EMPLOYMENT AGREEMENT
CHANGE IN CONTROL AGREEMENT

Amended and Restated Change in Control Benefits Plan

Second Amended and Restated Executive Severance Plan

Letter of Understanding

 

 

 

EXHIBIT 10.15

 

Execution Copy

 

EMPLOYMENT AGREEMENT

 

AGREEMENT between HealthSouth Corporation, a Delaware corporation (together with its successors and assigns, the “Company”), and Jay F. Grinney (the “Executive”), dated as of May 3, 2004.

 

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company to employ the Executive on the terms set forth herein;

 

WHEREAS, the Executive has agreed to be employed by the Company on the terms set forth herein;

 

WHEREAS, the Executive and the Company wish to set forth the terms and conditions of the Executive’s employment in this Agreement;

 

NOW THEREFORE, in consideration of the mutual promises and covenants made herein and the mutual benefits to be derived from this Agreement, the parties hereto agree as follows:

 

1. Employment Period. Subject to the terms of this Agreement, the Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company and its affiliates, for the period commencing on the Commencement Date (as defined herein) and ending on the third anniversary of the Commencement Date; provided that the Executive’s employment by the Company will automatically be extended by twelve (12) additional months on the third anniversary of the Commencement Date and each annual anniversary thereafter unless either party provides written notice to the other party no less than ninety (90) days prior to the date of any such scheduled extension of its or his intention not to extend the term of the Executive’s employment (the original employment term plus any extension thereof being referred to herein as the “Employment Period”). For purposes hereof, the Commencement Date means the date the Executive commences employment with the Company which in all events shall be no earlier than May 3, 2004 and no later than May 17, 2004. Notwithstanding the foregoing, the Employment Period shall end on the date on which the Executive’s employment is terminated by either party in accordance with the provisions of this Agreement.

 

2. Terms of Employment.

 

(a) Position and Duties.

 

(i) During the Employment Period, (A) the Executive shall serve as President and Chief Executive Officer of the Company, with overall charge and responsibility for the business and affairs of the Company, subject to the Board’s direction, and such other duties and responsibilities as are commensurate with such positions. The Executive shall be a member of the Board and a member of the Special Committee of the Board (the “Special Committee”); provided that as a member of the Board and/or the Special Committee, the Executive shall not participate in any

 


deliberations or determinations regarding his own compensation, (B) the Executive shall report directly to the Board and (C) the Executive’s services shall be performed at the Company’s headquarters in Birmingham, Alabama.

 

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote his full business attention and time to the business and affairs of the Company and to use the Executive’s best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, the Executive shall be entitled (A) to serve as a member of the board of directors of one unaffiliated corporation during the first two years of the Employment Period and of two unaffiliated corporations thereafter, (B) to serve on trade and charitable boards and (C) to manage his personal and family investments, in each case referenced in clauses (A) to (C), to the extent such activities are not competitive with the business of the Company or its affiliates and do not interfere in any way, in the reasonable judgment of the Board (or a committee thereof), with the performance of his duties for the Company and are otherwise consistent with the Company’s governance policies.

 

(b) Compensation.

 

(i) Annual Base Salary. During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”) at a rate of $900,000, payable in accordance with the Company’s normal payroll policies. The Executive’s Annual Base Salary shall be pro rated for 2004 based upon the portion of the year commencing on the Commencement Date that he is employed by the Company. The Executive’s Annual Base Salary shall be reviewed annually for increase in the sole discretion of the Board. Annual Base Salary shall not be reduced after any increase, and the term Annual Base Salary as utilized in this Agreement shall refer to the Executive’s annual base salary as in effect at the time in question.

 

(ii) Annual Bonus. With respect to the year ending December 31, 2004, the Executive shall have a target annual bonus equal to 90% of his Annual Base Salary (the “2004 Target Bonus”). Payment of 80% of the 2004 Target Bonus (the “2004 EBITDA Portion”) shall be contingent upon the Company achieving an EBITDA target of $650,000,000 for 2004. The Executive shall earn between 0% and 200% of the 2004 EBITDA Portion based upon the Company’s achievement of EBITDA at the levels set forth in Exhibit A attached hereto. For example, the 2004 EBITDA Portion of the bonus for 2004 shall not be earned unless the Company achieves an EBITDA of at least $630,000,000. The Special Committee shall determine, in its sole discretion, the Company’s actual EBITDA for 2004. Payment of the remaining 20% of the 2004 Target Bonus (the “Personal Performance Portion”) shall be contingent upon the Executive’s achievement of individual objectives to be established by the Special Committee within thirty (30) days following the Commencement Date. The Executive shall earn between 0% and 100% of the Personal Performance Portion based upon the degree to which the Special Committee, in its sole discretion, determines the Executive satisfies the individual objectives established by the Special Committee. With respect to each fiscal year commencing after December 31, 2004, the Executive shall have a target annual

 

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bonus equal to 90% of his Annual Base Salary. The Special Committee shall establish, in its sole discretion, the performance and payment conditions applicable to such annual bonuses.

