Sample Business Contracts


Employment Agreement - HealthSouth Corp. and Richard M. Scrushy

Employment Forms

  • Employers can customize an employment agreement that states the salary, benefits, working hours and other important provisions for their new or existing employee.
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  • Companies may offer their business executives a contract that is different from the one provided to their regular employees. Executive employment agreements may be more complex because the compensation structure may include a combination of salary and commissions, provide for bonuses based on sales, stock or other financial targets, and include non-compete, confidentiality and severance provisions.
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  • More Employment Agreements

                              EMPLOYMENT AGREEMENT

          EMPLOYMENT  AGREEMENT,  dated as of April 1, 1998 (this  "Agreement"),
between HEALTHSOUTH  Corporation,  a Delaware  corporation (the "Company"),  and
RICHARD M. SCRUSHY, a resident of Birmingham, Alabama (the "Executive").

                              W I T N E S S E T H:

          WHEREAS, the Company provides comprehensive rehabilitative,  clinical,
diagnostic and surgical healthcare services;

          WHEREAS, the Executive is a founder of the Company and serves as Chief
Executive Officer of the Company and as Chairman of its Board of Directors; and

          WHEREAS, the Company wishes to assure itself of the continued services
of the  Executive  so that it will have the  continued  benefit of his  ability,
experience and services, and the Executive is willing to enter into an agreement
to that end, upon the terms and conditions hereinafter set forth.

          NOW,  THEREFORE,  in consideration of good and valuable  consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:

     1.   EMPLOYMENT

          The Company hereby agrees to continue to employ the Executive, and the
Executive  hereby agrees to remain in the employ of the Company,  on and subject
to the terms and conditions of this Agreement.

     2.   TERM

               (a) The period of this  Agreement  (the  "Agreement  Term") shall
commence as of the date hereof (the  "Effective  Date") and shall  expire on the
fifth   anniversary  of  the  Effective   Date.  The  Agreement  Term  shall  be
automatically  extended  for an  additional  year  on  each  anniversary  of the
Effective  Date,  unless written notice of  non-extension  is provided by either
party to the other party at least 90 days prior to such anniversary.

               (b) The period of the Executive's employment under this Agreement
(the  "Employment  Period")  shall  commence as of the Effective  Date and shall
expire at the end of the Agreement Term,  unless sooner terminated in accordance
with the terms and conditions of this Agreement.


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     3.   POSITION, DUTIES AND RESPONSIBILITIES

               (a) The Executive shall serve as, and with the title,  office and
authority of, the Chief Executive Officer of the Company and the Chairman of the
Board of Directors of the Company (the "Board") and shall report directly to the
Board. The Executive shall also hold similar titles,  offices and authority with
the Company's  subsidiaries  and/or their successors.  The Company shall use its
best efforts to cause the Executive to be nominated and elected (or  renominated
and reelected, as the case may be) during the Employment Period as a director of
the Company and its subsidiaries or their successors.

               (b) The Executive  shall have effective  supervision  and control
over,  and  responsibility  for, the strategic  direction and general and active
day-to-day  leadership and management of the business and affairs of the Company
and the direct and indirect  subsidiaries  of the  Company,  subject only to the
authority of the Board, and shall have all of the powers, authority,  duties and
responsibilities  usually  incident  to  the  positions  and  offices  of  Chief
Executive Officer and Chairman of the Board of the Company.

               (c) The  Executive  agrees  to  devote  substantially  all of his
business  time,  efforts  and  skills  to  the  performance  of his  duties  and
responsibilities under this Agreement;  provided,  however, that nothing in this
Agreement shall preclude the Executive from devoting reasonable periods required
for  (i)  participating  in  professional,  educational,  philanthropic,  public
interest, charitable, social or community activities, (ii) serving as a director
or member of an advisory  committee of any  corporation or other entity that the
Executive is serving on as of the  Effective  Date or any other  corporation  or
entity that is not in direct  competition with the Company or (iii) managing his
personal investments,  provided that such activities do not materially interfere
with the  Executive's  regular  performance  of his duties and  responsibilities
hereunder.

               (d) The  foregoing  provisions of this Section 3 shall be subject
to the Executive's right to elect to serve the Company solely as the Chairman of
the Board, as provided in Section 22 hereof.

     4.   PLACE OF PERFORMANCE

          The Executive shall perform his duties at the principal offices of the
Company located at One HealthSouth Parkway,  Birmingham,  Alabama, but from time
to time the Executive may be required to travel to other locations in the proper
conduct of his responsibilities under this Agreement.

     5.   COMPENSATION AND BENEFITS

          In consideration of the services  rendered by the Executive during the
Employment  Period,  the Company  shall pay or provide the Executive the amounts
and benefits set forth below.


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<PAGE>



               (a) Salary.  The Company  shall pay the  Executive an annual base
salary (the "Base Salary") of at least  $1,200,000.  The Executive's Base Salary
shall be paid in arrears in substantially  equal installments at monthly or more
frequent  intervals,  in  accordance  with the normal  payroll  practices of the
Company.  The Executive's Base Salary shall be reviewed at least annually by the
Compensation   Committee  of  the  Board  (the  "Compensation   Committee")  for
consideration  of appropriate  merit increases and, once  established,  the Base
Salary shall not be decreased during the Employment Period,  except as otherwise
contemplated by Section 22 hereof.

