Document:

Exhibit 10.1

 

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 VINCENT F.
DORAN (the “Employee”).

 

RECITALS:

 

WHEREAS, the
Company and Employee previously entered into that certain Employment Agreement
effective January 1, 2005 (the “Prior Agreement”);

 

WHEREAS, the
initial term of the Prior Agreement is scheduled to expire on December 31,
2007;

 

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
President of Employment and Training Services Group.  During the Term, the Employee shall serve as
the President of the Company’s Employment and Training Services Group.  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 management and
oversight of the Employment and Training Services Group and all of the
operations of the Company and its subsidiaries within the Employment and
Training Services Group, including without limitation (i) the provision of
quality care, management, training and/or educational services for the
entities, agencies, clients, students or other individuals provided services by
the operations within the Employment and Training Services Group, (ii) the
compliance by such operations with all laws, regulations and rules applicable
to such operations, and (iii) the financial performance of such operations
and the Employment and Training Services Group as a whole.  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 and shall, as of the Commencement Date, be a “named
executive officer” for purposes of the Company’s public filings under the
securities laws.  As such, Employee
acknowledges and accepts responsibility, with the other “named executive
officers” of the Company and other officers and employees of the Company, to
ensure the Company’s public filings adequately satisfy all disclosure
requirements.  In addition, Employee
acknowledges that Employee’s biography, qualifications and compensation will be
disclosed in such public filings.

 

(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.  Employee’s principal office
shall not be relocated outside the metropolitan Washington, D.C. area without
prior written consent of the parties hereto.

 

(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 

 

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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.

 

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 $325,000. 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

 

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(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 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

 

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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.

 

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

 

5

 

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.

 

(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

 

6

 

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. The Company shall pay that portion of the reasonable and customary
costs of an annual executive physical at the Mayo Clinic or other mutually
agreeable medical facility certified by the American Medical Association which
is not paid by the Employee’s health insurance coverage (whether provided by
the Company or Employee’s spouse’s employer).

 

(e)           Out-of-Pocket
Expenses; Automobile Allowance. 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 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. Employee shall
receive a monthly automobile allowance equal to the maximum monthly automobile
allowance under the Federal Administrative Regulations for Job Corps.

 

(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

 

7

 

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 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

 

8

 

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.

 

(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 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, 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

 

9

 

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 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)           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 (f) 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

 

10

 

with a unique
opportunity as President of the Employment and Training Services Group of the
Company, (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 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.  Further notwithstanding the foregoing,
Employee shall not be in breach of the covenants in clause (ii) of the
preceding sentence by reason of

 

11

 

(x) Employee’s
service as an employee or consultant, after the Date of Termination, for any
governmental agency or (y) Employee’s employment with, consulting for or
investment in, after the Date of Termination, any Person which is a small
business entity engaged in providing services to the federal government under
contracts on which the Company or any subsidiary or other Affiliate of the
Company is not eligible to bid, and not otherwise engaged in the Business.

 

(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) 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;

 

12

 

(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;

 

(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.

 

13

 

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 expiration of the Prior Agreement and the execution of this
Employment 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) 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

  	
   

  

 

14

 

To the Employee:

 

Vincent F. Doran

6838 Melrose Drive

McLean, Virginia
22101

 

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.

 

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:

  	
    April 11, 2008

  	
   

  	
   

  	
   /s/ Vincent F. Doran

  
	
   

  	
   

  	
  Vincent F. Doran

  
							

 

16Exhibit 10.2

 

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 PAUL G. DUNN
(the “Employee”).

 

RECITALS:

 

WHEREAS, the
Company and Employee previously entered into that certain Employment Agreement
effective January 1, 2005 (the “Prior Agreement”);

 

WHEREAS, the
initial term of the Prior Agreement is scheduled to expire on December 31,
2007;

 

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 President of the Arbor Component of the
Employment and Training Services Group.  During the
Term, the Employee shall serve as the President of the Arbor Component of the
Company’s Employment and Training Services Group (“Arbor Component”), including
all of the operations of Arbor E&T, LLC, a wholly-owned subsidiary of the
Company (“Arbor E&T”).  During the
Term, the Employee shall also serve as the President of Arbor E&T.  During the Term, subject to the supervision
and control of the President and Chief Executive Officer of the Company (the “President”),
through the President of the Company’s Employment and Training Services Group,
or the President’s designee (“Supervising Officer”), the Employee shall have
the responsibility for management and oversight of the Arbor Component and all
of the operations of the Arbor Component, including without limitation (i) the
provision of quality care, management, training and/or educational services for
the entities, agencies, clients, students or other individuals provided
services by the operations within the Arbor Component, (ii) the compliance
by such operations with all laws, regulations and rules applicable to such
operations, and (iii) the financial performance of such operations and the
Arbor Component as a whole.  The Employee
shall perform such additional duties as may be prescribed from time to time by
the Supervising Officer or the President, 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 and shall, as of the Commencement Date, be a “named
executive officer” for purposes of the Company’s public filings under the
securities laws.  As such, Employee
acknowledges and accepts responsibility, with the other “named executive
officers” of the Company and other officers and employees of the Company, to
ensure the Company’s public filings adequately satisfy all disclosure
requirements.  In addition, Employee
acknowledges that Employee’s biography, qualifications and compensation will be
disclosed in such public filings.

 

(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 Supervising Officer 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

 

2

 

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.

 

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 $250,000.  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

 

3

 

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 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

 

4

 

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.

 

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

 

5

 

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.

 

(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.

 

6

 

(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.  The Company
shall pay that portion of the reasonable and customary costs of an annual
executive physical at the Mayo Clinic or other mutually agreeable medical
facility certified by the American Medical Association which is not paid by the
Employee’s health insurance coverage (whether provided by the Company or
Employee’s spouse’s employer).

 

(e)           Out-of-Pocket Expenses; Automobile. 
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 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 Supervising Officer. 
During the Term, the Company will provide Employee with a leased vehicle
consistent with its existing policies.

 

(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.

 

7

 

(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 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 Supervising Officer, 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 

 

8

 

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.

 

(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 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, 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.

 

9

 

(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 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)                                 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 (f) 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

 

10

 

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 President of the Arbor Component
of the Employment and Training Services Group of the Company, (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 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

 

11

 

expiration thereof until
twelve (12) months after the last day of employment of Employee by any Res-Care
Company. Notwithstanding the foregoing, the Employee shall not be in breach of
the covenants in clause (ii) of the first sentence of this paragraph
(c) by reason of the ownership and/or operation by Employee’s spouse of
one or more Goddard School franchises or the provision of financial assistance
or advice and consulting services by Employee with respect to such ownership
and/or operations (provided the same shall not interfere with the performance
of Employee’s duties as provided in Section 2(a) hereof).

 

(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) 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;

 

12

 

(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;

 

(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.

 

The
term “Confidential Information” shall not include the Employee’s telephone
and/or address book and the contents and contact information therein.

 

(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

 

13

 

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 expiration of the Prior Agreement and the execution of this
Employment 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) 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):

 

14

 

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:

 

Paul
G. Dunn

7621
Yaupon Drive

Austin,
Texas 78759

 

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.

 

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:

  	
    April 11, 2008

  	
   

  	
   /s/ Paul G. Dunn

  
	
   

  	
   

  	
   

  	
  Paul G. Dunn

  

 

16

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