 

(iii) Special Equity Award. Effective as of the Commencement Date, the Company shall grant the Executive 100,000 shares of restricted stock (the “Restricted Stock Award”) pursuant to the Company’s 1998 Restricted Stock Plan. Except as otherwise expressly provided herein, (A) the Restricted Stock Award shall vest and cease to be restricted only if the Executive is employed by the Company on the third anniversary of the Commencement Date and (B) the Executive will immediately forfeit the Restricted Stock Award if he ceases to be employed by the Company prior to the third anniversary of the Commencement Date. Effective as of the Commencement Date, the Company shall grant the Executive a stock option (the “Option”) to purchase an aggregate of 1,000,000 shares of the Company’s common stock, par value $0.01 (the “Shares”) pursuant to the Company’s 1995 Stock Option Plan. The Option shall have a term of ten years from the date of grant, subject to earlier expiration as provided herein. The per Share exercise price of the Shares underlying the Option shall be equal to the last reported sales price for a Share on the Commencement Date (or the immediately preceding trading day if the Commencement Date is not a trading day) as quoted by brokers and dealers trading in the Shares in the over-the-counter market. Except as otherwise expressly provided herein, the Option shall vest and become exercisable with respect to one-third of the Shares on each of the first three anniversaries of the Commencement Date (that is, 333,333 on the first anniversary, 333,333 on the second anniversary and 333,334 on the third anniversary) provided the Executive is employed by the Company on each such date. Except as otherwise provided in Sections 4 and 5 below, the Restricted Stock Award and Option shall be governed by the terms of the equity incentive plan(s) and/or agreements pursuant to which the Restricted Stock Award and Option are granted.

 

(iv) Long-Term Incentive Plans. During the Employment Period, the Executive shall be entitled to participate in the ongoing equity and other long-term awards and programs of the Company on the same basis as other similarly-situated executives of the Company.

 

(v) Other Benefits and Perquisites. During the Employment Period, the Executive shall be entitled to participate in the Company’s (A) employee benefit plans, programs and arrangements (including, without limitation, life insurance, 401(k), and disability insurance), (B) vacation and sick leave programs and (C) perquisite programs and arrangements, if any, in each case, on the same basis as generally provided to other similarly-situated executives of the Company, provided that commencing no later than fifteen (15) business days following the Commencement Date, the Company shall provide the Executive with disability insurance coverage that provides an annual long-term disability benefit equal to 60% of Annual Base Salary subject to the Executive being eligible for such coverage from a third party at commercially reasonable rates. The Board will use its best efforts, after taking into account the Company’s profitability, to establish a supplemental executive retirement program for senior executives (of which the Executive will be a participant).

 

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(vi) Certain Expenses. The Company shall reimburse the Executive for all appropriate business expenses in accordance with the terms of the Company’s policies and procedures in effect from time to time. In addition, the Company shall reimburse the Executive for the following relocation expenses: (A) two (2) house hunting trips in the Birmingham, Alabama area for the Executive and his family, (B) all reasonable closing costs incurred by the Executive in the sale of his primary residence in Tennessee, (C) transportation of the Executive’s household goods from his primary residence in Tennessee to his new primary residence in or around the Birmingham, Alabama area, (D) all reasonable closing costs for the purchase of the Executive’s new primary residence in or around the Birmingham, Alabama area and (E) temporary living expenses in or around the Birmingham, Alabama area and reasonable commuting costs from Tennessee to Birmingham, Alabama for the Executive until the earlier of the six (6) month anniversary of the Commencement Date or the date the Executive purchases a new primary residence (collectively, the “Relocation Expenses”). In the event the Company determines that the Executive is subject to federal, state or local tax on all or any portion of the Company’s reimbursement of the Relocation Expenses, the Company shall pay the Executive an additional amount equal to the amount of federal, state and local taxes the Executive is required to pay with respect to the Company’s reimbursement for the Relocation Expenses.

 

3. Termination of Employment.

 

(a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. In the event of the Executive’s Disability (as defined in Exhibit B attached hereto), the Company may provide the Executive with written notice in accordance with Section 12(c) of this Agreement of its intention to terminate the Executive’s employment due to Disability. In such event, the Executive’s employment with the Company shall terminate effective on the date the Company sends such notice to the Executive (the “Disability Commencement Date”); provided that the Executive’s employment hereunder shall immediately terminate on the first date the Executive incurs a Disability as defined in clause (i) of the definition of Disability set forth on Exhibit B.

 

(b) With or Without Cause. The Executive is an employee at will and the Company may terminate the Executive’s employment either with or without Cause (as defined in Exhibit B attached hereto). For purposes of this Agreement, a termination “without Cause” shall mean a termination by the Company of the Executive’s employment other than due to Cause, death or Disability.

 

(c) With or Without Good Reason. The Executive’s employment may be terminated by the Executive voluntarily with or without Good Reason (as defined in Exhibit B attached hereto).