               (b) Annual Target Bonus.  The Company shall provide the Executive
with the  opportunity to earn an annual target bonus (the "Annual Target Bonus")
equal to at least  $2,400,000.  The  amount of the Annual  Target  Bonus will be
reviewed at least annually by the  Compensation  Committee for  consideration of
appropriate  merit increases and, once  established at a specified  amount,  the
Annual Target Bonus shall not be decreased during the Employment Period,  except
as otherwise  contemplated by Section 22 hereof. The Annual Target Bonus will be
payable in the event that the Company's  operations meet the annual  performance
standard  set  forth  in  the  Company's  business  plan,  as  approved  by  the
Compensation  Committee  in each year of the  Employment  Period (the  "Business
Plan"). In the event that the Company's  operations meet the monthly performance
standard set forth in the Business Plan, an amount equal to  one-twelfth  (1/12)
of the Annual Target Bonus (a "Monthly  Target  Bonus") shall be payable  within
five days following the date the Company's internal monthly financial statements
have been  completed.  In the event that any Monthly  Target  Bonus shall not be
paid  during the course of such  calendar  year  because  the  relevant  monthly
performance  standard was not met, such Monthly  Target Bonus shall again become
available for payment if the Company attains its annual performance standard for
such calendar  year.  For the remainder of the 1998 calendar year  following the
Effective  Date, the Executive will be paid $200,000  within five days following
the date the Company's internal monthly financial statements have been completed
for each  calendar  month  ending  following  the  Effective  Date in which  the
relevant  monthly  performance  standard  is met and,  in the event the  Company
attains its annual  performance  standard for 1998, the Executive  shall be paid
$200,000 for any month, dating back to January, 1998, in which the Executive was
not paid the  Monthly  Target  Bonus  due to the  relevant  monthly  performance
standard not having been met.

               (c) Other Incentive Plans. The Executive shall participate in all
other bonus or incentive plans or arrangements in which other senior  executives
of the Company are eligible to participate from time to time, including, without
limitation,  any management bonus pool  arrangement.  The Executive's  incentive
compensation opportunities under such plans and arrangements shall be determined
from  time to time by the  Compensation  Committee  upon  consultation  with the
Executive.

               (d)   Equity   Incentives.   The   Executive   shall   be   given
consideration, at least annually, by the Compensation Committee for the grant of
options to purchase shares of the common stock of the Company. In addition,  the
Executive  shall be entitled to receive  awards  under any stock  option,  stock
purchase or equity-based  incentive  compensation plan or arrangement adopted by
the Company  from time to time for which  senior  executives  of the Company are
eligible  to  participate.   The   Executive's   awards  under  such  plans  and
arrangements shall be determined from time to time by the Compensation Committee
upon consultation with the Executive.



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<PAGE>



               (e)  Employee  Benefits.  The  Executive  shall  be  entitled  to
participate in all employee benefit plans,  programs,  practices or arrangements
of the Company in which other senior  executives  of the Company are eligible to
participate from time to time, including,  without limitation,  any qualified or
non-qualified  pension,  profit sharing and savings plans, any death benefit and
disability  benefit plans,  and any medical,  dental,  health and welfare plans.
Without limiting the generality of the foregoing,  the Company shall provide the
Executive with the following:

                    (i)  provision of long-term  disability  insurance  coverage
               paying  benefits equal to at least 100% of the  Executive's  Base
               Salary and Annual  Target Bonus for the duration of any permanent
               and  total  disability  of  the  Executive,   either  through  an
               individual disability insurance policy or otherwise;

                    (ii)  continued  provision of  split-dollar  life  insurance
               coverage  and  payment  of  premiums  pursuant  to  that  certain
               Split-Dollar  Agreement  between the  Executive  and the Company,
               dated February 1, 1992, as amended; and

                    (iii)  provision of the pension  benefits  provided  under a
               non-qualified retirement plan for the Executive, a summary of the
               terms of which is attached hereto as Exhibit A.

               (f) Fringe  Benefits  and  Perquisites.  The  Executive  shall be
entitled to continuation of all fringe benefits and perquisites  provided to the
Executive on the  Effective  Date,  and to all fringe  benefits and  perquisites
which are generally made available to senior executives of the Company from time
to time.  Without  limiting the generality of the  foregoing,  the Company shall
provide the Executive with the following:

                    (i) provision of executive offices and secretarial staff;

                    (ii) six weeks paid vacation during each calendar year;

                    (iii) provision of an automobile of the  Executive's  choice
               (which may be traded in for a new  automobile  each  year),  plus
               payment  of  all  related  automobile  expenses,  including  gas,
               maintenance expenses and automobile insurance;

                    (iv)  payment of  initiation  fees and  annual  dues for two
               country clubs of the Executive's  choice, and payment of dues for
               any   professional   societies  and  associations  of  which  the
               Executive is a member in furtherance of his duties hereunder;

                    (v) in order to ensure the accessibility and security of the
               Executive,  use of the Company's  aircraft and related facilities
               for  both   business  and  personal   travel  and   provision  of
               appropriate  personal  residence  security  services,  a  24-hour
               bodyguard service, a  security-trained  driver/bodyguard  and any
               other  measures  prescribed  from  time to time by the  Company's
               corporate security advisor and approved by the Board; and

                    (vi)  reimbursement  of  all  reasonable  travel  and  other
               business expenses and disbursements  incurred by the Executive in
               the performance of his duties under this  Agreement,  upon proper
               accounting in accordance with the Company's normal practices


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<PAGE>



          and procedures for reimbursement of business expenses.

