Document:

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                                                                    EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT

                This EMPLOYMENT AGREEMENT is made as of the 24th day of March,
2003 by and between Kindred Healthcare, Inc., a Delaware corporation (the
"Company") and Edward L. Kuntz ("Kuntz").

                              W I T N E S S E T H:

                WHEREAS, Kuntz is employed as Chairman and Chief Executive
Officer by the Company, and the parties hereto desire to provide for the
transition of Kuntz's employment to solely Executive Chairman of the Board, on
or before January 1, 2004; and

                WHEREAS, the Executive Compensation Committee (the "Executive
Compensation Committee") of the Board of Directors (the "Board") has determined
that it is in the best interests of the Company and its subsidiaries to enter
into this Agreement.

                NOW, THEREFORE, in consideration of the premises and the
respective covenants and agreements contained herein, and intending to be
legally bound hereby, the Company and Kuntz agree as follows:

                1.      Employment as Chairman of the Board and Chief Executive
Officer.

                A.      Term. The Company hereby agrees to employ Kuntz and
Kuntz hereby agrees to be employed by the Company as Chairman of the Board and
Chief Executive Officer on the terms and conditions herein set forth. The term
of Kuntz's employment as Chairman and Chief Executive Officer shall be for a
period commencing on the date hereof and terminating on December 31, 2003 unless
earlier terminated by an Acceleration Notice (as defined) (the "CEO Term"). The
Board may terminate the CEO Term prior to December 31, 2003 by providing written
notice to Kuntz of its desire to implement Section 2 of this Agreement (the
"Acceleration Notice"). The Accelerated Notice shall indicate the date that
Kuntz will no longer be chief executive officer and will transition to Executive
Chairman. At such time, the provisions of this Section 1 shall have no further
effect. Kuntz shall provide the Company with a notice of resignation as chief
executive officer at or prior to the expiration of the CEO Term.

                B.      Duties. Kuntz is engaged as Chairman of the Board and
Chief Executive Officer and shall perform such duties commensurate with his
title and as otherwise designated by the Board.

                C.      Extent of Services. Kuntz, subject to the direction and
control of the Board, shall have the power and authority commensurate with his
executive status and necessary to perform his duties hereunder. During the CEO
Term, Kuntz shall devote his full working time, attention, labor, skill and
energies to the business of the

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Company, and shall not, without the consent of the Board, be actively engaged in
any other business activity, whether or not such business activity is pursued
for gain, profit or other pecuniary advantage.

                D.      Compensation. As compensation for services hereunder
rendered, Kuntz shall receive during the CEO Term:

                (i)     A base salary ("Base Salary") of not less than $819,000
        per year payable in equal installments in accordance with the Company's
        normal payroll procedures. Kuntz may receive increases in his Base
        Salary from time to time, as approved by the Executive Compensation
        Committee.

                (ii)    In addition to Base Salary, Kuntz will be eligible to
        receive a bonus in accordance with the Company's short-term incentive
        compensation plan and such other incentive compensation as the Executive
        Compensation Committee may approve from time to time.

                E.      Benefits. During the CEO Term:

                (i)     Kuntz shall be entitled to participate in any and all
        executive pension benefit, welfare benefit (including, without
        limitation, medical, dental, disability and group life insurance
        coverages) and fringe benefit plans from time to time in effect for
        executives of the Company and its affiliates.

                (ii)    Kuntz shall be entitled to participate in such bonus,
        stock option, or other incentive compensation plans of the Company and
        its affiliates in effect from time to time for executives of the
        Company.

                (iii)   Kuntz shall be entitled to paid time off benefits each
        year consistent to those provided to the Company's executives. Kuntz
        shall schedule the timing of such paid time off in a reasonable manner.
        Kuntz also may be entitled to such other leave, with or without
        compensation, as shall be mutually agreed by the Company and Kuntz.

                (iv)    Kuntz may incur reasonable expenses for promoting the
        Company's business, including expenses for entertainment, travel and
        similar items. The Company shall reimburse Kuntz for all such reasonable
        expenses in accordance with the Company's reimbursement policies and
        procedures.

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                2.      Employment as Executive Chairman of the Board.