 

(d) Notice of Termination. Any termination of the Executive’s employment by the Company or the Executive (other than death) shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(c) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent

 

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applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination is other than the date of receipt of such notice, specifies the Date of Termination (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

 

(e) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, the date of receipt of the Notice of Termination or any later date specified therein within thirty (30) days of such notice, as the case may be, provided that if the event giving rise to a termination for Cause is pursuant to clauses (i), (iii), (vi) or (vii) of the definition of Cause, the date on which there is delivered to the Executive written notice of the requisite Board vote as set forth in the definition of “Cause” in Exhibit A, (ii) if the Executive’s employment is terminated by the Company without Cause, the date of receipt of the Notice of Termination or any later date specified therein within thirty (30) days of such notice, as the case may be, (iii) if the Executive’s employment is terminated by the Executive for Good Reason, 30 days after the Company receives the Notice of Termination unless the Company has cured the alleged grounds for such termination within 30 days after such receipt or if the Executive’s employment is terminated by the Executive without Good Reason, 30 days after the Company receives the Notice of Termination, provided however, in either case the Company may accelerate the Date of Termination to an earlier date by providing the Executive notice of such action and (iv) if the Executive’s employment is terminated by reason of death or Disability, the date of the Executive’s death or the Disability Commencement Date, as the case may be.

 

(f) Resignation. Upon termination of the Executive’s employment for any reason, the Executive agrees to resign, effective as of the Date of Termination, from any positions that the Executive holds with the Company and its affiliates, the Board (and any committees thereof) and the board of directors (and any committees thereof) of any of the Company’s affiliates. The Executive hereby agrees to execute any and all documentation of such resignations upon request by the Company, but he shall be treated for all purposes as having so resigned upon termination of his employment, regardless of when or whether he executes any such documentation.

 

4. Obligations of the Company upon Termination.

 

(a) Good Reason; Without Cause. If, during the Employment Period, the Company shall terminate the Executive’s employment without Cause, or the Executive shall terminate employment for Good Reason, the Company shall have no further obligations to the Executive under this Agreement or otherwise other than to pay or provide to the Executive the following amounts and benefits (provided the Executive has executed and not revoked a general release of claims against the Company in a form satisfactory to the Company):

 

(i) an amount equal to the Executive’s unpaid Annual Base Salary for services through the Date of Termination;

 

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(ii) an amount equal to a pro rata portion (based upon the portion of the year elapsed through the Date of Termination) of the Executive’s annual bonus, if any, that the Executive would have earned for the year of termination based upon the Company’s actual performance for the entire year, payable when bonuses for such year are paid to other executives of the Company;

 

(iii) continued payment in accordance with the Company’s payroll practices of the Executive’s Annual Base Salary for the remainder of the Employment Period (without regard to its earlier termination hereunder), but in no event less than twenty-four (24) months;

 

(iv) immediate vesting as of the Date of Termination of the unvested portion of the Option, with continued exercisability of the outstanding portion of the Option for twelve (12) months following the Date of Termination;

 

(v) immediate vesting as of the Date of Termination of the unvested portion of the Restricted Stock Award;

 

(vi) continued participation for the remainder of the Employment Period (without regard to its earlier termination hereunder) in all medical, dental and life insurance coverages and all pension and welfare benefit plans and programs in which the Executive and his eligible dependents were participating immediately prior to the Date of Termination, but in no event less than twenty-four (24) months for any medical and/or dental plan; provided, however, that in the event that any of the benefit plans do not permit such continued participation, the Company shall provide the Executive (or his eligible dependents) with the economic equivalent of such participation on an after-tax basis;

 

(vii) payment of unpaid amounts earned or owing to the Executive, including any incentive payments earned for performance periods that have ended and any un-reimbursed business expenses; and

 

(viii) payment of other amounts, entitlements or benefits, if any, in accordance with applicable plans, programs, arrangement or other agreements of the Company and any affiliate.

 

(b) Death or Disability. If the Executive’s employment is terminated by reason of the Executive’s death or Disability during the Employment Period, the Company shall have no further obligations to the Executive or his legal representatives, as applicable, under this Agreement or otherwise other than for the payment of the amounts and provision of the benefits set forth below:

 

(i) payment of Annual Base Salary through the end of the month in which the Executive’s Date of Termination occurs;

 

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(ii) an amount equal to the pro-rata portion (based upon the portion of the year elapsed through the Date of Termination) of the Executive’s target annual bonus for the year in which the Executive’s Date of Termination occurs;

 

(iii) in the event of the Executive’s death, full vesting as of the Date of Termination of the unvested portion of the Option with continued exercisability of the outstanding portion of the Option for twelve (12) months following the date of death and in the event of the termination of the Executive’s employment due to Disability, the unvested portion of the Option shall be immediately forfeited and the vested and outstanding portion of the Option shall remain exercisable for three (3) months following the Executive’s Date of Termination;

 

(iv) full vesting as of the Date of Termination of the unvested portion of the Restricted Stock Award;

 

(v) continued participation for the remainder of the Employment Period (without regard to its earlier termination hereunder) in all medical, dental and life insurance coverages and all pension and welfare benefit plans and programs in which he (in the case of the Executive’s termination due to Disability) and his eligible dependents were participating immediately prior to the Executive’s Date of Termination (excluding continued participation in any short- or long-term disability plan), but in no event less than twelve (12) months for any medical and/or dental plan; provided, however, that in the event that any of the benefit plans do not permit such continued participation, the Company shall provide him (or his eligible dependents) with the economic equivalent on an after-tax basis;

 

(vi) payment of unpaid amounts earned or owing to the Executive, including any incentive payments earned for performance periods that have ended and any un-reimbursed business expenses; and

 

(vii) payment of other amounts, entitlements or benefits, if any, in accordance with applicable plans, programs, arrangement or other agreements of the Company and any affiliate.