     6.   TERMINATION OF EMPLOYMENT

          The Employment  Period will be terminated upon the happening of any of
the following events:

               (a)  Resignation  for Good Reason.  The Executive may voluntarily
terminate  his  employment  hereunder  for Good  Reason.  For  purposes  of this
Agreement, "Good Reason" shall mean:

                    (i)  the   assignment   to  the   Executive  of  any  duties
               inconsistent  with the Executive's  position  (including  status,
               offices, titles or reporting relationships), authority, duties or
               responsibilities  as  contemplated  by  Section 3 hereof,  or any
               action  by the  Company  that  results  in a  diminution  in such
               position,  authority,  duties or responsibilities,  but excluding
               for these  purposes  any isolated  and  insubstantial  action not
               taken in bad faith and which is remedied by the Company  promptly
               after receipt of notice thereof given by the Executive;

                    (ii)  any  material  change  in  the  Executive's  reporting
               responsibilities;

                    (iii)  any  material  failure  by the  Company  to honor its
               obligations under this Agreement;

                    (iv)  a  notice  of  non-extension  of  the  Agreement  Term
               provided by the Company to the  Executive as set forth in Section
               2 hereof;

                    (v) the  relocation  of the  Company's  principal  executive
               offices  to a  location  more  than 40  miles  from  its  current
               location  in  Birmingham,   Alabama,   or  the  location  of  the
               Executive's  own  office to other  than the  Company's  principal
               executive offices;

                    (vi) any failure by the Company to obtain an  assumption  of
               this  Agreement  by a successor  corporation  as  required  under
               Section 14(a) hereof;

                    (vii) the failure of the Company to renominate the Executive
               to the Board or the  failure  of the  Company's  stockholders  to
               reelect the Executive to the Board; or

                    (viii)  any  purported  termination  by the  Company  of the
               Executive's  employment  otherwise than as expressly permitted by
               this Agreement.

However,  in no event shall the Executive be considered to have  terminated  his
employment  for "Good  Reason"  unless and until the  Company  receives  written
notice from the Executive identifying in reasonable detail the acts or omissions
constituting  "Good Reason" and the provision of this Agreement relied upon, and
such  acts  or  omissions  are  not  cured  by the  Company  to  the  reasonable
satisfaction  of the Executive  within 30 days of the Company's  receipt of such
notice.


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<PAGE>



               (b)  Resignation  other than for Good Reason.  The  Executive may
voluntarily  terminate his  employment  hereunder for any reason other than Good
Reason.

               (c)  Termination  for  Cause.   The  Company  may  terminate  the
Executive's employment hereunder for Cause. For purposes of this Agreement,  the
Executive  shall be  considered  to be  terminated  for "Cause"  only if (i) the
Executive  is  found,  by  a  non-appealable  order  of  a  court  of  competent
jurisdiction,  to be guilty of a felony  under the laws of the United  States or
any state thereof or (ii) the Executive is found, by a non-appealable order of a
court of competent jurisdiction, to have committed a fraud, which has a material
adverse  effect on the  Company.  However,  in no event  shall  the  Executive's
employment be considered to have been  terminated  for "Cause"  unless and until
the Executive  receives a copy of a resolution  duly adopted by the  affirmative
vote of a majority  of the Board at a meeting  called and held for such  purpose
(after  reasonable  written notice is provided to the Executive setting forth in
reasonable  detail  the facts and  circumstances  claimed  to provide a basis of
termination for Cause and the Executive is given an  opportunity,  together with
counsel,  to be heard before the Board)  finding that the Executive is guilty of
acts or omissions constituting Cause.

               (d)  Termination  other than for Cause.  The Board shall have the
right to terminate the  Executive's  employment  hereunder for any reason at any
time,  including for any reason that does not constitute  cause,  subject to the
consequences of such termination as set forth in this Agreement.

               (e)  Disability.   The  Executive's  employment  hereunder  shall
terminate  upon his  Disability.  For purposes of this  Agreement,  "Disability"
shall mean the  inability of the  Executive to perform his duties to the Company
on account of physical or mental  illness for a period of six  consecutive  full
months,  or for a period of eight full months  during any 12-month  period.  The
Executive's  employment  shall  terminate  in such a case on the last day of the
applicable  period;  provided,  however,  in no event  shall  the  Executive  be
terminated by reason of Disability  unless (i) the Executive is eligible for the
long-term  disability  benefits set forth in Section 5(e)(i) hereof and (ii) the
Executive receives written notice from the Company,  at least 30 days in advance
of such termination, stating its intention to terminate the Executive for reason
of Disability and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.

               (f) Death. The Executive's  employment  hereunder shall terminate
upon his death.

