KINDRED DEFERRED COMPENSATION PLAN

1.1

“ Account Balance ” shall mean with respect to a Participant the sum of (i) his or her Deferral Amount, plus (ii) his or her Employer contributions, contributed under Section 3.2 hereof, plus (iii) interest credited in accordance with all the applicable interest crediting provisions of this Plan, less (iv) all distributions. This account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to this Plan.

1.2

“ Annual Enrollment Period ” shall mean with respect to any Plan Year the period prior to the first day of the Plan Year (or, in the case of those notified of first eligibility during a Plan Year, the period ending 30 days thereafter) during which (i) any Employee who has been notified by the Committee of his or her eligibility to enroll in the Plan must enroll in accordance with Article 2 in order to make deferrals for the Plan Year and (ii) any other Participant who is eligible to make deferrals under the Plan must return his or her Election Form to the Committee in order to make deferrals for the Plan Year.

1.3

“ Annual Short-Term Incentive ” shall mean any compensation, in addition to Base Annual Salary, paid annually to a Participant for services performed during a Plan Year and designated as an “Annual Short-Term Incentive” or “STI” under rules adopted by the Committee.

1.4

“ Annual Deferral Amount ” shall mean with respect to a Participant that portion of the Participant’s Base Annual Salary to be paid during a Plan Year and the Participant’s Annual Short-Term Incentive that relates to services performed during a Plan Year that the Participant elects to have and actually is deferred in accordance with Article 3, for any one Plan Year. In the event that deferrals cease due to a Participant’s Retirement, Unforeseeable Financial Emergency, Disability, death, unpaid leave of absence or Termination of Employment prior to the end of a Plan Year, the Annual Deferral Amount for such Plan Year shall be the actual amount deferred and withheld from amounts earned for periods prior to such event or determination.

1.5

“ Base Annual Salary ” shall mean, for any Plan Year or part thereof during which an Employee is eligible to make deferrals under this Plan (which shall not include compensation payable for periods after a Termination of Employment, such as severance pay, but shall include vacation time earned but not yet paid as of the last day at work), total compensation paid to an Employee by an Employer that is includible in the Employee’s gross income, including bonuses (other than amounts considered part of the Annual Short-Term Incentive, Gross-Up Portion, or the “long-term incentive compensation” excluded below), commissions and overtime, but excluding (i) reimbursements or other expense allowances, (ii) fringe benefits (cash and noncash), (iii) moving expenses, (iv) welfare benefits, (v) amounts realized from the exercise of a non-qualified stock option (or the lifting of restrictions on restricted stock) or the sale or exchange of stock acquired under a qualified stock option, (vi) the Gross-Up Portion of incentive awards as described in Section 3.1(a) of the Kindred 401(k) Plan and (vii) any amounts that are designated as “long-term incentive compensation” pursuant to rules adopted by the Committee. Notwithstanding the foregoing definition and exclusions, Base Annual Salary shall include any amounts deducted pursuant to Code Sections 125 (flexible benefit plans), 402(a)(8) (salary redirection), 402(h)(1)(B) (simplified employee plan), 132(f) (qualified transportation expenses) and 403(b).

1.6

“ Beneficiary ” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 10, that are entitled to receive benefits under this Plan upon the death of a Participant.

1.7

“ Beneficiary Designation Form ” shall mean the form or electronic beneficiary designation process established from time to time by the Committee that a Participant uses to designate one or more Beneficiaries.

1.8

“ Board ” shall mean the Board of Directors of the Company.

1.9

“ Claimant ” shall have the meaning set forth in Section 15.1.

1.10

“ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time.

1.11

“ Committee ” shall mean the committee described in Article 13.

1.12

“ Company ” shall mean Kindred Healthcare, Inc., a Delaware corporation.

1.13

“ Crediting Rate ” shall mean for any Plan Year, an interest rate determined by the Committee prior to the first day of the Plan Year, which shall be a fixed rate equal to 100% of the interest rate published in Moody’s Bond Record under the heading “Moody’s Corporate Bond Yield Baa Average” for the month of October preceding the first day of the Plan Year.

1.14

“ Death Benefit ” shall mean the benefit described in Article 7.

1.15

“ Deferral Amount ” shall mean with respect to a Participant the sum of all of the Participant’s Annual Deferral Amounts.