                A.      Term. Unless Kuntz receives the Election Notice (as
defined), the Company hereby agrees to employ Kuntz and Kuntz hereby agrees to
be employed solely as Executive Chairman of the Board of Directors ("Executive
Chairman") effective January 1, 2004 on the terms and conditions herein set
forth. If the Board of Directors determines not to have Kuntz serve as Executive
Chairman, it shall provide written notice of such to Kuntz on or prior to
November 15, 2003 (the "Election Notice"). If the Election Notice is not
delivered to Kuntz, the term of Kuntz's employment as Executive Chairman shall
be for a period of three years commencing on the earlier of the date provided in
the Acceleration Notice or January 1, 2004 (the "Chairman Term"). For purposes
of this Agreement, the time periods defined as the "CEO Term" and "Chairman
Term" shall be referred to collectively as the "Term."

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

                C.      Extent of Services. Kuntz, subject to the direction and
control of the Board, shall have the power and authority commensurate with his
status as Executive Chairman and necessary to perform his duties hereunder.
During the Chairman Term, Kuntz shall devote approximately two days a week or 60
hours a month to the business of the Company. With notice to the Board, Kuntz
may engage in any other business activities, whether or not such business
activities are pursued for gain, profit or other pecuniary advantage provided
such activities do not conflict with the Company's objectives and operations.

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

                (i)     A salary ("Chairman Salary") of not less than $600,000
        per year payable in equal installments in accordance with the Company's
        normal payroll procedures. Kuntz may receive increases in his Chairman
        Salary from time to time, as approved by the Executive Compensation
        Committee.

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

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                E.      Benefits. During the Chairman Term:

                (i)     Kuntz shall be entitled to participate in any and all
        welfare benefit (including, without limitation, medical, dental,
        disability and group life insurance coverages) and fringe benefit plans
        from time to time in effect for executives of the Company and its
        affiliates.

                (ii)    Kuntz may incur reasonable expenses for promoting the
        Company's business, including expenses for entertainment, travel and
        similar items. The Company shall reimburse Kuntz for all such reasonable
        expenses in accordance with the Company's reimbursement policies and
        procedures.

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

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

                3.      Termination of Employment.

                A.      Death or Disability. Kuntz's employment shall terminate
automatically upon Kuntz's death during the Term. If the Board determines in
good faith that the Disability of Kuntz has occurred during the Term (pursuant
to the definition of Disability set forth below) it may give to Kuntz written
notice of its intention to terminate Kuntz's employment. In such event, Kuntz's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by Kuntz (the "Disability Effective Date"), provided
that, within the 30 days after such receipt, Kuntz shall not have returned to
performance of Kuntz's duties. For purposes of this Agreement, "Disability"
shall mean Kuntz's absence from his duties hereunder for a period of 90 days.

                B.      Cause. The Company may terminate Kuntz's employment
during the Term for Cause. For purposes of this Agreement, "Cause" shall mean
the Kuntz's (i) conviction of or plea of nolo contendere to a crime involving
moral turpitude; or (ii) willful and material breach by Kuntz of his duties and
responsibilities, which is committed in bad faith or without reasonable belief
that such breaching conduct is in the best interests of the Company and its
affiliates, but with respect to (ii) only if the Board adopts a resolution by a
vote of at least 75% of its members so finding after giving the Kuntz and his
attorney an opportunity to be heard by the Board. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the Board or
based upon advice of counsel for the Company shall be conclusively presumed to
be done, or omitted to be done, by Kuntz in good faith and in the best interests
of the Company.

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

                (i)     the Company shall assign to Kuntz duties of a
        substantially nonexecutive or nonmanagerial nature during the CEO Term;

                (ii)    an adverse change in Kuntz's status or position as an
        executive officer of the Company during the CEO Term, including, without
        limitation, an adverse change in Kuntz's status or position as a result
        of a diminution in Kuntz's duties and responsibilities (other than any
        such change directly attributable to the fact that the Company is no
        longer publicly owned);

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

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

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

                (vi)    If the Board of Directors sends the Election Notice as
        provided in Section 2; or

                (vii)   the failure of the Company to obtain the assumption of
        this Agreement as contemplated by Section 6(c).

        For purposes of this Agreement, "Good Reason" shall not exist until
        after Kuntz has given the Company notice of the applicable event within
        10 days of such event and which is not remedied within 10 days after
        receipt of written notice from Kuntz specifically delineating such
        claimed event and setting forth Kuntz's intention to terminate
        employment if not remedied; provided, that if the specified event cannot
        reasonably be remedied within such 10-day period and the Company
        commences reasonable steps within such 10-day period to remedy such
        event and diligently continues such steps thereafter until a remedy is
        effected, such event shall not constitute "Good Reason" provided that
        such event is remedied within 30 days after receipt of such written
        notice.