     7.   COMPENSATION UPON TERMINATION OF EMPLOYMENT

         In the event the  Executive's  employment  by the Company is terminated
during the  Agreement  Term,  the  Executive  shall be entitled to the severance
benefits set forth below:

               (a)  Resignation  for Good  Reason.  In the event  the  Executive
voluntarily  terminates  his employment  hereunder for Good Reason,  the Company
shall pay the Executive and provide him with the following:


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<PAGE>



                    (i) Accrued  Rights.  The Company  shall pay the Executive a
               lump-sum  amount  equal to the sum of (A) his  earned  but unpaid
               Base Salary through the date of  termination,  (B) any earned but
               unpaid Annual Target Bonus for any completed  calendar  year, (C)
               any earned  but unpaid  Monthly  Target  Bonus for any  completed
               month in the calendar year of the Executive's termination and (D)
               any  unreimbursed  business  expenses or other amounts due to the
               Executive  from the  Company  as of the date of  termination.  In
               addition,   the  Company  shall  provide  to  the  Executive  all
               payments,  rights and benefits due as of the date of  termination
               under the terms of the  Company's  employee  and  fringe  benefit
               plans,  practices,  programs  and  arrangements  referred  to  in
               Sections  5(e)  and  5(f)  hereof  (together  with  the  lump-sum
               payment, the "Accrued Rights").

                    (ii) Severance Payment.  The Company shall pay the Executive
               a  lump-sum   amount   equal  to  the  sum  of  the   Executive's
               then-current  Base Salary and Annual  Target Bonus at the time of
               the  Executive's  termination,  for each  year  remaining  in the
               Agreement  Term (with  pro-rated  amounts of such Base Salary and
               Annual Target Bonus, on a daily basis,  for any partial  calendar
               years during such remaining  Agreement Term),  with such lump-sum
               payment  discounted to present value using an interest rate equal
               to 100% of the monthly  compounded  applicable  federal rate (the
               "Applicable  Rate"),  as in effect under  Section  1274(d) of the
               Internal  Revenue Code of 1986, as amended (the "Code"),  for the
               month in which payment is required to be made.

                    (iii) Continued  Benefits.  The Company shall pay or provide
               the Executive with all employee and fringe  benefits  referred to
               in Sections 5(e) and 5(f) hereof for the balance of the Agreement
               Term;  provided,  however,  that if and to the extent the Company
               determines  that any such  benefits  cannot  be paid or  provided
               under the plans in  question  due to Code or other  restrictions,
               the Company shall provide payments,  coverages or benefits, which
               are at least as favorable to the Executive on an after-tax basis,
               through other means reasonably satisfactory to the Executive.

                    (iv) Equity Rights. All stock options and other equity-based
               rights held by the  Executive  at the date of  termination  shall
               become  immediately  and fully  vested and  exercisable,  and the
               Executive  shall  retain the right to  exercise  all  outstanding
               stock  options  for the  duration  of their  original  full  term
               (without  regard to termination of employment) in accordance with
               the Founder Retirement Benefit Program attached hereto as Exhibit
               B (the "Founders' Program"). The Company shall forthwith take all
               necessary  steps to amend any relevant  stock option plans of the
               Company and stock option  agreements  to the extent  necessary to
               allow for the foregoing vesting and term of exercise.

               (b)  Resignation  other  than for Good  Reason.  In the event the
Executive  voluntarily  terminates his employment  hereunder other than for Good
Reason, the Company shall pay the Executive and provide him with the following:

                    (i) Accrued Rights. The Company shall pay and provide to the
               Executive any Accrued Rights.


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<PAGE>



                    (ii) Severance Payment.  The Company shall pay the Executive
               a lump-sum  amount equal to two times the sum of the  Executive's
               then-current  Base Salary and Annual  Target Bonus at the time of
               the   Executive's   termination,   with  such  lump-sum   payment
               discounted  to present  value using the  Applicable  Rate for the
               month in which payment is required to be made.

               (c)   Termination   for  Cause.  In  the  event  the  Executive's
employment  hereunder is terminated by the Company for Cause,  the Company shall
pay and provide to the Executive any Accrued Rights.

               (d) Termination other than for Cause, Disability or Death. In the
event the Executive's  employment hereunder is terminated by the Company for any
reason  other than for Cause,  Disability  or death,  the Company  shall pay the
Executive and provide him with all severance  benefits set forth in Section 7(a)
hereof.

               (e) Disability. In the event the Executive's employment hereunder
is terminated by reason of the Executive's Disability, the Company shall pay the
Executive and provide him with the following:

                    (i) Accrued Rights. The Company shall pay and provide to the
               Executive any Accrued Rights,  including all disability insurance
               coverage.

                    (ii)  Severance  Payment.  The  Company  shall  provide  the
               Executive with continued  payment of the Executive's  Base Salary
               and Annual Target Bonus, as in effect on the date of termination,
               for  a  period  of  three   years   following   the   Executive's
               termination,  payable  at the times and in the  manner  such Base
               Salary  and  Annual  Target  Bonus  would  have  been paid if the
               Executive had  continued in the  employment of the Company and as
               if all relevant  performance  standards had been achieved  during
               such periods.

