursuant to Section 4(b) above, thirty (30) days after Notice of
Termination is given (provided that the Employee shall not, during such 30-day
period, have returned to the performance of his duties on a full-time basis),
(iii) if the Employee’s employment is terminated by the Company for Cause
pursuant to Section 4(c) above, the date specified in the Notice of
Termination, (iv) if the Employee’s employment is terminated by the
Company without Cause, pursuant to Section 4(d) above, the date
specified in the Notice of Termination, (v) if the Employee’s employment
is terminated voluntarily pursuant to Section 4(e) above, the date
specified in the Notice of Termination, and (vi) if the Employee’s
employment is terminated by reason of an election by either party not to extend
the Term, the last day of the then effective Term.

 

5.           Compensation upon Termination or During Disability;
Change of Control.

 

(a)           Death.
If the Employee’s employment shall be terminated by reason of his death during
the Term, the Employee shall continue to receive installments of his then
current  Base Salary until the date of
his death and shall receive any earned but unpaid Incentive Bonus for any
calendar year ending prior to the date of his death.

 

(b)           Disability.
If the Employee’s employment shall be terminated by reason of his disability
during the Term, the Employee shall continue to receive installments of his 

 

8

 

then
current Base Salary while actively at work and until the earlier of
(i) the date of termination in accordance with Section 4(b) of
this Employment Agreement or (ii) the date that short or long-term
disability payments to the Employee commence under any plan or program then
provided and funded by the Company. If the Employee’s installments of Base
Salary cease by reason of clause (ii) of the preceding sentence but the
benefits payable under any such disability plan or program do not provide 100%
replacement of the Employee’s installments of Base Salary during such period,
the Employee shall be paid at regular payroll intervals until the provisions of
clause (i) of the preceding sentence becomes effective, an amount equal to
the difference between the periodic installments of his then current Base
Salary that would have otherwise been payable and the disability benefit paid
from such disability plan or program. In the event of any such termination, the
Employee shall also receive any earned but unpaid Incentive Bonus for any
calendar year prior to the Date of Termination. Upon termination due to death
prior to a termination as specified in the preceding provisions of this
paragraph (b), the payment provisions of this paragraph (b) shall no
longer apply and Section 5(a) above shall apply.

 

(c)           Cause.
If the Employee’s employment shall be terminated for Cause, the Employee shall
continue to receive installments of his then current Base Salary only through
the Date of Termination and the Employee shall not be entitled to receive any
Incentive Bonus (other than any earned but unpaid Incentive Bonus for any prior
calendar year), and shall not be eligible for any severance payment of any
nature.

 

(d)           Without
Cause. If the Employee’s employment is terminated without Cause and
paragraph (g) of this Section 5 shall not be applicable, the Employee
shall continue to receive installments of his then current Base Salary until
the Date of Termination and for twelve (12) months thereafter and the Employee
shall also be entitled to receive any earned but unpaid Incentive Bonus for any
calendar year ending prior to the Date of Termination.

 

(e)           Expiration
of Term. If the Employee’s employment shall be terminated by reason of
expiration of the Term by reason of Employee’s election not to extend the Term,
the Employee shall continue to receive installments of his then current Base
Salary until the Date of Termination and shall also be entitled to receive any
earned but unpaid Incentive Bonus for the last calendar year of the Term. If
the Employee’s employment shall be terminated by reason of expiration of the
Term by reason of the Company’s election not to extend the Term, the Employee
shall continue to receive installments of his then current Base Salary until
the Date of Termination and for twelve (12) months thereafter and shall also be
entitled to receive any earned but unpaid Incentive Bonus for last calendar
year of the Term.

 

(f)            Voluntary
Termination. If the Employee’s employment shall be terminated pursuant to
Section 4(e) hereof, the Employee shall continue to receive
installments of his then current Base Salary until the Date of Termination and
the Employee shall not be entitled to receive any then unpaid Incentive Bonus
(other than any

 

9

 

earned
but unpaid Incentive Bonus for any calendar year ending prior to the date
Employee gives Notice of Termination), and shall not be entitled to any
severance payment of any nature.

 

(g)           Change
of Control. If a Change of Control (as defined in
Section 3(c)(iv) hereof) has occurred with respect to the Company and
within two (2) years after the occurrence of such Change of Control, the
Employee’s employment shall be terminated by the Company without Cause, then
Employee shall be entitled to receive a lump sum payment equal to the
Employee’s then current Base Salary multiplied by two (2). The Employee shall
also be entitled to receive any earned but unpaid Incentive Bonus for any
calendar year ending prior to the Date of Termination and a pro-rated Incentive
Bonus for the current calendar year for the period ending on the Date of
Termination.