1.16

“ Disability ” shall mean a period of disability during which a Participant qualifies for benefit payments under the long-term disability plan maintained by his or her Employer.

1.17

“ Election Form ” shall mean the form or electronic enrollment process established from time to time by the Committee that a Participant uses to make an election under the Plan.

1.18

“ Employee ” shall mean a person who is classified as a common law employee of any Employer and who is paid through the normal payroll system of such Employer, except that the term “Employee” shall not include any person who is classified on the payroll records of his or her Employer as a per diem employee.

1.19

“ Employer ” shall mean (i) the Company and all of the legal entities that are part of a controlled group or affiliated service group with the Company pursuant to the provisions of Code Sections 414 (b), (c), (m) or (o); (ii) any partnership in which the Company or a wholly owned subsidiary of the Company owns an interest; (iii) any entity that has entered into a contract with the Company or a subsidiary for the receipt of management

services at one or more facilities owned by such entity if the entity has been selected by the Committee to participate in the Plan; and (iv) any entity which with the consent of the Board becomes a participating Employer hereunder. Obligations of each Employer hereunder shall be separate except where Kindred Healthcare, Inc. has by specific action of its Board of Directors or other written agreement executed by a duly authorized officer agreed that it and/or its wholly-owned subsidiaries will undertake joint and several liability.

1.20

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

1.21

“ Participant ” shall mean any Employee (i) who is selected to participate in the Plan based on the eligibility requirements set forth in Article 2; (ii) who elects to participate in the Plan and meets all enrollment requirements set forth in Article 2, including timely completing an Election Form; (iii) whose completed Election Form is accepted by the Committee; (iv) who commences participation in the Plan in accordance with Article 2; and (v) whose Account Balance has not been fully distributed. The term “Participant” also shall include any former Employee or any Employee who is no longer eligible to make deferrals under the Plan but who still has an Account Balance hereunder.

1.22

“ Plan ” shall mean this Kindred Deferred Compensation Plan, evidenced by this instrument as may be amended from time to time.

1.23

“ Plan Year ” shall mean the twelve month period beginning on January 1 and ending on December 31.

1.24

“ Retirement ” for all Participants shall mean, effective when new elections are given to Participants in the 1998 Plan in accordance with Section 18.17, a Participant’s Termination of Employment occurring on or after the Participant attains age 55 for any reason other than death.

1.25

“ Retirement Benefit ” shall mean the Retirement benefit described in Article 6.

1.26

“ Termination Benefit ” shall mean the Termination of Employment benefit described in Article 6.

1.27

“ Termination of Employment ” shall mean the voluntary or involuntary severance from employment with all Employers, for any reason other than death, prior to the attainment of the applicable age for Retirement. That severance shall be deemed to occur on the date the Company and the Participant reasonably anticipate that (i) the Participant will not perform any further services for any Employer, or (ii) the level of bona fide services performed after that date (as an employee or independent contractor, except that service as a member of the board of directors of any Employer is not counted unless termination benefits under this Plan are aggregated with benefits under any other Employer plan or agreement in which the Participant also participates as a director) will permanently decrease to less than 20% of the average level of bona fide services performed over the previous 36 months (or if shorter over the duration of service). The Participant will not be treated as having a Termination of Employment while on military leave, sick leave or

other bona fide leave of absence if the leave does not exceed six months or, if longer, the period during which the Participant has a reemployment right with the Employer by statute or contract. If a bona fide leave of absence extends beyond six months, a Termination of Employment will be deemed to occur on the first day after the end of such six month period, or on the day after the Participant’s statutory or contractual reemployment right lapses, if later. The Committee will determine whether a Termination of Employment has occurred based on all relevant facts and circumstances, in accordance with Treasury Regulation §1.409A-1(h).

1.28

“ Trust ” shall mean a grantor or “rabbi” trust within the meaning of Code Section 671, the assets of which shall at no time be located outside the United States.

1.29

“ Unforeseeable Financial Emergency ” shall mean a severe financial hardship to a Participant arising as a result of events beyond the control of the Participant and resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant (as defined in Code Section 152(a)); (ii) a loss of the Participant’s property due to casualty; or (iii) other similar extraordinary and unforeseeable circumstances, all as determined in the sole discretion of the Committee in accordance with the Code.