                D.      Notice of Termination. Any termination by the Company
for Cause, or by Kuntz for Good Reason, shall be communicated by Notice of
Termination given in accordance with this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination

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provision in this Agreement relied upon, (ii) sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Kuntz's employment under the provision so indicated and (iii) specifies the
intended termination date (which date, in the case of a termination for Good
Reason, shall be not more than 10 days after the giving of such notice). The
failure by Kuntz or the Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of Kuntz or the Company, respectively, hereunder or
preclude Kuntz or the Company, respectively, from asserting such fact or
circumstance in enforcing Kuntz's or the Company's rights hereunder.

                E.      Date of Termination. "Date of Termination" means (i) if
Kuntz's employment is terminated by the Company for Cause, or by Kuntz for Good
Reason, the later of the date specified in the Notice of Termination or the date
that is one day after the last day of any applicable cure period, (ii) if
Kuntz's employment is terminated by the Company other than for Cause or
Disability, or Kuntz resigns without Good Reason, the Date of Termination shall
be the date on which the Company or Kuntz notified Kuntz or the Company,
respectively, of such termination and (iii) if Kuntz's employment is terminated
by reason of death or Disability, the Date of Termination shall be the date of
death of Kuntz or the Disability Effective Date, as the case may be.

                4.      Obligations of the Company Upon Termination. Following
any termination of Kuntz's employment hereunder, the Company shall pay Kuntz his
accrued wages through the Date of Termination and any amounts owed to Kuntz
pursuant to the terms and conditions of the benefit plans and programs of the
Company at the time such payments are due. In addition, subject to Kuntz's
execution of a general release of claims in form satisfactory to the Company,
Kuntz shall be entitled to the following additional payments:

                A.      Death or Disability. If, during the CEO Term, Kuntz's
employment shall terminate by reason of Kuntz's death or Disability, the Company
shall pay to Kuntz (or his designated beneficiary or estate, as the case may be)
the prorated portion of any Target Bonus (as defined below) Kuntz would have
received for the year of termination of employment. Such amount shall be paid
within 30 days of the date when such amounts would otherwise have been payable
to Kuntz if Kuntz's employment had not terminated. Kuntz shall not be entitled
to any additional benefits by reason of his death or Disability during the
Chairman Term.

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

                (i)     Within 14 days of Kuntz's Date of Termination, the
        Company shall pay to Kuntz (a) if the Date of Terminations occurs during
        the CEO Term, the prorated portion of Kuntz's Target Bonus for the year
        in which the Date of Termination occurs, and an amount equal to three
        times the sum of the Kuntz's Base Salary and Target Bonus as of the Date
        of

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        Termination, or (b) if the Date of Terminations occurs during the
        Chairman Term, an amount equal to three times the Chairman Salary as the
        Date of Termination.

        For purposes of this Agreement: "Target Bonus" shall mean the full
        amount of the targeted annual short-term incentive bonus that would be
        payable to the Kuntz, assuming all performance criteria on which such
        target bonus is based were deemed to be satisfied, in respect of
        services for the calendar year in which the date in question occurs.

                (ii)    For a period of three years following the Date of
        Termination, the Kuntz shall be treated as if he had continued to be an
        executive for all purposes under the Company's health insurance plan and
        dental insurance plan; or if Kuntz is prohibited from participating in
        such plans, the Company shall otherwise provide such benefits. Following
        this continuation period, Kuntz shall be entitled to receive
        continuation coverage under Part 6 of Title I or ERISA ("COBRA
        Benefits") treating the end of this period as a termination of Kuntz's
        employment if allowed by law.

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

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

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

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

                (vii)   Kuntz shall be credited with an additional three years
        of vesting for purposes of all outstanding stock option and restricted
        stock

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        awards and Kuntz will have an additional three years in which to
        exercise such stock options.

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

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

                D.      Death after Termination. In the event of the death of
Kuntz during the period Kuntz is receiving payments pursuant to this Agreement,
Kuntz's designated beneficiary shall be entitled to receive the balance of the
payments; or in the event of no designated beneficiary, the remaining payments
shall be made to Kuntz's estate.