 

(h)           No
Further Obligations after Payment. After all payments, if any, have been
made to the Employee pursuant to the applicable provisions of paragraphs
(a) through (g) of this Section 5, the Company shall have no
further obligations to the Employee under this Employment Agreement other than
the provision of any employee benefit plan required to be continued under
applicable law or by its terms.

 

6.             Duties Upon Termination. Upon the
termination of Employee’s employment hereunder for any reason whatsoever
(including but not limited to the failure of the parties hereto to agree to the
extension of this Employment Agreement pursuant to Section 1 hereof),
Employee shall promptly (a) comply with his obligation to deliver an
executed exit interview document as provided in accordance with Company policy,
and (b) return to the Company any property of the Company or its
subsidiaries then in Employee’s possession or control, including without
limitation, any Confidential Information (as defined in
Section 7(d)(iii) hereof) and whether or not constituting
Confidential Information, any technical data, performance information and
reports, sales or marketing plans, documents or other records, and any manuals,
drawings, tape recordings, computer programs, discs, and any other physical
representations of any other information relating to the Company, its
subsidiaries or affiliates or to the Business (as defined in Section 7(d)(iv) hereof)
of the Company. Employee hereby acknowledges that any and all of such
documents, items, physical representations and information are and shall remain
at all times the exclusive property of the Company.

 

7.             Restrictive Covenants.

 

(a)           Acknowledgments.
Employee acknowledges that (i) his services hereunder are of a special,
unique and extraordinary character and that his position with the Company
places him in a position of confidence and trust with the operations of the
Company, its subsidiaries and affiliates (collectively, the “Res-Care
Companies”) and allows him access to Confidential Information, (ii) the
Company has provided Employee with a unique opportunity as Executive Vice
President and Chief Financial Officer, (iii) the nature and periods of the
restrictions imposed by the covenants contained in this Section 7 are
fair, reasonable and necessary to protect and preserve for the Company the
benefits of Employee’s employment hereunder, (iv) the Res-Care Companies
would

 

10

 

sustain
great and irreparable loss and damage if Employee were to breach any of such
covenants, (v) the Res-Care Companies conduct and are aggressively
pursuing the conduct of their business actively in and throughout the entire
Territory (as defined in paragraph (d)(ii) of this Section 7), and
(vi) the Territory is reasonably sized because the current Business of the
Res-Care Companies is conducted throughout such geographical area, the Res-Care
Companies are aggressively pursuing expansion and new operations throughout
such geographic area and the Res-Care Companies require the entire Territory
for profitable operations.

 

(b)           Confidentiality
and Non-disparagement Covenants. Having acknowledged the foregoing,
Employee covenants that without limitation as to time, (i) commencing on
the Commencement Date, he will not directly or indirectly disclose or use or
otherwise exploit for his own benefit, or the benefit of any other Person (as
defined in paragraph (d)(v) of this Section 7), except as may be
necessary in the performance of his duties hereunder, any Confidential
Information, and (ii) commencing on the Date of Termination, he will not
disparage or comment negatively about any of the Res-Care Companies, or their
respective officers, directors, employees, policies or practices, and he will
not discourage anyone from doing business with any of the Res-Care Companies
and will not encourage anyone to withdraw their employment with any of the
Res-Care Companies.

 

(c)           Covenants.
Having acknowledged the statements in Section 7(a) hereof, Employee
covenants and agrees with the Res-Care Companies that he will not, directly or
indirectly, from the Commencement Date until the Date of Termination, and for a
period of twelve (12) months thereafter, directly or indirectly (i) offer
employment to, hire, solicit, divert or appropriate to himself or any other
Person, any business or services (similar in nature to the Business) of any
Person who was an employee or an agent of any of the Res-Care Companies at any
time during the last twelve (12) months of Employee’s employment hereunder; or
(ii) own, manage, operate, join, control, assist, participate in or be
connected with, directly or indirectly, as an officer, director, shareholder,
partner, proprietor, employee, agent, consultant, independent contractor or
otherwise, any Person which is, at the time, directly or indirectly, engaged in
the Business of the Res-Care Companies within the Territory. The Employee
further agrees that from the Commencement Date until the Date of Termination,
he will not undertake any planning for or organization of any business activity
that would be competitive with the Business. Notwithstanding the foregoing,
Employee agrees that if this Employment Agreement shall be terminated by reason
of expiration of the Term (irrespective of which party elected not to extend
the Term), the covenants in this paragraph (c) shall survive the
expiration thereof until twelve (12) months after the last day of employment of
Employee by any Res-Care Company.