               (f) Death.

         In the event the  Executive's  employment  hereunder is  terminated  by
reason  of  the  Executive's  death,  the  Company  shall  pay  the  Executive's
representatives or estate the following:

                    (i) Accrued Rights. The Company shall pay and provide to the
               Executive's   representatives   or  estate  any  Accrued  Rights,
               including all life insurance coverage.

                    (ii)   Severance   Payment.   The  Company   shall  pay  the
               Executive's  representatives or estate a lump-sum amount equal to
               the sum of the  Executive's  then-current  Base Salary and Annual
               Target  Bonus at the time of the  Executive's  death,  with  such
               lump-sum payment discounted to present value using the Applicable
               Rate for the month in which payment is required to be made.

     8.   FOUNDERS' BENEFITS

          Upon the  Executive's  termination  of  employment  hereunder  for any
reason, and in


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addition to any severance  benefits  payable to him under Section 7 hereof,  the
Company  shall treat such  termination  as a  "retirement"  for  purposes of the
Founders' Program, and shall provide the Executive with the benefits outlined in
the Founders' Program in recognition of his status as a founder of the Company.

     9.   CHANGE IN CONTROL

          (a)  Supplemental  Termination  Rights.  In the  event of a  voluntary
termination of employment by the Executive  pursuant to Section 6(b) hereof that
occurs within two years following a Change in Control,  the Company shall pay to
the Executive,  in addition to the severance benefits payable under Section 7(b)
hereof, an additional lump-sum amount equal to the Executive's then-current Base
Salary and Annual Target Bonus at the time of the Executive's termination,  with
such lump-sum payment  discounted to present value using the Applicable Rate for
the month in which payment is required to be made.

          (b) Definition.  For purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred by reason of:

               (i) the acquisition  (other than from the Company) by any person,
          entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2)
          of the  Securities  Exchange  Act of  1934,  but  excluding,  for this
          purpose, the Company or its subsidiaries, or any employee benefit plan
          of the Company or its subsidiaries which acquires beneficial ownership
          of voting  securities of the Company) of beneficial  ownership (within
          the meaning of Rule 13d-3  promulgated  under the Securities  Exchange
          Act of 1934) of 25% or more of either the  then-outstanding  shares of
          the common  stock of the Company or the  combined  voting power of the
          Company's   then-outstanding   voting  securities   entitled  to  vote
          generally in the election of directors; or

               (ii) individuals who, as of date hereof, constitute the Board (as
          of  such  date,  the  "Incumbent  Board")  cease  for  any  reason  to
          constitute at least a majority of the Board;  provided,  however, that
          any person becoming a director subsequent to such date whose election,
          or  nomination  for  election,  was  approved  by a vote of at least a
          majority of the directors then constituting the Incumbent Board (other
          than  an  election  or  nomination  of  an  individual  whose  initial
          assumption  of office is in  connection  with an actual or  threatened
          election contest relating to the election of directors of the Company)
          shall be, for purposes of this Section 9(b)(ii),  considered as though
          such person were a member of the Incumbent Board; or

               (iii)  approval  by  the   stockholders   of  the  Company  of  a
          reorganization,  merger, consolidation or share exchange, in each case
          with respect to which persons who were the stockholders of the Company
          immediately  prior to such  reorganization,  merger,  consolidation or
          share exchange do not,  immediately  thereafter,  own more than 75% of
          the combined  voting power  entitled to vote generally in the election
          of  directors  of  the  reorganized,  merged,  consolidated  or  other
          surviving   entity's   then-outstanding   voting   securities,   or  a
          liquidation  or  dissolution  of the  Company  or the  sale  of all or
          substantially all of the assets of the Company.



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<PAGE>



     10.  PARACHUTE TAX INDEMNITY

               (a) If it shall be determined  that any amount paid,  distributed
or  treated as paid or  distributed  by the  Company  to or for the  Executive's
benefit (whether paid or payable or distributed or distributable pursuant to the
terms of this  Agreement or  otherwise,  but  determined  without  regard to any
additional  payments  required  under this  Section 10) (a  "Payment")  would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties  are incurred by the  Executive  with respect to such excise tax (such
excise tax,  together with any such interest and  penalties,  being  hereinafter
collectively  referred  to as the "Excise  Tax"),  then the  Executive  shall be
entitled to receive an  additional  payment (a "Gross-Up  Payment") in an amount
such that after payment by the  Executive of all federal,  state and local taxes
(including  any  interest or  penalties  imposed  with  respect to such  taxes),
including,  without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up  Payment,
the Executive  retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.