                5.      Disputes. Any dispute or controversy arising under, out
of, or in connection with this Agreement shall, at the election and upon written
demand of either party, be finally determined and settled by binding arbitration
in the City of Louisville, Kentucky, in accordance with the Labor Arbitration
rules and procedures of the American Arbitration Association, and judgment upon
the award may be entered in any court having jurisdiction thereof. The Company
shall pay all costs of the arbitration and all reasonable attorneys' and
accountants' fees of Kuntz in connection therewith, including any litigation to
enforce any arbitration award.

                6.      Successors.

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

                B.      This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.

                C.      The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, or any business
of the Company for which Kuntz's services are principally performed, to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be

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required to perform it if no such succession had taken place. As used this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.

                7.      Other Severance Benefits. Kuntz hereby agrees that in
consideration for the payments to be received under this Agreement, Kuntz waives
any and all rights to any payments or benefits under any plans, programs,
contracts or arrangements of the Company or their respective affiliates that
provide for severance payments or benefits upon a termination of employment,
other than the Change in Control Severance Agreement between the Company and
Kuntz dated as of November 9, 1998 (the "Severance Agreement"); provided that
any payments payable to Kuntz hereunder shall be offset by any payments payable
under the Severance Agreement.

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

                9.      Non-solicitation. During the Term and for a period of
one year thereafter (collectively, the "Non-solicitation Period"), Kuntz shall
not directly or indirectly, individually or on behalf of any person other than
the Company, aid or endeavor to solicit or induce any of the Company's or its
affiliates' employees to leave their employment with the Company or such
affiliates in order to accept employment with Kuntz or any other person,
corporation, limited liability company, partnership, sole proprietorship or
other entity. If the restrictions set forth in this section would otherwise be
determined to be invalid or unenforceable by a court of competent jurisdiction,
the parties intend and agree that such court shall exercise its discretion in
reforming the provisions of this Agreement to the end that Kuntz will be subject
to a non-solicitation covenant which is reasonable under the circumstances and
enforceable by the Company. It is agreed that no adequate remedy at law exists
for the parties for violation of this section and that this section may be
enforced by any equitable remedy, including specific performance and injunction,
without limiting the right of the Company to proceed at law to obtain such
relief as may be available to it. The running of the Non-solicitation Period
shall be tolled for any period of time during which Kuntz is in violation of any
covenant contained herein, for any reason whatsoever.

                10.     No Mitigation. Kuntz shall have no duty to mitigate his
damages by seeking other employment and, should Kuntz actually receive
compensation from any such other employment, the payments required hereunder
shall not be reduced or offset by any such compensation. Further, the Company's
obligations to make any payments hereunder shall not be subject to or affected
by any setoff, counterclaims or defenses which the Company may have against
Kuntz or others.

                11.     Notices. Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or sent by telephone facsimile transmission, personal or
overnight couriers, or registered mail with confirmation or receipt, addressed
as follows:

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                If to Kuntz:
                Edward L. Kuntz
                8807 Stable Crest Blvd.
                Houston, Texas 77024
                Facsimile: 713-840-6383

                If to Company:
                Kindred Healthcare, Inc.
                680 South Fourth Street
                Louisville, KY 40202
                Attn: General Counsel
                Facsimile: 502-596-4075

                12.     Assignment to Subsidiary. The Company may assign its
obligations under this Agreement to one or more of its subsidiaries but such
assignment will not relieve the Company of its obligations and liabilities
hereunder.

                13.     Waiver of Breach and Severability. The waiver by either
party of a breach of any provision of this Agreement by the other party shall
not operate or be construed as a waiver of any subsequent breach by either
party. In the event any provision of this Agreement is found to be invalid or
unenforceable, it may be severed from the Agreement and the remaining provisions
of the Agreement shall continue to be binding and effective.

                14.     Entire Agreement; Amendment. This instrument contains
the entire agreement of the parties with respect to the subject matter hereof
and supersedes all prior agreements (including the Employment Agreement dated
February 12, 1999 between the Company and Kuntz), promises, covenants,
arrangements, communications, representations and warranties between them,
whether written or oral with respect to the subject matter hereof. No provisions
of this Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in writing signed by Kuntz and
such officer of the Company specifically designated by the Board.

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

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

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

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

                                   KINDRED HEALTHCARE, INC.

                                   By: /s/ Richard A. Lechleiter
                                       -----------------------------------------
                                         Richard A. Lechleiter,
                                         Senior Vice President, Chief Financial
                                          Officer and Treasurer

                                   /s/ Edward L. Kuntz
                                   ---------------------------------------------
                                   EDWARD L. KUNTZ

                                       11<PAGE>

                                                                    EXHIBIT 10.4

                              EMPLOYMENT AGREEMENT

                This EMPLOYMENT AGREEMENT is made as of the 25th day of
February, 2003 (the "Effective Date"), by and between Kindred Healthcare
Operating, Inc., a Delaware corporation (the "Company"), and Mark A. McCullough
(the "Executive").