 

(d)           Definitions.
For purposes of this Employment Agreement:

 

(i)            For
purposes of this Section 7, “termination of Employee’s employment” shall
include any termination pursuant to paragraphs (b), (c) and (d)

 

11

 

of
Section 4 hereof, the termination of such Employee’s employment by reason
of the failure of the parties hereto to agree to the extension of this
Agreement pursuant to Section 1 hereof or the voluntary termination of
Employee’s employment hereunder.

 

(ii)           The
“Territory” shall mean the forty-eight (48) contiguous states of the United
States, the United States Virgin Islands, Puerto Rico, all of the Provinces of
Canada, all the countries of the European Union, Switzerland and Norway.

 

(iii)          “Confidential
Information” shall mean any business information relating to the Res-Care
Companies or to the Business (whether or not constituting a trade secret),
which has been or is treated by any of the Res-Care Companies as proprietary and
confidential and which is not generally known or ascertainable through proper
means. Without limiting the generality of the foregoing, so long as such
information is not generally known or ascertainable by proper means and is
treated by the Res-Care Companies as proprietary and confidential, Confidential
Information shall include the following information regarding any of the
Res-Care Companies:

 

(1)           any
patent, patent application, copyright, trademark, trade name, service mark,
service name, “know-how” or trade secrets;

 

(2)           customer
lists and information relating to (i) any client of any of the Res-Care
Companies or (ii) any client of the operations of any other Person for
which operations any of the Res-Care Companies provides management services;

 

(3)           supplier
lists, pricing policies, consulting contracts and competitive bid information;

 

(4)           records,
compliance and/or operational methods and Company policies and procedures,
including manuals and forms;

 

(5)           marketing
data, plans and strategies;

 

(6)           business
acquisition, development, expansion or capital investment plan or activities;

 

(7)           software
and any other confidential technical programs;

 

(8)           personnel
information, employee payroll and benefits data;

 

12

 

(9)           accounts
receivable and accounts payable;

 

(10)         other
financial information, including financial statements, budgets, projections,
earnings and any unpublished financial information; and

 

(11)         correspondence
and communications with outside parties.

 

(iv)          The
“Business” of the Res-Care Companies shall mean the business of providing
training or job placement services as provided in the Company’s Employment and
Training Services Group, youth treatment or services, home care or periodic
services to the elderly, services to persons with mental retardation and other
developmental disabilities, including but not limited to persons who have been
dually diagnosed, services to persons with acquired brain injuries, or
providing management and/or consulting services to third parties relating to
any of the foregoing.

 

(v)           The
term “Person” shall mean an individual, a partnership, an association, a
corporation, a trust, an unincorporated organization, or any other business
entity or enterprise.

 

(e)           Injunctive
Relief, Invalidity of any Provision. Employee acknowledges that his breach
of any covenant contained in this Section 7 will result in irreparable
injury to the Res-Care Companies and that the remedy at law of such parties for
such a breach will be inadequate. Accordingly, Employee agrees and consents
that each of the Res-Care Companies in addition to all other remedies available
to them at law and in equity, shall be entitled to seek both preliminary and
permanent injunctions to prevent and/or halt a breach or threatened breach by
Employee of any covenant contained in this Section 7. If any provision of
this Section 7 is invalid in part or in whole, it shall be deemed to have
been amended, whether as to time, area covered, or otherwise, as and to the
extent required for its validity under applicable law and, as so amended, shall
be enforceable. The parties further agree to execute all documents necessary to
evidence such amendment.

 

(f)            Advice
to Future Employers. If Employee, in the future, seeks or is offered
employment by any other Person, he shall provide a copy of this Section 7
to the prospective employer prior to accepting employment with that prospective
employer.