 

(c) Cause or Voluntary Resignation Without Good Reason. If the Executive’s employment shall be terminated by the Company for Cause or by the Executive for any reason other than Good Reason, the Company shall have no further obligations to the Executive under this Agreement or otherwise other than for the payment of the amounts and provision of the benefits set forth below:

 

(i) an amount equal to the Executive’s unpaid Annual Base Salary for services through the Date of Termination;

 

(ii) the portion of the Option that was vested and outstanding as of the Date of Termination, if any, shall remain exercisable for three (3) months after the Date of Termination, and the portion of the Option that was not vested as of the Date of Termination shall be forfeited and cancelled effective as of the Date of Termination;

 

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(iii) the unvested portion of the Restricted Stock Award shall be forfeited and canceled as of the Date of Termination;

 

(iv) payment of unpaid amounts earned or owing to the Executive, including any incentive payments earned for performance periods that have ended and any un-reimbursed business expenses; and

 

(v) payment of other amounts, entitlements or benefits, if any, in accordance with applicable plans, programs, arrangement or other agreements of the Company and any affiliate.

 

(d) Termination Following a Notice of Non-Renewal. If the Company notifies the Executive of its intention to not extend the Employment Period as contemplated under Section 1 and the Executive’s employment is terminated by the Company after the expiration of the Employment Period (except in the event of death, Disability or for Cause), the Executive shall be paid Annual Base Salary through the Date of Termination and for twenty-four (24) months thereafter and all equity, including the Option and the Restricted Stock Award, shall be treated in accordance with the terms of the applicable plan and/or award agreement, provided that the outstanding portion of the Option shall remain exercisable for twelve (12) months following the Date of Termination. For the avoidance of doubt, upon a notice of non-renewal delivered by the Company in accordance with Section 1 and provided the Executive’s employment has not been terminated prior to the expiration of the original three (3) year Employment Period in circumstances where the Option and Restricted Stock Award would not vest, the Option and the Restricted Stock Award shall fully vest upon the expiration of the original three (3) year Employment Period.

 

5. Change in Control Protections.

 

(a) Upon the occurrence of a Change in Control (as defined in Exhibit B attached hereto), all outstanding options to acquire Shares granted to the Executive by the Company shall immediately vest and become exercisable and all other equity-related awards granted to the Executive by the Company shall immediately vest and all restrictions thereon shall immediately lapse.

 

(b) This Section 5(b) shall apply if the Company terminates the Executive without Cause or the Executive terminates employment for Good Reason during (i) the two-year period after a Change in Control or (ii) the six-month period preceding a Change in Control if such termination preceding a Change in Control was at the request of a third party or otherwise arose in anticipation of such Change in Control. If any such termination occurs, the Executive shall receive benefits set forth in Section 4(a) (provided the Executive has executed and not revoked a general release of claims against the Company in a form satisfactory to the Company), except that (A) the severance payable under clause (iii) of Section 4(a) shall not be less than two (2) times the sum of Annual Base Salary and annual target bonus for the year of termination and any severance due and outstanding following the Change in Control shall be paid in a lump-sum immediately following the Executive’s Date of Termination, provided that if the Executive’s employment is terminated hereunder within six (6) months prior to a Change in Control, the increased severance provided under this Section 5(b) shall only be due and payable if the Change

 

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in Control has occurred, in which event any due and outstanding severance (after taking into account amounts paid to the Executive under clause (iii) of Section 4(a)) shall be paid in a lump sum immediately following the Change in Control and (B) the Company shall provide the Executive with outplacement services, the scope and provider of which shall be determined by the Executive.

 

6. Certain Additional Payments by the Company.

 

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, distribution, benefit or other entitlement provided by the Company to or for the benefit of the Executive (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 6) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (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, are 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 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) Subject to the provisions of Section 6(c), all determinations required to be made under this Section 6, 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 the Company’s auditors or such other nationally recognized certified public accounting firm designated by the Company (the “Accounting Firm”). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company directly to the Internal Revenue Service within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive, subject to the provisions of this Section 6. 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 Section 6(c) 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 benefit of the Executive.

 

(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 than ten (10) 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.

 

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The Executive shall not pay such claim prior to the expiration of the ninety (90) day period following the date on which he 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 effectively to contest such claim, and

 

(iv) permit the Company to participate in any proceedings 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, for 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 expenses. Without limitation on the foregoing provisions of this Section 6(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo 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 pay the tax claimed to the appropriate taxing authority on behalf of the Executive and direct the Executive to 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 pays such claim and directs the Executive to sue for a refund, the Company shall indemnify and hold the Executive harmless, on an after-tax basis, from any attorneys’ fees and costs incurred by the Executive in connection therewith and any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such payment or with respect to any imputed income in connection with such payment or suit for a refund.