               (b) All determinations required to be made under this Section 10,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up  Payment  and  the  assumptions  to be  utilized  in  arriving  at such
determination,  shall be made by a nationally  recognized accounting firm as may
be  designated  by the  Executive  (the  "Accounting  Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive  that there has been a
Payment,  or such earlier time as is requested by the Company. In the event that
the  Accounting  Firm is serving as  accountant  or auditor for the  individual,
entity or group  effecting the Change in Control,  the  Executive  shall appoint
another  nationally  recognized  accounting  firm  to  make  the  determinations
required  hereunder  (which  accounting  firm shall then be  referred  to as the
Accounting Firm  hereunder).  All fees and expenses of the Accounting Firm shall
be borne by the Company.  Any Gross-Up Payment,  as determined  pursuant to this
Section 10,  shall be paid by the Company to the  Executive  within five days of
the receipt of the Accounting  Firm's  determination.  Any  determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder,  it is possible that
Gross-Up  Payments which will not have been made by the Company should have been
made  ("Underpayment"),  consistent  with the  calculations  required to be made
hereunder.  In the event that the Company exhausts its remedies pursuant to this
Section 10 and the  Executive  thereafter  is  required to make a payment of any
Excise Tax, the Accounting Firm shall  determine the amount of the  Underpayment
that has  occurred  and any such  Underpayment  shall  be  promptly  paid by the
Company to or for the Executive's benefit.


                                       10


<PAGE>



               (c) The  Executive  shall  notify  the  Company in writing of any
claim by the Internal  Revenue  Service that, if  successful,  would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as  practicable  but no later then ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such  claim and the date on which  such claim is  requested  to be paid.  The
Executive  shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period  ending on the date that any payment of taxes with  respect to such claim
is  due).  If the  Company  notifies  the  Executive  in  writing  prior  to the
expiration  of such period that it desires to contest such claim,  the Executive
shall:

                    (i) give the Company any information reasonably requested by
               the Company relating to such claim,

                    (ii) take such action in  connection  with  contesting  such
               claim as the Company  shall  reasonably  request in writing  from
               time to time,  including,  without  limitation,  accepting  legal
               representation   with  respect  to  such  claim  by  an  attorney
               reasonably selected by the Company,

                    (iii)  cooperate  with the Company in good faith in order to
               effectively contest such claim, and

                    (iv) permit the  Company to  participate  in any  proceeding
               relating to such claim;

provided,  however,  that the Company  shall bear and pay directly all costs and
expenses  (including  additional  interest and penalties) incurred in connection
with such contest and shall  indemnify  and hold the Executive  harmless,  on an
after-tax  basis,  from any  Excise Tax or income tax  (including  interest  and
penalties with respect thereto) imposed as a result of such  representation  and
payment of costs and expense.  Without limitation on the foregoing provisions of
this Section 10, the Company shall control all  proceedings  taken in connection
with such  contest  and,  at its sole  option,  may pursue or forego any and all
administrative  appeals,  proceedings,  hearings and conferences with the taxing
authority  in respect of such claim and may, at its sole option,  either  direct
the  Executive  to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a  determination  before  any  administrative  tribunal,  in a court of  initial
jurisdiction  and  in  one or  more  appellate  courts,  as  the  Company  shall
determine;  provided,  however, that if the Company directs the Executive to pay
such claim and sue for a refund,  the Company  shall  advance the amount of such
payment to the Executive,  on an  interest-free  basis,  and shall indemnify and
hold the  Executive  harmless,  on an  after-tax  basis,  from any Excise Tax or
income tax (including  interest or penalties with respect  thereto) imposed with
respect to such  advance or with  respect to any imputed  income with respect to
such  advance;  and  further  provided  that any  extension  of the  statute  of
limitations  relating to payment of taxes for the Executive's  taxable year with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount.  Furthermore,  the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up  Payment  would be payable
hereunder and the Executive shall be entitled to settle or contest,  as the case
may be, any other  issue  raised by the  Internal  Revenue  Service or any other
taxing authority.


                                       11


<PAGE>



               (d) If, after the  Executive's  receipt of an amount  advanced by
the Company  pursuant  to this  Section 10, the  Executive  becomes  entitled to
receive any refund with respect to such claim,  the Executive  shall (subject to
the Company's  complying with the  requirements of this Section 10) promptly pay
to the Company the amount of such refund  (together  with any  interest  paid or
credited  thereon after taxes  applicable  thereto).  If, after the  Executive's
receipt of an amount  advanced  by the Company  pursuant  to this  Section 10, a
determination  is made that the  Executive  shall not be  entitled to any refund
with  respect to such claim and the  Company  does not notify the  Executive  in
writing of its intent to contest such denial of refund  prior to the  expiration
of 30 days after such  determination,  then such  advance  shall be forgiven and
shall not be required to be repaid and the amount of such advance  shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.

     11.  NO MITIGATION OR OFFSET

          The  Executive  shall not be required to seek other  employment  or to
reduce any severance benefit payable to him under Sections 7, 8 or 9 hereof, and
no such  severance  benefit  shall be reduced  on  account  of any  compensation
received by the Executive from other employment. The Company's obligation to pay
severance  benefits under this Agreement shall not be reduced by any amount owed
by the Executive to the Company.

     12.  TAX WITHHOLDING; METHOD OF PAYMENT

          All compensation payable pursuant to this Agreement,  shall be subject
to reduction by all applicable  withholding,  social security and other federal,
state and local taxes and  deductions.  Any  lump-sum  payments  provided for in
Sections 7 or 9 hereof shall be made in a cash payment,  net of any required tax
withholding, no later than the fifth business day following the Executive's date
of  termination.  Any payment  required to be made to the  Executive  under this
Agreement  that is not  made in a  timely  manner  shall  bear  interest  at the
Applicable Rate until the date of payment.