 

8.             Entire
Agreement; Modification; Waiver. This Employment Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties, including but not limited
to the Prior Agreement. Notwithstanding the foregoing, the termination of the
Prior Agreement shall not affect Employee’s rights to any unpaid Incentive
Bonus (as defined in the Prior Agreement) that may have been earned by Employee
for the calendar year 2007 or any vesting of any Restricted Shares (as defined
in the Prior Agreement)

 

13

 

granted to Employee prior
to the Commencement Date. No supplement, modification, or amendment of this
Employment Agreement shall be binding unless executed in writing by all parties
hereto (other than as provided in the next to last sentence of
Section 7(e) hereof). No waiver of any of the provisions of this
Employment Agreement will be deemed, or will constitute, a waiver of any other
provision, whether or not similar, nor will any waiver constitute a continuing
waiver. No waiver will be binding unless executed in writing by the party
making the waiver.

 

9.             Successors
and Assigns; Assignment. This Employment Agreement shall be
binding on, and inure to the benefit of, the parties hereto and their
respective heirs, executors, legal representatives, successors and assigns; provided,
however, that this Employment Agreement is intended to be personal to
the Employee and the rights and obligations of the Employee hereunder may not
be assigned or transferred by him.

 

10.           Notices.
All notices, requests, demands and other communications required or permitted
to be given or made under this Employment Agreement, or any other agreement
executed in connection therewith, shall be in writing and shall be deemed to
have been given on the date of delivery personally or upon deposit in the
United States mail postage prepaid by registered or certified mail, return
receipt requested, to the appropriate party or parties at the following addresses
(or at such other address as shall hereafter be designated by any party to the
other parties by notice given in accordance with this Section):

 

To
the Company:

 

	
  Res-Care, Inc.

  
	
  9901 Linn
  Station Road

  
	
  Louisville,
  Kentucky 40223

  
	
  Attn:

  	
  Ralph G. Gronefeld, Jr.,

  
	
   

  	
  President and
  Chief Executive Officer

  
	
   

  

To
the Employee:

 

David
W. Miles

620
Woodlake Drive

Louisville,
Kentucky 40245

 

11.           Execution
in Counterparts. This Employment Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.

 

12.           Further
Assurances. The parties each hereby agree to execute and deliver
all of the agreements, documents and instruments required to be executed and
delivered by them in this Employment Agreement and to execute and deliver such
additional instruments and documents and to take such additional actions as may
reasonably be required from time to time in order to effectuate the
transactions contemplated by this Employment Agreement.

 

14

 

13.           Severability
of Provisions. The invalidity or unenforceability of any
particular provision of this Employment Agreement shall not affect the other
provisions hereof and this Employment Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.

 

14.           Governing
Law; Jurisdiction; Venue. This Employment Agreement is executed
and delivered in, and shall be governed by, enforced and interpreted in
accordance with the laws of, the Commonwealth of Kentucky. The parties hereto
agree that the federal or state courts located in Kentucky shall have the
exclusive jurisdiction with regard to any litigation relating to this
Employment Agreement and that venue shall be proper only in Jefferson County,
Kentucky, the location of the principal office of the Company.

 

15.           Tense;
Captions. In construing this Employment Agreement, whenever
appropriate, the singular tense shall also be deemed to mean the plural, and
vice versa, and the captions contained in this Employment Agreement shall be
ignored.

 

16.           Survival.
The provisions of Sections 5, 6 and 7 hereof shall survive the
termination, for any reason, of this Employment Agreement, in accordance with
their terms.

 

[Remainder of page intentionally blank –
signatures begin on next page.]

 

15

 

IN
WITNESS WHEREOF, the parties hereto have executed this Employment Agreement on
the dates set forth below.

 

	
   

  	
  RES-CARE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
    April 11, 2008

  	
   

  	
  By:

  	
   /s/ Ralph G. Gronefeld, Jr.

  
	
   

  	
   

  	
  Ralph
  G. Gronefeld, Jr.

  
	
   

  	
   

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
    February 11, 2008

  	
   

  	
   /s/ David W. Miles

  
	
   

  	
  David W. Miles

  

 

16EXHIBIT 10.1

 

FIRST AMENDMENT

TO

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

A.            The Amended and Restated Employment Agreement (the “Agreement”)
entered into as of March 14, 2007 by and between Clayton Holdings, Inc.,
a Delaware corporation (“Company”) and Kevin J. Kanouff (“Employee”)
is hereby amended as follows:

 

1.             Section 9 of the Agreement is
hereby amended by adding the following two (2) sentences at the end of
subsection (c)(ii) thereof:

 

“Employee may only
terminate Employee’s employment pursuant to this Section 9.c.ii. if such
termination occurs within six months after the initial occurrence of such a
prohibited Company action.  Company and
Employee acknowledge and agree that the reassignment of Employee from his day
to day responsibilities as President of Clayton Fixed Income Services  to Executive Vice President of Strategic
Alliances for Company on February 1, 2008 constituted such a prohibited
Company action and that, as a result of such reassignment, Employee may
terminate Employee’s employment pursuant to this Section 9.c.ii on or
prior to August 1, 2008.”