 

(d) If, after the receipt by the Executive of a payment by the Company of an amount on the Executive’s behalf pursuant to Section 6(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly after his receipt pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after payment by the Company of an amount on the Executive’s behalf pursuant to Section 6(c), 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 thirty

 

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(30) days after such determination, then the amount of such payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

 

7. No Duplication; No Mitigation. In no event shall the Executive be entitled to duplicate payments or benefits under different provisions of this Agreement or pursuant to the terms of any other plan, program or arrangement of the Company or its affiliates. In the event of any termination of the Executive’s employment, the Executive shall be under no obligation to seek other employment, and, there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment except with respect to the continuation of benefits under Section 4(a)(vi) or 4(b)(v), which shall terminate immediately upon obtaining comparable coverage from another employer.

 

8. Indemnification. The Executive shall be entitled to indemnification in connection with a litigation or proceeding arising out of the Executive’s acting as President and Chief Executive Officer or an employee, officer or director of the Company, to the fullest extent permitted under the Company’s charter and by-laws and by applicable law. In addition, the Executive shall be entitled to liability insurance coverage pursuant to a Company-purchased directors’ and officers’ liability insurance policy on the same basis as other directors and officers of the Company.

 

9. Restrictive Covenants.

 

(a) Confidentiality. During the Employment Period and thereafter, other than in the ordinary course of performing his duties for the Company, the Executive agrees that he shall not disclose to anyone or make use of any trade secret or proprietary or confidential information of the Company or any affiliate of the Company, including such trade secret or proprietary or confidential information of any customer or other entity to which the Company owes an obligation not to disclose such information, which he acquires during the course of his employment, including, but not limited to, records kept in the ordinary course of business, except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent or actual jurisdiction to order him to divulge, disclose or make accessible such information. In the event the Executive is requested to disclose information as contemplated in the preceding sentence, the Executive agrees, unless otherwise prohibited by law, to use his best efforts to give the Company’s General Counsel prompt written notice of any request for disclosure in advance of the Executive making such disclosure in order to permit the Company a reasonable opportunity to challenge such disclosure. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure by the Executive; or (ii) becomes known to the public through no wrongful disclosure by or act of the Executive or any representative of the Executive.

 

(b) Property Rights. Whether during the Employment Period or thereafter, the Executive agrees to hereby sell, assign and transfer to the Company all of his right, title and interest in and to all inventions, discoveries, improvements and copyrightable subject matter (the “Rights”) which during the period of his employment are made or conceived by him, alone or with others, and which are within or arise out of any general field of the Company’s business or arise out of any work he performs, or information he receives regarding the business of the

 

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Company, while employed by the Company. The Executive shall fully disclose to the Company as promptly as available all information known or possessed by him concerning any Rights, and upon request by the Company and without any further remuneration in any form to him by the Company, but at the expense of the Company, execute all applications for patents and for copyright registration, assignments thereof and other instruments and do all things which the Company may deem necessary to vest and maintain in it the entire right, title and interest in and to all such Rights. The Executive agrees that at the time of the termination of employment, whether at the instance of the Executive or the Company, and regardless of the reasons therefore, he will promptly deliver to the Company’s General Counsel, and not keep or deliver to anyone else, any and all of the following which is in his possession or control: (i) Company property (including, without limitation, credit cards, computers, communication devices, home office equipment and other Company tangible property) and (ii) notes, files, memoranda, papers and, in general, any and all physical matter and computer files containing confidential or proprietary information of the Company or any of its affiliates, including any and all documents relating to the conduct of the business of the Company or any of its affiliates and any and all documents containing confidential or proprietary information of the customers of the Company or any of its affiliates, except for (x) any documents for which the Company’s General Counsel has given written consent to removal at the time of termination of the Executive’s employment and (y) any information necessary for the Executive to retain for his tax purposes.

 

(c) Non-Competition. The Executive acknowledges that in his capacity in management the Executive has had or will have a great deal of exposure and access of the Company’s trade secrets and confidential and proprietary information. Therefore, during the Executive’s employment and for twenty-four (24) months following termination of such employment (whether during the Employment Period or thereafter) or, for twelve (12) months if the Executive is terminated by the Company for Cause or due to Disability, to protect the Company’s trade secrets and other confidential and proprietary information, the Executive agrees that he shall not, other than in the ordinary course of performing his duties hereunder or as agreed by the Company in writing, engage in a “Competitive Business,” directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or in any relationship or capacity, in any geographic location in which the Company or any of its affiliates is engaged in business. The Executive shall not be deemed to be in violation of this Section 9(c) by reason of the fact that he owns or acquires, solely as an investment, two percent (2%) or less of the outstanding equity securities (measured by value) of any publicly traded company. “Competitive Business” shall mean (x) the Executive’s participation in any unsolicited offer to purchase the stock or assets of the Company or (y) any business that competes anywhere in the world where the Company conducts any business or activity with (I) any business or activity, conducted by the Company as of the Executive’s Date of Termination or (II) any business or activity in which the Company is actively considering as of the Executive’s Date of Termination to engage.