                              W I T N E S S E T H:

                WHEREAS, the Executive is employed by the Company, a
wholly-owned subsidiary of Kindred Healthcare, Inc. ("Parent"), and the parties
hereto desire to provide for the terms of Executive's employment by the Company;
and

                WHEREAS, the Company has determined that it is in the best
interests of the Company to enter into this Agreement.

                NOW, THEREFORE, in consideration of the premises and the
respective covenants and agreements contained herein, and intending to be
legally bound hereby, the Company and Executive agree as follows:

                1.      Employment. The Company hereby agrees to employ
Executive and Executive hereby agrees to be employed by the Company on the terms
and conditions herein set forth. The initial term of this Agreement shall be for
a one-year period commencing on the Effective Date. The term shall be
automatically extended by one additional day for each day beyond the Effective
Date that the Executive remains employed by the Company until such time as the
Company elects to cease such extension by giving written notice of such election
to the Executive (the "Term"). In such event, the Agreement shall terminate on
the first anniversary of the effective date of such election notice.

                2.      Duties. Executive is engaged by the Company as
President-Pharmacy Division, reporting directly to Paul J. Diaz, President and
Chief Operating Officer.

                3.      Extent of Services. Executive, subject to the direction
and control of the Board of Directors (the "Board"), shall have the power and
authority commensurate with his executive status and necessary to perform his
duties hereunder. During the Term, Executive shall devote his entire working
time, attention, labor, skill and energies to the business of the Company, and
shall not, without the consent of the Company, be actively engaged in any other
business activity, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage.

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                4.      Compensation. As compensation for services hereunder
rendered, Executive shall receive during the Term:

                (a)     Executive's current base salary per year existing on the
        date hereof ("Base Salary") payable in equal installments in accordance
        with the Company's normal payroll procedures. Executive may receive
        increases in his Base Salary from time to time, as approved by the
        Board.

                (b)     In addition to Base Salary, Executive will be eligible
        to receive a bonus of his Base Salary and other incentive compensation
        as the Board may approve from time to time.

                5.      Benefits.

                (a)     Executive shall be entitled to participate in any and
        all pension benefit, welfare benefit (including, without limitation,
        medical, dental, disability and group life insurance coverages) and
        fringe benefit plans from time to time in effect for officers of the
        Company and its affiliates following the Company's standard waiting
        periods, if any.

                (b)     Executive shall be entitled to participate in such
        bonus, stock option, or other incentive compensation plans of the
        Company and its affiliates in effect from time to time for officers of
        the Company.

                (c)     Executive shall be entitled to paid time off each year
        consistent with the Company's policies. The Executive shall schedule the
        timing of such paid time off in a reasonable manner. The Executive also
        may be entitled to such other leave, with or without compensation, as
        shall be mutually agreed by the Company and Executive.

                (d)     Executive may incur reasonable expenses for promoting
        the Company's business, including expenses for entertainment, travel and
        similar items. The Company shall reimburse Executive for all such
        reasonable expenses in accordance with the Company's reimbursement
        policies and procedures.

                6.      Termination of Employment.

                (a)     Death or Disability. Executive's employment shall
        terminate automatically upon Executive's death during the Term. If the
        Company determines in good faith that the Disability of Executive has
        occurred during the Term (pursuant to the definition of Disability set
        forth below) it may give to Executive written notice of its intention to
        terminate Executive's employment. In such event, Executive's employment
        with the Company shall terminate effective on the 30th

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        day after receipt of such notice by Executive (the "Disability Effective
        Date"), provided that, within the 30 days after such receipt, Executive
        shall not have returned to full-time performance of Executive's duties.
        For purposes of this Agreement, "Disability" shall mean Executive's
        absence from his full-time duties hereunder for a period of 90 days.