 

2.             Section 9 of the Agreement is
hereby further amended by adding the following sentence immediately following
the second sentence of subsection (d) thereof:

 

“In order to be eligible
to receive the payments contemplated by the previous sentence, Employee must
execute such release within forty-five (45) days of Employee’s receipt of such
release.”

 

3.             Section 9 of the Agreement is
hereby further amended by adding the following subsection (i) immediately
following subsection (h):

 

                “i.            Modified Cutback.   Anything in this Agreement to the
contrary notwithstanding, in the event that any compensation, payment or
distribution by Company to or on behalf of Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise 

 

 

 

 

(the “Severance
Payments”) would be subject to the excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended (the “Code” and such
excise tax, together with any interest or penalties incurred by Employee with
respect to such excise tax, the “Excise Tax”), the following provisions
shall apply:

 

(i)            If the Severance Payments, reduced
by the sum of (A) the Excise Tax and (B) the total of the federal,
state, and local income and employment taxes payable by Employee on the amount
of the Severance Payments which is in excess of the Threshold Amount (defined
below), are greater than or equal to the Threshold Amount, Employee shall be
entitled to the full benefits payable under this Agreement.

 

(ii)           If the Threshold Amount is less than (x) the
Severance Payments, but greater than (y) the Severance Payments reduced by
the sum of (A) the Excise Tax and (B) the total of the federal,
state, and local income and employment taxes on the amount of the Severance
Payments which is in excess of the Threshold Amount, then the benefits payable
under this Agreement shall be reduced (but not below zero) to the extent
necessary so that the sum of the Severance Payments shall not exceed the
Threshold Amount.

 

For the purposes of this
subsection (i), “Threshold Amount” shall mean three times Employee’s
“base amount” within the meaning of Section 280G(b)(3) of the Code
and the regulations promulgated thereunder less one dollar ($1.00).

 

The determination as to
which of the alternative provisions of subsection (i) above shall apply to
Employee shall be made by a nationally recognized accounting firm selected by
Company (the “Accounting Firm”), which shall provide detailed supporting
calculations both to Company and Employee within 15 business days of the date
on which Employee’s employment is terminated, if applicable, or at such earlier
time as is reasonably requested by Company or Employee.  For purposes of determining which of the
alternative provisions of subsection (i) above shall apply, Employee shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation applicable to individuals for the calendar year in which the
determination is to be made, and state and local income taxes at the highest
marginal rates of individual taxation in the state and locality of Employee’s
residence on the date on which Employee’s employment is terminated, net of the
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local 

 

2

 

 

taxes.  Any determination by the Accounting Firm
shall be binding upon Company and Employee.”

 

4.             Section 11(a) of the
Agreement is hereby amended by deleting the existing phrase “two-year period”
and replacing it with the phrase “one-year period.”

 

5.             Section 12 of the Agreement is
hereby amended by deleting the existing phrase “two-year period” and replacing
it with the phrase “one-year period.”

 

6.             Section 16 of the Agreement is
hereby amended by adding the following subsection (k) immediately
following subsection (j):

 

“k.          Section 409A.   Anything in this Agreement to the
contrary notwithstanding, if at the time of Employee’s separation from service
within the meaning of Section 409A of the Code, Company determines that
Employee is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of
the Code, then to the extent any payment or benefit that Employee becomes
entitled to under this Agreement would be considered deferred compensation
subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of
the Code as a result of the application of Section 409A(a)(2)(B)(i) of
the Code, such payment shall not be payable and such benefit shall not be
provided until the date that is the earlier of (i) six months and one day
after Employee’s separation from service, or (ii) Employee’s death.”

 

B.            Except as amended herein, the Agreement is hereby
confirmed in all other respects.

 

IN WITNESS WHEREOF, this First Amendment is entered
into this 13th day of April, 2008 by the parties hereto.

 

	
   

  	
  CLAYTON HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Cohen

  
	
   

  	
  Name: Steven Cohen

  
	
   

  	
  Title: SVP

  
	
   

  
	
   

  	
  By:

  	
  /s/ Kevin J. Kanouff

  
	
   

  	
   

  	
  Kevin
  J. Kanouff

  
	
   

  	
   

  	
   

  

 

3

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