     13.  RESTRICTIVE COVENANTS

               (a) Confidential Information. During the Employment Period and at
all times  thereafter,  the Executive  agrees that he will not divulge to anyone
(other than the Company or any persons  employed or  designated  by the Company)
any knowledge or information of a confidential  nature  relating to the business
of the Company or any of its  subsidiaries  or  affiliates,  including,  without
limitation, all types of trade secrets (unless readily ascertainable from public
or  published   information  or  trade  sources)  and  confidential   commercial
information,  and the Executive further agrees not to disclose,  publish or make
use of any such knowledge or information without the consent of the Company.

               (b)  Noncompetition.  During the  Employment  Period  and, in the
event of a  resignation  by the Executive for any reason other than Good Reason,
for the 24 month period  following the termination of employment,  the Executive
shall not,  without  the prior  written  consent of the  Company,  engage in the
comprehensive  rehabilitative and related healthcare services business on behalf
of any person,  firm or corporation  within any  geographical  area in which the
Company  transacts  such  business,  and the  Executive  shall not  acquire  any
financial interest (except for an



                                       12


<PAGE>



equity  interest  in  publicly-held  companies  that  do  not  exceed  5% of any
outstanding  class of equity of that  company),  in any business that engages in
the comprehensive rehabilitative and related healthcare services business within
any   geographical   area  in  which  the  Company   transacts   such  business.
Notwithstanding  the  foregoing,  upon the  occurrence  of a Change  in  Control
(whether  before  or  after  the  termination  of the  Employment  Period),  the
restrictions of this Section 13(b) shall cease to apply to the Executive for any
period following his termination of employment hereunder.

               (c)  Enforcement.  The  Company  shall  be  entitled  to  seek  a
restraining  order or  injunction  in any  court of  competent  jurisdiction  to
prevent any continuation of any violation of the provisions of this Section 13.

     14.  SUCCESSORS

               (a) This  Agreement  shall be binding upon and shall inure to the
benefit of the  Company,  its  successors  and  assigns  and any  person,  firm,
corporation  or other entity which succeeds to all or  substantially  all of the
business,  assets or  property of the  Company.  The  Company  will  require any
successor  (whether direct or indirect,  by purchase,  merger,  consolidation or
otherwise) to all or  substantially  all of the business,  assets or property of
the Company, to expressly assume 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 in this Agreement,  the "Company"
shall  mean  the  Company  as  hereinbefore  defined  and any  successor  to its
business,  assets or  property  as  aforesaid  which  executes  and  delivers an
agreement  provided for in this Section 14 or which  otherwise  becomes bound by
all the terms and provisions of this Agreement by operation of law.

               (b) This  Agreement  and all  rights of the  Executive  hereunder
shall inure to the benefit of and be enforceable by the Executive's  personal or
legal   representatives,    executors,   administrators,    successors,   heirs,
distributees,  devisees  and  legatees.  If the  Executive  should die while any
amounts are due and payable to him hereunder, all such amounts, unless otherwise
provided herein, shall be paid to the Executive's  designated beneficiary or, if
there be no such designated  beneficiary,  to the legal  representatives  of the
Executive's estate.

     15.  NO ASSIGNMENT

          Except  as to  withholding  of any tax  under  the laws of the  United
States or any other country,  state or locality,  neither this Agreement nor any
right or interest  hereunder nor any amount payable at any time hereunder  shall
be subject in any manner to  alienation,  sale,  transfer,  assignment,  pledge,
attachment,  or other legal process, or encumbrance of any kind by the Executive
or the  beneficiaries of the Executive or by his legal  representatives  without
the Company's prior written consent,  nor shall there be any right of set-off or
counterclaim  in  respect  of any debts or  liabilities  of the  Executive,  his
beneficiaries or legal representatives;  provided, however, that nothing in this
Section shall preclude the Executive  from  designating a beneficiary to receive
any benefit payable on his death, or the legal  representatives of the Executive
from assigning any rights  hereunder to the person or persons  entitled  thereto
under his will or, in case of  intestacy,  to the  person  or  persons  entitled
thereto under the laws of intestacy applicable to his estate.



                                       13


<PAGE>




     16.  ENTIRE AGREEMENT

          This Agreement  contains the entire  understanding of the parties with
respect to the  subject  matter  hereof  and,  except as  specifically  provided
herein,  cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof, including,  without limitation,  that
certain employment  agreement dated July 23, 1986, as amended.  Any amendment or
modification of this Agreement shall not be binding unless in writing and signed
by the Company and the Executive.

     17.  SEVERABILITY

          In the event that any provision of this  Agreement is determined to be
invalid or  unenforceable,  the remaining terms and conditions of this Agreement
shall be  unaffected  and shall  remain in full force and  effect,  and any such
determination of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.