                (b)     Cause. The Company may terminate Executive's employment
        during the Term for Cause. For purposes of this Agreement, "Cause" shall
        mean the Executive's (i) conviction of or plea of nolo contendere to a
        crime involving moral turpitude; or (ii) willful and material breach by
        Executive of his duties and responsibilities, which is committed in bad
        faith or without reasonable belief that such breaching conduct is in the
        best interests of the Company and its affiliates, but with respect to
        (ii) only if the Board adopts a resolution by a vote of at least 75% of
        its members so finding after giving the Executive and his attorney an
        opportunity to be heard by the Board. Any act, or failure to act, based
        upon authority given pursuant to a resolution duly adopted by the Board
        or based upon advice of counsel for the Company shall be conclusively
        presumed to be done, or omitted to be done, by Executive in good faith
        and in the best interests of the Company.

                (c)     Good Reason. Executive's employment may be terminated by
        Executive for Good Reason. "Good Reason" shall exist upon the
        occurrence, without Executive's express written consent, of any of the
        following events:

                        (i)     the Company shall assign to Executive duties of
                a substantially nonexecutive or nonmanagerial nature;

                        (ii)    an adverse change in Executive's status or
                position as an executive officer of the Company, including,
                without limitation, an adverse change in Executive's status or
                position as a result of a diminution in Executive's duties and
                responsibilities (other than any such change directly
                attributable to the fact that the Company is no longer publicly
                owned);

                        (iii)   the Company shall (A) materially reduce the Base
                Salary or bonus opportunity of Executive, or (B) materially
                reduce his benefits and perquisites (other than pursuant to a
                uniform reduction applicable to all similarly situated
                executives of the Company);

                                        3

<PAGE>

                        (iv)    the Company shall require Executive to relocate
                Executive's principal business office more than 30 miles,
                provided that the Executive and the Company acknowledge that
                Executive's principal business office is 680 South Fourth
                Street, Louisville, Kentucky 40202; or

                        (v)     the failure of the Company to obtain the
                assumption of this Agreement as contemplated by Section 9(c).

        For purposes of this Agreement, "Good Reason" shall not exist until
        after Executive has given the Company notice of the applicable event
        within 90 days of such event and which is not remedied within 30 days
        after receipt of written notice from Executive specifically delineating
        such claimed event and setting forth Executive's intention to terminate
        employment if not remedied; provided, that if the specified event cannot
        reasonably be remedied within such 30-day period and the Company
        commences reasonable steps within such 30-day period to remedy such
        event and diligently continues such steps thereafter until a remedy is
        effected, such event shall not constitute "Good Reason" provided that
        such event is remedied within 60 days after receipt of such written
        notice.

                (d)     Notice of Termination. Any termination by the Company
        for Cause, or by Executive for Good Reason, shall be communicated by
        Notice of Termination given in accordance with this Agreement. For
        purposes of this Agreement, a "Notice of Termination" means a written
        notice which (i) indicates the specific termination provision in this
        Agreement relied upon, (ii) sets forth in reasonable detail the facts
        and circumstances claimed to provide a basis for termination of
        Executive's employment under the provision so indicated and (iii)
        specifies the intended termination date (which date, in the case of a
        termination for Good Reason, shall be not more than thirty days after
        the giving of such notice). The failure by Executive or the Company to
        set forth in the Notice of Termination any fact or circumstance which
        contributes to a showing of Good Reason or Cause shall not waive any
        right of Executive or the Company, respectively, hereunder or preclude
        Executive or the Company, respectively, from asserting such fact or
        circumstance in enforcing Executive's or the Company's rights hereunder.

                (e)     Date of Termination. "Date of Termination" means (i) if
        Executive's employment is terminated by the Company for Cause, or by
        Executive for Good Reason, the later of the date specified in the Notice
        of Termination or the date that is one day after the last day of any
        applicable cure period, (ii) if Executive's employment is terminated by
        the Company other than for Cause or Disability, or Executive resigns
        without Good Reason, the Date of Termination shall be the date on which
        the Company or Executive notified Executive or the Company,
        respectively, of such termination and (iii) if Executive's employment is
        terminated

                                        4

<PAGE>

        by reason of death or Disability, the Date of Termination shall be the
        date of death of Executive or the Disability Effective Date, as the case
        may be.

                7.      Obligations of the Company Upon Termination. Following
any termination of Executive's employment hereunder, the Company shall pay
Executive his Base Salary through the Date of Termination and any amounts owed
to Executive pursuant to the terms and conditions of the benefit plans and
programs of the Company at the time such payments are due. In addition, subject
to Executive's execution of a general release of claims in form satisfactory to
the Company, Executive shall be entitled to the following additional payments:

                (a)     Death or Disability. If, during the Term, Executive's
        employment shall terminate by reason of Executive's death or Disability,
        the Company shall pay to Executive (or his designated beneficiary or
        estate, as the case may be) the prorated portion of any Target Bonus (as
        defined below) Executive would have received for the year of termination
        of employment. Such amount shall be paid within 30 days of the date when
        such amounts would otherwise have been payable to the Executive if
        Executive's employment had not terminated.