2.1

Selection by Committee of Eligible Employees . Participation in the Plan shall be limited to a select group of management or highly compensated Employees. Prior to the Annual Enrollment Period for each Plan Year, the Committee shall determine which Employees will be eligible to participate in the upcoming Plan Year (generally based on whom it expects will qualify as “highly compensated employees” of an Employer within the meaning of Code Section 414(q) for the next following Plan Year, to the extent such determination is consistent with the criteria in the first sentence of this Section) and shall notify such Employees of their eligibility to enroll in the Plan during the Annual Enrollment Period. An Employee who is not notified of his or her eligibility to participate in the Plan prior to the first day of a Plan Year may be permitted to enroll during a Plan Year, provided that such Employee has never been previously eligible in this or any of account-balance Plan of deferred compensation sponsored by the Employer, and that, once so determined and notified in writing of the Employee’s eligibility, the Employee completes all enrollment requirements within 30 days thereafter. Any deferral election made after a Plan Year begins shall apply to (i) Base Annual Salary that relates to services performed after the Employee commences participation under Section 2.3, and (ii) a pro rata portion of STI, determined by multiplying the total amount of STI earned during the Plan Year by a fraction, the numerator of which equals the number of days the Employee is employed by an Employer during the Plan Year after participation commences under Section 2.3, and the denominator of which equals the total number of days the Employee is employed by an Employer during the Plan Year.

2.2

Enrollment Requirements . Employees determined by the Committee to be eligible to enroll in the Plan in accordance with Section 2.1 may enroll by completing and delivering, in the mode approved by the Committee, an Election Form prior to the end of

each applicable Annual Enrollment Period, which form for the first Annual Enrollment Period for each Participant shall also provide for an election (to apply to the entire Account Balance) of the form of payment of benefits hereunder upon Retirement. Notwithstanding the foregoing, the Committee may establish from time to time such other enrollment requirements as it determines, in its sole discretion, are necessary or appropriate.

2.3

Commencement of Participation . Participation in this Plan shall commence on the first day of the first Plan Year after the Committee receives and accepts the Employee’s completed Election Form, except in the case of Employees notified of eligibility for the first time during a Plan Year, in which case, eligibility shall be effective, if the enrollment requirements are met, 30 days following notification of eligibility. If an Employee fails to meet the enrollment requirements in Section 2.2 prior to the end of any applicable Annual Enrollment Period, such Employee shall not commence or continue participation in the Plan until the first day of the first Plan Year beginning after such requirements are met.

2.4

Eligibility: Cessation of Deferrals . Except as otherwise provided herein, a Participant’s deferrals of Base Annual Salary and Annual Short-Term Incentive under the Plan shall cease upon the earlier of: (i) the first day of the first Plan Year after the Participant fails to complete and return to the Committee an Election Form during the Annual Enrollment Period for such Plan Year; (ii) the first day of the first Plan Year following the suspension of deferrals by the unilateral action of the Committee, which action must apply uniformly to all similarly-situated groups of Participants; (iii) upon approval of a distribution based on Unforeseeable Financial Emergency; (iv) the first day of the first Plan year after the Participant changes status and is no longer an Employee (e.g. becomes a per diem employee); or (v) upon determination by the Committee, in its sole discretion, with respect to any one or more Participant(s), that that Participant shall no longer be an eligible Participant for future deferrals, effective at the beginning of the next Plan Year after notice of revocation of participation is delivered to the Participant. Cessation of deferrals pursuant to this Section shall not constitute a termination of the Plan, and the rights of affected Participants to interest crediting and distribution of Account Balances shall not be affected by cessation or suspension of the right to defer.

2.5

Reemployment During Plan Year . If a Participant experiences a Termination of Employment or Retirement, such Participant’s deferrals shall cease as of the effective date of such Termination of Employment or Retirement and shall not resume in the event of reemployment as an Employee during the Plan Year. A Participant who is reemployed by an Employer after experiencing a Termination of Employment or Retirement shall be permitted to re-enroll in the Plan and make a new deferral election during the first Annual Enrollment Period to occur following the effective date of reemployment, provided that the other eligibility requirements in Section 2.1 are met.