 

(d) Non-Interference. The Executive acknowledges that information regarding the Company’s business and financial relations with its vendors and customers is Confidential Information and proprietary to the Company and that any interference with such relations based directly or indirectly on the use of such information would cause irreparable damage to the Company. The Executive acknowledges that by virtue of his employment with the Company, he has gained or may gain knowledge of such information concerning the

 

12


Company’s vendors and customers (respectively “Vendor Information” or “Customer Information”), and that he would inevitably have to draw on this Vendor Information and Customer Information and on other Confidential Information if he were to solicit or service the Company’s vendors or customers on behalf of a competing business enterprise. Accordingly, and subject to the immediately following sentence, the Executive agrees that, other than in the ordinary course of performing his duties for the Company, during the Executive’s employment and for the thirty-six (36) month period following the termination of such employment (whether during the Employment Period or thereafter) (the “Restricted Period”), the Executive will not, on behalf of himself or any other person or entity, directly or indirectly seek to encourage or induce any vendor or customer of the Company to cease doing business with, or lessen its business with, the Company, or otherwise interfere with or damage (or attempt to interfere with or damage) any of the Company’s relationships with its vendors and customers. No action by another person or entity in engaging in such encouragement or inducement as described in the preceding sentence shall be deemed to be a breach of this provision by the Executive unless the Executive assisted, encouraged or otherwise counseled such person or entity to engage in such activity.

 

(e) Non-Solicitation. The Executive agrees that during the Restricted Period (other than in the ordinary course of performing his duties for the Company), he will not, without the prior written consent of the Company, directly or indirectly, (i) hire any employee of the Company or any of its affiliates who is then an employee of the Company or such affiliate or was an employee during the prior six (6)-month period, or (ii) solicit or encourage any such employee to leave the employ of the Company or such affiliate, as the case may be. No action by another person or entity in engaging in such hiring, solicitation or encouragement as described in the preceding sentence shall be deemed to be a breach of this provision by the Executive unless the Executive assisted, encouraged or otherwise counseled such person or entity to engage in such activity.

 

(f) Public Comment. The Executive, during the Employment Period and at all times thereafter, shall not (i) make any public derogatory comment concerning the Company or its affiliates or anyone whom the Executive knows to be a current or former director, officer, stockholder or employee of the Company or (ii) publish or produce any information or write any book, article, screenplay, teleplay or similar type of publication relating to the Company or its affiliates or anyone whom the Executive knows to be a current or former director, officer, stockholder or employee. Notwithstanding the foregoing, nothing in this Section 9(f) shall prohibit the Executive from responding publicly to incorrect, disparaging or derogatory public statements about the Company or the Executive relating to his employment with the Company.

 

(g) Blue Penciling. If any restrictions on competitive or other activities contained in this Section 9 shall for any reason be held by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, such restrictions shall be construed so as thereafter to be limited or reduced to be enforceable to the extent compatible with the applicable law; it being understood that by the execution of this Agreement, (i) the parties hereto regard such restrictions as reasonable and compatible with their respective rights and (ii) the Executive acknowledges and agrees that the restrictions will not prevent him from obtaining gainful employment subsequent to the termination of his employment.

 

13


(h) Injunctive Relief. The Executive acknowledges and agrees that the covenants and obligations of the Executive set forth in this Section 9 relate to special, unique and extraordinary services rendered by the Executive to the Company and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company shall be entitled to seek an injunction, restraining order or other temporary or permanent equitable relief (without the requirement to post bond) restraining the Executive from committing any violation of the covenants and obligations contained herein. These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. The existence of any claim or cause of action by the Executive against the Company shall not constitute a defense to the enforcement by the Company of the foregoing restrictive covenants, but such claim or cause of action shall be determined separately.

 

(i) Survival. The provisions of this Section 9 shall remain in full force and effect until the expiration of the periods specified herein notwithstanding the earlier termination of the Executive’s employment hereunder or the expiration of the Employment Period. For purposes of this Section 9, “Company” shall mean the Company and any affiliate of the Company.

 

10. Dispute Resolution/Legal Fees. Except to the extent necessary to enforce the provisions of Section 9 hereof in accordance with Section 9(g) or (h), any disputes under this Agreement shall be settled by arbitration in Birmingham, Alabama in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Subject to review of time entries and other documentation, the Company shall pay reasonable legal fees incurred by the Executive in connection with the negotiation and documentation of this Agreement (and the preceding term sheet) up to a maximum of $40,000.

 

11. Successors.

 

(a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives, heirs or legatees.

 

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company without the Executive’s prior written consent except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or a sale, liquidation or other disposition of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and assumes the liabilities, obligations and duties of the Company under this Agreement, either contractually or as a matter of law.

 

12. Miscellaneous.

 

(a) The Executive represents and warrants that he has the free and unfettered right to enter into this Agreement and to perform his obligations under it and that he knows of no

 

14


agreement between him and any other person, firm or organization, or any law or regulation, that would be violated by the performance of his obligations under this Agreement. The Executive agrees that he will not use or disclose any confidential or proprietary information of any prior employer in the course of performing his duties for the Company or any of its affiliates.

 

(b) This Agreement shall be governed by and construed in accordance with the laws of the State of Alabama, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

 

(c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by reputable overnight courier, postage prepaid, addressed as follows:

 

 

 

 

If to the Executive:

  

At the most recent address

on file at the Company.

