Employment Agreement

A.

It is the desire of the Company to assure itself of the continued services of the Executive by entering into this Agreement.

B.

The Executive and the Company mutually desire that Executive provide services to the Company on the terms herein provided.

(a)

General . The Company shall employ the Executive and the Executive shall enter the employ of the Company, for the period set forth in Section 1(b) , in the position set forth in Section 1(c) , and upon the other terms and conditions herein provided.

(b)

Employment Term . The initial term of employment under this Agreement (the “ Initial Term ”) shall be for the period beginning on March 23, 2009, (the “ Effective Date ”) and ending on (and including) the first anniversary thereof, unless earlier terminated as provided in Section 3 . The employment term hereunder shall automatically be extended for successive one-year periods (“ Extension Terms ” and, collectively with the Initial Term, the “ Term ”) unless either party gives written notice of non-extension to the other no later than sixty (60) days prior to the expiration of the then-applicable Term and subject to earlier termination as provided in Section 3 .

(c)

Position and Duties . The Executive shall serve as the Executive Vice President of the Company, and upon the position of President of Hallmark Rehabilitation GP, LLC and Hospice Care of the West, LLC becoming vacant, the Executive shall serve as the Executive Vice President of the Company and President of Hallmark Rehabilitation GP, LLC and Hospice Care of the West with such customary responsibilities, duties and authority as may from time to time be assigned to the Executive by the Chief Executive Officer of the Company, the Board of Directors of the Company or by the Board of Directors of Parent (the “ Board ”) The Executive shall devote substantially all his working time and efforts to the business and affairs of the Company (which may include service to Parent, the Company and their respective direct and indirect subsidiaries). The Executive agrees to observe and comply with the rules and policies of the Company as adopted by or under the authority of the Board from time to time. During the Term, it shall not be a violation of this Agreement for the Executive to serve on industry trade, civic or charitable boards or committees and manage his personal investments and affairs, as long as such activities do not materially interfere with the performance of the Executive’s duties and responsibilities as an employee of the Company. During his employment and following termination of his employment with the Company, the Executive agrees not to disparage the Company, any of its products or practices, or any of its directors, officers, agents, representatives, stockholders or affiliates, either orally or in writing.

(d)

Location . The Executive acknowledges that the Company’s principal executive offices are currently located at Foothill Ranch, California. The Executive shall operate principally out of such executive offices, as they may be moved from time to time within 40 miles of their current location in Foothill Ranch, California. The Company expects, and the Executive agrees, that the Executive shall be required to travel from time to time in order to fulfill his duties to the Company.

(a)

Annual Base Salary . During the Term, the Executive shall receive a base salary at a rate of $330,000 per annum (the “ Annual Base Salary ”), which shall be paid in accordance with the customary payroll practices of the Company, subject to upward adjustment as may be determined by the Board in its discretion.

(b)

Annual Bonus . During the Term, the Executive will be eligible to participate in an annual performance-based bonus plan that provides an opportunity of 60% of the Executive’s pro-rata Annual Base Salary on terms established by the Compensation Committee of the Board and substantially the same as the bonus plan adopted by the Board for other senior officers of the Company.

(c)

Equity Plan . During the Term, and subject to Board approval, the Executive shall be entitled to participate in the 2007 Equity Award Plan (the “ Equity Plan ”) of Parent pursuant to which, on the date the Board selects as the grant date (the “ Grant Date ”), the Executive shall receive (i) 45,000 shares of performance-based restricted common stock of Parent, with vesting to occur over four years subject to the performance standards and only to the extent the Executive remains continuously employed by the Company through the applicable vesting date; and (ii) 90,000 stock options with an exercise price based upon the closing market price of the Parent’s publicly traded stock on the Grant Date pursuant to Board discretion and policy, and vesting as to 25% on each of the first four anniversaries of the Grant Date, but only to the extent the Executive remains continuously employed by the Company through the applicable vesting date.

(d)

Benefits . During the Term, the Executive shall be entitled to participate in group medical insurance, and other standard benefits provided by the Company, as may be amended from time to time, which are applicable to the Executive Vice President of the Company.