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

                        (1)     Within 14 days of Executive's Date of
                Termination, the Company shall pay to Executive (i) the prorated
                portion of the Target Bonus for Executive for the year in which
                the Date of Termination occurs, and (ii) an amount equal to 1.5
                times the sum of the Executive's Base Salary and Target Bonus as
                of the Date of Termination.

                For purposes of this Agreement: "Target Bonus" shall mean the
                full amount of the targeted annual incentive bonus that would be
                payable to the Executive, assuming the targeted performance
                criteria on which such annual incentive bonus is based were
                deemed to be satisfied, in respect of services for the calendar
                year in which the date in question occurs.

                        (2)     For a period of 18 months following the Date of
                Termination, the Executive shall be treated as if he had
                continued to be an Executive for all purposes under the Parent's
                Health Insurance Plan and Dental Insurance Plan; or if the
                Executive is prohibited from participating in such plan, the
                Company or Parent shall otherwise provide such benefits.
                Following this continuation period, the Executive shall be
                entitled to receive continuation coverage under Part 6 of Title
                I or ERISA ("COBRA

                                        5

<PAGE>

                Benefits") treating the end of this period as a termination of
                the Executive's employment if allowed by law.

                        (3)     For a period of 18 months following the Date of
                Termination, Parent shall maintain in force, at its expense, the
                Executive's life insurance in effect under the Parent's
                Voluntary Life Insurance Benefit Plan as of the Date of
                Termination.

                        (4)     For a period of 18 months following the Date of
                Termination, the Company or Parent shall provide short-term and
                long-term disability insurance benefits to Executive equivalent
                to the coverage that the Executive would have had he remained
                employed under the disability insurance plans applicable to
                Executive on the Date of Termination. Should Executive become
                disabled during such period, Executive shall be entitled to
                receive such benefits, and for such duration, as the applicable
                plan provides.

                        (5)     To the extent not already vested pursuant to the
                terms of such plan, the Executive's interests under the Parent's
                Retirement Savings Plan shall be automatically fully (i.e.,
                100%) vested, without regard to otherwise applicable percentages
                for the vesting of employer matching contributions based upon
                the Executive's years of service with the Company.

                        (6)     Parent may adopt such amendments to its
                executive benefit plans, if any, as are necessary to effectuate
                the provisions of this Agreement.

                        (7)     Executive shall be entitled to an additional 18
                months of vesting for purposes of all outstanding stock option
                awards and restricted stock awards and Executive will have an
                additional 18 months following the Date of Termination in which
                to exercise such stock options.

                        (8)     Following the Executive's Date of Termination,
                the Executive shall receive the computer which Executive is
                utilizing as of the Date of Termination.

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

                                        6

<PAGE>

                (d)     Death after Termination. In the event of the death of
        Executive during the period Executive is receiving payments pursuant to
        this Agreement, Executive's designated beneficiary shall be entitled to
        receive the balance of the payments; or in the event of no designated
        beneficiary, the remaining payments shall be made to Executive's estate.

                8.      Disputes. Any dispute or controversy arising under, out
of, or in connection with this Agreement shall, at the election and upon written
demand of either party, be finally determined and settled by binding arbitration
in the City of Louisville, Kentucky, in accordance with the Labor Arbitration
rules and procedures of the American Arbitration Association, and judgment upon
the award may be entered in any court having jurisdiction thereof. The Company
shall pay all costs of the arbitration and all reasonable attorneys' and
accountants' fees of the Executive in connection therewith, including any
litigation to enforce any arbitration award.

                9.      Successors.

                (a)     This Agreement is personal to Executive and without the
        prior written consent of the Company shall not be assignable by
        Executive otherwise than by will or the laws of descent and
        distribution. This Agreement shall inure to the benefit of and be
        enforceable by Executive's legal representatives.

                (b)     This Agreement shall inure to the benefit of and be
        binding upon the Company and its successors and assigns.