 

 

If to the Company:

  

HealthSouth Corporation

1 HealthSouth Parkway

Birmingham, AL 35243

 

 

 

  

Attention: General Counsel

 

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

 

(d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

 

(e) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

 

(f) No waiver shall be valid unless in writing signed by the party providing the waiver (that is, by the Executive or an authorized officer of the Company, as the case may be).

 

(g) This Agreement contains the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto (including, without limitation, the term sheet previously negotiated by the parties). In the event of any inconsistency between the provisions of this Agreement and the provisions of any other agreement or plan relating to the Option and/or Restricted Stock Award, the provisions of this Agreement shall control. Any provision of this Agreement, to the extent

 

15


necessary to carry out the intent of such provision, shall survive after the expiration of the Employment Period.

 

(h) Notwithstanding anything to the contrary contained herein, this Agreement shall not become effective or binding on the Company until the completion, to the Company’s sole satisfaction, of a criminal background check regarding the Executive and a drug screening test of the Executive.

 

(i) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Signatures delivered by facsimile shall be effective for all purposes.

 

16


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.

 

 

 

 

JAY F. GRINNEY

 

/s/ Jay F. Grinney

 

HEALTHSOUTH CORPORATION

 

 

By:

 

/s/ Joel C. Gordon

Name:

 

Joel C. Gordon

Title:

 

Acting Chairman of the Board

 

17


EXHIBIT A

 

 

A-1


EXHIBIT B

 

Except as otherwise expressly provided in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings set forth below:

 

affiliate” of a person or other entity shall mean a person or other entity controlled by, controlling or under common control with the person or other entity specified.

 

Disability” shall mean (i) the Executive becomes eligible for full benefits under a long-term disability policy provided by the Company or (ii) the Executive has been unable, due to physical or mental illness or incapacity, to substantially perform the essential duties of his employment with reasonable accommodation for a continuous period of ninety (90) days or an aggregate of one-hundred eighty (180) days during any consecutive twelve (12)-month period.

 

Cause” shall mean:

 

(i) the Executive’s act of fraud, misappropriation, or embezzlement with respect to the Company or any material affiliate;

 

(ii) the Executive’s indictment for, conviction of, or plea of guilt or no contest to any felony (other than a minor traffic violation);

 

(iii) in carrying out his duties, the Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct resulting, in either case, in material harm to the Company’s business or reputation;

 

(iv) the suspension or debarment of the Executive from participation in any federal or state health care program as a result of any act or omission of the Executive in connection with his employment with the Company or the suspension or debarment of the Company or any of its affiliates, from participation in any federal or state health care program as a result of any willful act or omission of the Executive in connection with his employment with the Company;

 

(v) the Executive’s admission of liability of, or a finding by a court or the applicable regulatory agency or body of liability for, the violation of any “Securities Laws” (but excluding any technical violations of any Securities Laws which are not criminal in nature); as used herein, the term “Securities Laws” means any federal or state law, rule or regulation governing the issuance or exchange of securities, including without limitation the Securities Act of 1933, the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder;

 

(vi) the Executive’s failure after reasonable prior written notice from the Company to comply with any valid and legal directive of the Board; or

 

(vii) the Executive’s material breach of any restrictive covenant set forth in Section 9 of this Agreement.

 

B-1


For purposes of this definition of “Cause, an action or failure to act by the Executive shall not be considered “willful” if the Executive believed in good faith that his action or failure to act was in, or not opposed to, the best interests of the Company and its affiliates. Anything notwithstanding to the contrary, the Executive’s employment shall not be terminated for “Cause” within the meaning of clauses (i), (iii), (vi) or (vii) above, unless the Executive has been given written notice by the Board stating the basis for such termination and he is given fifteen (15) days to cure the neglect or conduct that is the basis of any such claim and, if he fails to cure such conduct, or such conduct cannot be cured, the Executive has an opportunity to be heard before the full Board and after such hearing, the Board gives the Executive written notice confirming that in the judgment of a majority of the members of the Board (other than the Executive, if applicable) “Cause” for terminating the Executive’s employment on the basis exists.

 

Good Reason” shall mean the occurrence of any of the following without the Executive’s written consent:

 

(i) a reduction in the Executive’s then current Annual Base Salary or target bonus opportunity;

 

(ii) a material diminution in the Executive’s positions, duties or authorities;

 

(iii) failure to appoint (or reappoint) the Executive to the position of President and Chief Executive Officer of the Company and as a member of the Board or the removal of the Executive from any such position;

 

(iv) a change in reporting structure so that the Executive reports to someone other than the Board;

 

(v) the Company materially breaches a material provision of this Agreement (provided that in no event shall relocation of the Executive’s principal place of business or any failure by the Board or the Company to establish a supplemental executive retirement plan or to provide a supplemental pension benefit for the Executive be deemed to be a breach of this Agreement); or

 

(vi) the failure of any successor to all or substantially all of the Company’s assets to assume this Agreement, whether in writing or by operation of law.

 

Anything notwithstanding to the contrary, the Executive may only terminate his employment for “Good Reason” upon thirty (30) days’ written notice to the Company (provided the Company does not cure the event or events giving rise to Good Reason prior to the expiration of such thirty (30)-day notice period).