3.1

Maximum Deferrals . For each Plan Year, a Participant may elect to defer (i) any whole percentage of his or her Base Annual Salary that would otherwise be paid during the Plan Year, up to a maximum limit of 25% of such Base Annual Salary; and (ii) a percentage of his or her Annual Short-Term Incentive that relates to services performed during the Plan Year, up to a maximum limit of 100% of such Annual Short-Term Incentive. The Committee shall permit a separate election to be applied to the Annual Short-Term Incentive, provided that such election must be made prior to the first day of the Plan Year during which related services are performed, despite the fact that STI for that Plan Year would not otherwise be paid until the Plan Year following the year in which services are performed. To the extent that any Base Annual Salary related to the last payroll period of a Plan Year is otherwise paid on a date in the following Plan Year, the deferral election in place for the year in which the Base Annual Salary is, absent a deferral election, otherwise payable will apply to such amount, rather than the year in which the payroll period ends. All amounts deferred under this Section 3.1 shall at all times be fully vested and nonforfeitable.

3.2

Employer Contribution—Matching .

(a)

Subject to an Employer’s right to amend or terminate the Plan and applicable limitations herein, as of the last day of each pay period, each Employer shall credit to the Account Balance of each Participant an amount equal to: (i) the contribution that would be calculated under the matching contribution formula in effect for the Plan Year under the 401(k) plan of the Employer for which the Participant is eligible, using the maximum amount of compensation that may be used to determine contributions under such 401(k) plan pursuant to the limit established in Code Section 401(a)(17), less (ii) the amount the Participant would receive during the Plan Year as a matching contribution under such 401(k) plan if the Participant had contributed the maximum amount of elective deferral contributions permissible under the administrative provisions of the 401(k) plan for persons of the Participant’s status (e.g. those who are “highly compensated”).

For example, assume a Participant whose combined Base Annual Salary and Annual Short-Term Incentive (as defined in this Plan) equals $220,000 for the Plan Year elects to defer 5% of this amount under this Plan, and the 401(a)(17) limit on compensation for the Plan Year is $205,000, and the 401(k) plan’s announced administrative limit on elective deferral contributions by highly compensated employees is 5% of compensation, and the 401(k) plan matching contribution formula in effect for the Plan Year is 25 cents per dollar deferred, on up to the 6% of compensation. For this Participant, the matching contribution in this Plan would be 25 cents per dollar deferred from Base Annual Salary and Annual Short-Term Incentive under this Plan, up to 1% of $205,000 of the Participant’s compensation as defined in the 401(k) plan, or $512.50, without regard to whether the Participant actually defers the 5% of compensation permitted under the 401(k) plan or receives a matching contribution thereon under the 401(k) plan.

(b)

Subject to Section 3.2(c), all amounts received under Section 3.2(a) shall be at all times fully vested and nonforfeitable.

(c)

Notwithstanding any other provision of this Plan including Section 3.2(b), the Committee shall have the right in its sole discretion to cause any or all of the Employer contributions credited to an Account Balance, including earnings, to be forfeited if the Committee at any time determines that:

(i)

The Participant has divulged Employer confidential information to the competitors of the Employer which is detrimental to the Employer; or

(ii)

The Participant has engaged in criminal conduct which is detrimental to the Employer.

3.3

Election to Defer . In connection with a Participant’s commencement of participation in the Plan, the Participant shall make a deferral election by delivering a completed Election Form to the Committee during the appropriate Annual Enrollment Period, which Election form must be timely received and accepted by the Committee for a valid election to exist. For each succeeding Plan Year, the Participant must deliver a new completed Election Form to the Committee during the Annual Enrollment Period for the Plan Year, which Election Form must be timely received and accepted by the Committee for a valid election to exist. If no Election Form is timely delivered for a Plan Year, no deferrals shall be made with respect to the Participant for that Plan Year. In no event may a Participant make a valid deferral election for any amount of Base Annual Salary or Annual Short-Term Incentive at any time after the close of the Annual Enrollment Period for the Plan Year or portion thereof when the services are performed to which such amount of Base Annual Salary or Annual Short-Term Incentive relate.

3.4

Withholding of Deferral Amounts . For each Plan Year, the Base Annual Salary portion of a Participant’s Annual Deferral Amount shall be withheld and credited to the Plan each payroll period in accordance with the Participant’s elected percentage of Base Annual Salary. The Annual Short-Term Incentive portion of the Annual Deferral Amount shall be withheld and credited to the Plan at the time the Annual Short-Term Incentive (if any) otherwise would be paid to the Participant.