     18.  NOTICES

          All notices which may be necessary or proper for either the Company or
the Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or certified mail,  return receipt  requested,  or by
air courier, to the Executive at:

                        Mr. Richard M. Scrushy
                        2406 Longleaf Street
                        Birmingham, Alabama  35243

with a copy to:

                        Frederick W. Kanner, Esq.
                        Dewey Ballantine LLP
                        1301 Avenue of the Americas
                        New York, New York  10019

and shall be sent in the manner  described above to the Secretary of the Company
at the  Company's  principal  executives  offices  at One  HealthSouth  Parkway,
Birmingham, Alabama 35243, or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent,  provided  that any notice  required  under
Section 6 hereof or notice  given  pursuant to Section 2 hereof  shall be deemed
given only when received. Any party may by like notice to the other party change
the address at which he or they are to receive notices hereunder.

     19.  GOVERNING LAW

          This Agreement shall be governed by and enforceable in accordance with
the laws of the State of Alabama,  without  giving  effect to the  principles of
conflict of laws thereof.


                                       14


<PAGE>



     20.  ARBITRATION

          Any  controversy  or  claim  arising  out  of,  or  related  to,  this
Agreement, or the breach thereof, shall be settled by binding arbitration in the
City of Birmingham,  Alabama, in accordance with the rules then obtaining of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final,  and  judgment  upon the award  rendered  may be entered in any court
having jurisdiction thereof.

     21.  LEGAL FEES AND EXPENSES

          To induce the  Executive to execute this  Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement  should the Company fail to perform
its  obligations  under this Agreement or should the Company or any  subsidiary,
affiliate or stockholder of the Company  contest the validity or  enforceability
of this  Agreement,  the  Company  shall pay and be solely  responsible  for any
attorneys'  fees and  expenses  and court costs  incurred by the  Executive as a
result of a claim that the Company has breached or  otherwise  failed to perform
this  Agreement or any  provision  hereof to be performed by the Company or as a
result of the Company or any subsidiary, affiliate or stockholder of the Company
contesting  the validity or  enforceability  of this  Agreement or any provision
hereof to be performed by the Company,  in each case  regardless of which party,
if any, prevails in the contest.

     22.  CONVERSION TO CHAIRMAN-ONLY STATUS

          The  Executive may elect at any time during the  Employment  Period to
resign his position as Chief  Executive  Officer and serve the Company solely as
the  Chairman of the Board  ("Chairman-Only  Status")  for the  remainder of the
Employment  Period  under the terms and  conditions  hereof.  In the event of an
election by the Executive to maintain  Chairman-Only Status, (i) the Base Salary
described  in Section  5(a)  hereof and the Annual  Target  Bonus  described  in
Section  5(b)  hereof  shall  be  reduced  to an  amount  equal  to 50% of their
then-current level (subject to possible merit increases at the discretion of the
Board)  at the  time of such  election  and (ii) all  other  provisions  of this
Agreement,  including the compensation and benefits  provisions of Sections 5(c)
through 5(f) hereof,  shall remain in full force and effect for the remainder of
the  Agreement  Term.  An election by the  Executive  to maintain  Chairman-Only
Status,  and the related  reduction  in his Base Salary and Annual  Target Bonus
thereof,  shall not constitute a violation of the Executive's  obligations under
Section 3 hereof,  nor shall it  constitute  a  termination  of the  Executive's
employment  for any purpose under Section 6 hereof.  As used in this  Agreement,
the term  "employment"  and similar terms shall be deemed to include  service to
the Company while maintaining Chairman-Only Status.


                                       15


<PAGE>




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

                                    EXECUTIVE

                                    /s Richard M. Scrushy/
                                    --------------------------------
                                    Richard M. Scrushy

                                    HEALTHSOUTH CORPORATION

                                    By /s/ Anthony J. Tanner
                                      ------------------------------
                                      Name:  Anthony J. Tanner
                                      Title: Executive Vice President -
                                             Administration and Secretary





                                        16

<PAGE>


                                                                       EXHIBIT A


                             HEALTHSOUTH CORPORATION
                            EXECUTIVE RETIREMENT PLAN
                             FOR RICHARD M. SCRUSHY

                                  Summary of Terms

Benefit Formula:                  Annual retirement benefit equal to 60% of Base
                                  Compensation at Normal Retirement Age

Base Compensation:                Average base salary of Executive in 3 highest
                                  consecutive calendar years of service with
                                  HEALTHSOUTH

Vesting:                          Fully vested at all times
Normal Retirement Age:            Age 60

Early Retirement:                 Benefit is fully vested and  accrued if termi-
                                  nation for any  reason  prior to age  60,  but
                                  earliest  benefit commencement date is age 55
                                  (with actuarial reduction)

Forms of Payment:                 Executive's choice of alternative forms:
                                  Single Life Annuity

                                  Single Life Annuity with 10 year
                                  guarantee   Joint  and  Survivor
                                  Annuity (50% or 100%) Lump Sum

Death Benefit:                    For death prior to  benefit commencement date,
                                  spouse receives 50%  survivor  annuity payable
                                  at later of date of death or 55th birthday

Actuarial Assumptions:            Pre-age 60 commencement and alternative forms
                                  of payment adjusted on an actuarial equivalent
                                  basis:

                                  interest rate - 30-year Treasury rate
                                  mortality assumption - 1983 GAM Table

Unfunded Status:                  Plan  is  an unfunded, unsecured obligation of
                                  HEALTHSOUTH, but HEALTHSOUTH may elect to fund
                                  on a tax-neutral basis to Executive



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