                (c)     The Company shall require any successor (whether direct
        or indirect, by purchase, merger, consolidation or otherwise) to all or
        substantially all of the business and/or assets of the Company, or any
        business of the Company for which Executive's services are principally
        performed, to assume expressly and agree to perform this Agreement in
        the same manner and to the same extent that the Company would be
        required to perform it if no such succession had taken place. As used
        this Agreement, "Company" shall mean the Company as hereinbefore defined
        and any successor to its business and/or assets as aforesaid which
        assumes and agrees to perform this Agreement by operation of law, or
        otherwise.

                10.     Other Severance Benefits. Executive hereby agrees that
in consideration for the payments to be received under this Agreement, Executive
waives any and all rights to any payments or benefits under any severance plans
or arrangements of the Company or their respective affiliates that specifically
provide for severance payments, other than the Change in Control Severance
Agreement between the Company and Executive (the "Change in Control Severance
Agreement"); provided that any

                                       7

<PAGE>

payments payable to Executive hereunder shall be offset by any payments payable
under the Change in Control Severance Agreement.

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

                12.     No Mitigation. Executive shall have no duty to mitigate
his damages by seeking other employment and, should Executive actually receive
compensation from any such other employment, the payments required hereunder
shall not be reduced or offset by any such compensation. Further, the Company's
and Parent's obligations to make any payments hereunder shall not be subject to
or affected by any setoff, counterclaims or defenses which the Company or Parent
may have against Executive or others.

                13.     Non-solicitation. During the Term and for a period of
one year thereafter (collectively, the "Non-solicitation Period"), Executive
shall not directly or indirectly, individually or on behalf of any person other
than the Company, aid or endeavor to solicit or induce any of the Company's or
its affiliates' employees to leave their employment with the Company or such
affiliates in order to accept employment with Executive or any other person,
corporation, limited liability company, partnership, sole proprietorship or
other entity. If the restrictions set forth in this section would otherwise be
determined to be invalid or unenforceable by a court of competent jurisdiction,
the parties intend and agree that such court shall exercise its discretion in
reforming the provisions of this Agreement to the end that the Executive will be
subject to a non-solicitation covenant which is reasonable under the
circumstances and enforceable by the Company. It is agreed that no adequate
remedy at law exists for the parties for violation of this section and that this
section may be enforced by any equitable remedy, including specific performance
and injunction, without limiting the right of the Company to proceed at law to
obtain such relief as may be available to it. The running of the
Non-solicitation Period shall be tolled for any period of time during which
Executive is in violation of any covenant contained herein, for any reason
whatsoever.

                14.     Notices. Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or sent by telephone facsimile transmission, personal or
overnight couriers, or registered mail with confirmation or receipt, addressed
as follows:

                If to Executive:
                Mark A. McCullough
                680 South Fourth Street
                Louisville, KY 40202

                                        8

<PAGE>

                If to Company:
                Kindred Healthcare Operating, Inc.
                680 South Fourth Street
                Louisville, KY 40202
                Attn: General Counsel

                15.     Waiver of Breach and Severability. The waiver by either
party of a breach of any provision of this Agreement by the other party shall
not operate or be construed as a waiver of any subsequent breach by either
party. In the event any provision of this Agreement is found to be invalid or
unenforceable, it may be severed from the Agreement and the remaining provisions
of the Agreement shall continue to be binding and effective.

                16.     Entire Agreement; Amendment. This instrument contains
the entire agreement of the parties with respect to the subject matter hereof
and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations and warranties between them, whether written or
oral with respect to the subject matter hereof. No provisions of this Agreement
may be modified, waived or discharged unless such modification, waiver or
discharge is agreed to in writing signed by Executive and such officer of the
Company specifically designated by the Board.

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

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

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

                20.     Cancellation of Prior Agreement. The Executive hereby
acknowledges and agrees that this Agreement is intended to and does hereby
replace that certain employment agreement, between the Company (or its
predecessor) and the Employee, and that such agreement is cancelled, terminated
and of no further force and effect.

                                        9

<PAGE>

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

                                       KINDRED HEALTHCARE OPERATING, INC.

                                       By: /s/ Edward L. Kuntz
                                           -------------------------------------
                                           Edward L. Kuntz
                                           Chairman and Chief Executive Officer

                                       Solely for the purpose
                                       of Section 7

                                       KINDRED HEALTHCARE, INC.

                                       By: /s/ Edward L. Kuntz
                                           -------------------------------------
                                           Edward L. Kuntz
                                           Chairman and Chief Executive Officer

                                       /s/ Mark A. McCullough
                                       -----------------------------------------
                                       MARK A. McCULLOUGH

                                       10

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