3.5

Interest Crediting—Ongoing . The rate of interest for crediting in all cases shall be the Crediting Rate. Interest shall be credited and compounded monthly on a Participant’s Account Balance as if the Participant’s Annual Deferral Amount and Employer contribution amounts credited during a month were made in two equal installments, one on the first day of the month and one on the last day of the month.

3.6

Interest Crediting—In Month of a Distribution . In the case of a Participant who receives a lump sum distribution of his or her entire Account Balance during a month, such distribution shall be treated for purposes of interest crediting as if the distribution were made on the first day of the month, and no interest shall be credited for the partial month prior to the date on which the distribution occurs. In the case of a Participant who receives a partial distribution of his or her Account Balance pursuant to Article 5 during a month, the partial distribution amount shall be deducted from the Participant’s Account Balance for purposes of future interest crediting as if such partial distribution were made on the first day of the month.

3.7

Installment Distribution Determination . In the event that a distribution is to be made in the form of installment payments under Article 6 or Article 8, the amount of each installment payment shall be calculated by amortizing the Participant’s Account Balance, in equal monthly installment payments over the term of the specified payment period (beginning on the date that installment payments are to commence), using an interest rate that is equal to the Crediting Rate for the Plan Year in which installment payments commence.

For the January payment in each Plan Year, the Participant’s undistributed Account Balance shall be re-amortized based on the prior Plan Year-end Account balance, using the Crediting Rate applicable to such Plan Year, and the remaining installment term. For example, if the Crediting Rate established for the 2005 Plan Year (based on the October 2004 rate) is 4%, and the installment period applicable is 60 months, and the Account Balance as of the beginning of payments on 2/1/05 is $60,000, then each payment for the remainder of 2005 will be $1,101.32. At the end of 2005, if the Participant’s Account Balance is $ 49,877.51, and the 2006 crediting rate is 5%, payments in 2006 will be $1,122.79 per month.

3.8

FICA and Other Employment Taxes . For each Plan Year in which an Annual Deferral Amount is being withheld, a Participant’s Employer shall ratably withhold the Participant’s share of FICA and other employment taxes related to the Annual Deferral and any match thereon, from that portion of the Participant’s Base Annual Salary and Annual Short-Term Incentive that is not deferred and is actually paid to the Participant. If necessary, the Committee shall reduce the Participant’s Annual Deferral Amount in order to comply with this Section 3.8.

4.1

Limited Events Triggering Distribution . Except as otherwise provided herein, a Participant or Beneficiary shall be entitled to a distribution of the Participant’s Account Balance only upon the occurrence of one of the following events: (i) the Participant’s Retirement or Termination of Employment (including on account of and when determined based on Disability); (ii) the Participant’s Death; and (iii) the occurrence of an Unforeseeable Financial Emergency, as determined by the Committee in accordance with Section 409A of the Code, but only to the extent such distribution is necessary to relieve the Unforeseeable Financial Emergency. Distributions to a Participant on account of Retirement and distributions to a Participant on account of Termination of Employment for reasons other than Retirement or death shall be made in accordance with Article 6. Distributions to a Beneficiary on account of the death of a Participant shall be made in accordance with Article 7. Distributions to a Participant on account of Unforeseeable Financial Emergency shall be made in accordance with Article 5.

4.2

Delayed Payment for Specified Employees . Notwithstanding anything herein to the contrary, in the case of a Participant who is a “specified employee” within the meaning of Treas. Reg. §1.409A-1(i) (or any successor thereto, using the prior calendar year as the determination period) at the time a distribution on account of Retirement or Termination of Employment would otherwise take place, the distribution shall not commence earlier than six months after the effective date of the Participant’s Retirement or Termination of Employment.

4.3

Reemployed Participants . If a Participant who is receiving a benefit in the form of installment payments is reemployed by an Employer before the distribution is complete, installment payments shall cease upon the effective date of the Participant’s reemployment and shall not recommence until the Participant again qualifies for a distribution pursuant to this Article 4.

4.4

Payments Delayed in Certain Circumstances . Notwithstanding anything herein to the contrary, any payment due to a Participant or Beneficiary on a date specified under Article 5, 6, 7, 8 or 12 shall be delayed for all similarly situated Participants, on a reasonably consistent basis: (i) if the Committee reasonably anticipates that an Employer’s deduction with respect to the payment otherwise would be reduced or eliminated by application of Code Section 162(m), some or all of the payment may be delayed but only for the perio