(e)

Vacation . During the Term, the Executive shall not participate in any Company sponsored vacation plan; however the Executive will be expected to work a minimum of 48 weeks per calendar year which will allow four weeks off with pay. The minimum work threshold is tied to the calendar year and no rollover is permitted from one year to the next. Any vacation shall be taken at the reasonable and mutual convenience of the Company and the Executive. The minimum threshold weeks for the first partial calendar year following the Effective Date shall be 38.

(f)

Expenses . During the Term, the Company shall reimburse the Executive for all reasonable travel and other business expenses incurred by him in the performance of his duties to the Company in accordance with the Company’s expense reimbursement policy.

(g)

Key Person Insurance . At any time during the Term, the Company shall have the right to insure the life of the Executive for the Company’s sole benefit. The Company shall have the right to determine the amount of insurance and the type of policy. The Executive shall cooperate with the Company in obtaining such insurance by submitting to physical examinations, by supplying all information reasonably required by any insurance carrier, and by executing all necessary documents reasonably required by any insurance carrier. The Executive shall incur no financial obligation by executing any required document, and shall have no interest in any such policy.

(h)

Annual Review . Approximately every 12 months during the Term, the Executive and the Company’s Chief Executive Officer, Board or appropriate committees of the Board shall meet to discuss the Executive’s performance and terms of the Executive’s employment by the Company.

(i)

Relocation Compensation . Upon the Effective Date the Company will pay an amount equal to $25,000 (grossed-up after tax) in consideration for Executives need to Relocate his primary residence in California reasonably near the Company’s Foothill Ranch office.

(a)

Circumstances .

(i)

Death . The Term and the Executive’s employment hereunder shall terminate upon his death.

(ii)

Disability . If the Executive has incurred a Disability, the Company may terminate the Term and the Executive’s employment hereunder.

(iii)

Termination for Cause . The Company may terminate the Term and the Executive’s employment hereunder for Cause.

(iv)

Termination without Cause . The Company may terminate the Term and the Executive’s employment hereunder without Cause.

(v)

Resignation by the Executive . The Executive may resign his employment and terminate the Term for any reason.

(vi)

Non-extension of Term by the Company . The Company may give notice of non-extension to the Executive pursuant to Section 1(b).

(vii)

Non-extension of Term by the Executive. The Executive may give notice of non-extension to the Company pursuant to Section 1(b).

(b)

Notice of Termination . Any termination of the Executive’s employment by the Company or by the Executive under this Section 3 (other than termination pursuant to paragraph (a)(i)) shall be communicated by a written notice to the other party indicating the specific termination provision in this Agreement relied upon, and specifying a Date of Termination which, if submitted by the Executive, shall be at least two weeks following the date of such notice (a “ Notice of Termination ”). A Notice of Termination submitted by the Company may provide for a Date of Termination on the date the Executive receives the Notice of Termination, or any date thereafter elected by the Company in its sole discretion.

(c)

Company obligations upon termination . Upon termination of the Executive’s employment, the Executive (or the Executive’s estate) shall be entitled to receive the sum of the Executive’s Annual Base Salary through the Date of Termination not theretofore paid, any expenses owed to the Executive under Section 2(f) , and except as otherwise provided herein, any amount accrued and arising from the Executive’s participation in, or benefits accrued under any employee benefit plans, programs or arrangements under Section 2(d) , which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements, and such other or additional benefits as may be, or become, due to him under the applicable terms of applicable plans, programs, agreements, corporate governance documents and other arrangements of the Company and its parent and subsidiaries (collectively, the “ Company Arrangements ”).

(a)

Termination for Cause, Resignation by the Executive, Non-extension of Term by the Executive or the Company, death or Disability . If the Executive’s employment is terminated pursuant to Section 3(a)(iii) for Cause, pursuant to Section 3(a)(v) for Resignation by the Executive, pursuant to Section 3(a)(vii) due to non-extension of the Term by the Executive, or pursuant to Section 3(a)(iv) without cause during the first six months of employment, the Executive shall not be entitled to any severance payment or benefits. If the Executive’s employment is terminated pursuant to Section 3(a)(i) as a result of Executive’s death or pursuant to Section 3(a)(ii) as a result of the Executive’s Disability, the Company shall, subject to the Executive signing and not revoking, within sixty days following delivery to Executive, a separation and release agreement in the form attached hereto, (i) pay to the Executive an amount equal to the product of (x) the bonus that the Executive would have earned during the calendar year in which the Date of Termination occurs, if any, and (y) a fraction, the numerator of which is the number of days that elapsed in such calendar year through the Date of Termination and the denominator of which is 365, payable when bonuses would have otherwise been payable had the Executive’s employment not terminated and (ii) in the case of termination pursuant to Section 3(a)(ii) as a result of the Executive’s Disability, pay to the Executive an amount equal to the excess, if any, of (x) the amount that would have been payable to the Executive pursuant to Section 4(b)(i) if the Executive had been terminated by the Company without Cause pursuant to Section 3(a)(iv) after six months of continuous employment over (y) the present value of the benefits to be received by the Executive (or his beneficiaries) under any disability plan sponsored by the Company or its affiliates (for purposes of this clause (ii) the amounts in (x) and (y) shall be determined by the Company on an after-tax basis to the extent that their receipt by the Executive (or his beneficiaries) would be subject to tax and on actuarial assumptions satisfactory to the Company). If the Executive’s employment is terminated pursuant to Section 3(a)(vi) due to non-extension of the Term by the Company, the Company shall, subject to the Executive signing and not revoking, within sixty days following delivery to Executive, a separation and release agreement in the form attached hereto at Annex A, (i) pay to the Executive an amount equal to the product of (x) the bonus that the Executive would have earned during the calendar year in which the Date of Termination occurs, if any, and (y) a fraction, the numerator of which is the number of days that elapsed in such calendar year through the Date of Termination and the denominator of which is 365, payable when bonuses would have otherwise been payable had the Executive’s employment not terminated and (ii) pay to the Executive, in a lump sum, an amount equal to the Annual Base Salary that the Executive would have been entitled to receive if the Executive had continued his employment hereunder for a period of twelve months following the Date of Termination.

(b)

Termination without Cause . If after continuous employment with the Company for a period of six months the Executive’s employment shall be terminated by the Company without Cause pursuant to Section 3(a)(iv) the Company shall, subject to the Executive signing and not revoking, within sixty days following delivery to Executive, a separation and release agreement in the form attached hereto:

(i)

pay to the Executive, in a lump sum, an amount equal to the Annual Base Salary that the Executive would have been entitled to receive if the Executive had continued his employment hereunder for a period of eighteen (18) months following the Date of Termination;

(ii)

pay to the Executive an amount equal to the product of (x) the bonus that the Executive would have earned during the calendar year in which the Date of Termination occurs, if any, and (y) a fraction, the numerator of which is the number of days that elapsed in such calendar year through the Date of Termination and the denominator of which is 365, payable when bonuses would have otherwise been payable had the Executive’s employment not terminated; and

(iii)

cover the premium costs for medical benefits under COBRA for the Executive and, where applicable, his spouse and dependents, life insurance and disability insurance (all as in effect immediately prior to the Date of Termination) for a period of twelve (12) months following the Date of Termination.

(c)

Survival . The expiration or termination of the Term shall not impair the rights or obligations of any party hereto, which shall have accrued prior to such expiration or termination.

(d)

409A . Notwithstanding anything to the contrary in this Section 4, no payments in this Section 4 will be paid during the six-month period following the Executive’s termination of employment unless the Company determines, in its good faith judgment, that paying such amounts at the time or times indicated in this Section would not cause the Executive to incur an additional tax under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) (in which case such amounts shall be paid at the time or times indicated in this Section). If the payment of any amounts are delayed as a result of the previous sentence, on the first day following the end of the six-month period, the Company will pay the Executive a lump-sum amount equal to the cumulative amounts that would have otherwise been previously paid to the Executive under this Section 4 . Thereafter, payments will resume in accordance with this Section.

(a)

The Executive shall not, at any time during the Term or during the two-year period following the Date of Termination (unless the Executive is terminated without cause during the first six months of employment), directly or indirectly engage in, have any equity interest in, or manage or operate any person, firm, corporation, partnership or business (whether as director, officer, employee, agent, representative, partner, security holder, consultant or otherwise) that engages in any business (x) which competes with any business of the Company anywhere in the States of California, Kansas, Missouri, New Mexico, Nevada or Texas, (y) which competes with any busin