 

Change in Control” will be deemed to have taken place if:

 

(i) any person or entity, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, other than the Company or any employee benefit plan of the Company or any of its subsidiaries, becomes the beneficial owner of Company securities having 50% or more of the combined voting

 

B-2


power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of the issuance of securities initiated by the Company in the ordinary course of business);

 

(ii) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, or any combination of the foregoing transactions, the holders of all the Company’s securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction constitute, following such transaction, less than a majority of the combined voting power of the then-outstanding securities of the surviving entity (or in the event each entity survives, the surviving entity that is the parent entity) entitled to vote generally in the election of the directors of such surviving entity (or in the event each entity survives, the surviving entity that is the parent entity) after such transactions; or

 

(iii) the Company sells, transfers or leases all or substantially all of the assets of the Company, including its subsidiaries.

 

Notwithstanding the foregoing, the occurrence of one of the following events, by itself, will not be deemed to constitute a “Change in Control”: the Company (A) commences a voluntary case or proceeding or (B) consents to the entry of an order for relief against it in an involuntary case or proceeding, in either case, pursuant to or within the meaning of the United States Bankruptcy Code or any other federal or state law relating to insolvency or relief of debtors.

 

B-3

 
 
 
 
                               CHANGE IN CONTROL
                               -----------------
 
                                 BENEFITS PLAN
                                 -------------
 
 
 
         HealthSouth Corporation, a Delaware corporation (the "Company") has
adopted the HealthSouth Corporation Change in Control Benefits Plan (the
"Plan") for the benefit of certain Participant employees of the Company and
its subsidiaries, on the terms and conditions hereinafter stated. The Plan is
intended to help retain qualified employees, maintain a stable work
environment and provide financial security to certain Participant employees of
the Company in the event of a Change in Control. The Plan, as a "severance pay
arrangement" within the meaning of Section 3(2)(B)(i) of ERISA, is intended to
be excepted from the definitions of "employee pension benefit plan" and
"pension plan" set forth under Section 3(2) of ERISA, and is intended to meet
the descriptive requirements of a plan constituting a "severance pay plan"
within the meaning of regulations published by the Secretary of Labor at Title
29, Code of Federal Regulations ss. 2510.3-2(b).
 
                                  ARTICLE I
 
                        DEFINITIONS AND INTERPRETATIONS
                        -------------------------------
 
         Section 1.01 Definitions. Capitalized terms used in this Plan shall
have the following respective meanings, except as otherwise provided or as the
context shall otherwise require:
 
                  "Annual Salary" shall mean the base salary paid to a
         Participant immediately prior to his or her Termination Date on an
         annual basis exclusive of any bonus payments or additional payments
         under any Benefit Plan.
 
                  "Benefit Plan" shall mean any "employee benefit plan"
         (including any employee benefit plan within the meaning of Section
         3(3) of ERISA), program, arrangement or practice maintained,
         sponsored or provided by the Company, including those relating to
         compensation, bonuses, profit-sharing, stock option, or other stock
         related rights or other forms of incentive or deferred compensation,
         vacation benefits, insurance coverage (including any self-insured
         arrangements) health or medical benefits, disability benefits,
         workers' compensation, supplemental unemployment benefits, severance
         benefits and post-employment or retirement benefits (including
         compensation, pension, health, medical or life insurance or other
         benefits).
 
                  "Board" means the Board of Directors of the Company.
 
                  "Cause" shall have the meaning set forth in any individual
         employment, severance or similar agreement between the Company and a
         Participant, or in the event that a Participant is not party to such
         an agreement, Cause shall mean:
 
                           (i) the Company's procurement of evidence of the
                  Participant's act of fraud, misappropriation, or
                  embezzlement with respect to the Company;
 
                           (ii) the Participant's indictment for, conviction
                  of, or plea of guild or no contest to, any felony (other
                  than a minor traffic violation);
 
                           (iii) the suspension or debarment of the
                  Participant or of the Company or any of its affiliated
                  companies or entities as a direct result of any willful or
                  grossly negligent act or omission of the Participant in
                  connection with his employment with the Company from
                  participation in any Federal or state health care program;
 
                           (iv) the Participant's admission of liability of,
                  or finding by a court or the SEC (or a similar agency of any
                  applicable state) of liability for, the violation of any
                  "Securities Laws" (as hereinafter defined) (excluding any
                  technical violations of the Securities Laws which are not
                  criminal in nature). As used herein, the term "Securities
                  Laws" means any Federal of state law, rule or regulation
                  governing the issuance or exchange of securities, including
                  without limitation the Securities Act of 1933, the
                  Securities Exchange Act of 1934 and the rules and
                  regulations promulgated thereunder;
 
                           (v) a formal indication from any agency or
                  instrumentality of any state or the United States of
                  America, including but not limited to the United States
                  Department of Justice, the SEC or any committee of the
                  United States Congress that the Participant is a target or
                  the subject of any investigation or proceeding into the
                  actions or inactions of the Participant for a violation of
                  any Securities Laws in connection with his employment by the
                  Company (excluding any technical violations of the
                  Securities law which are not criminal in nature);
 
                           (vi) the Participant's failure after reasonable
                  prior written notice from the Company to comply with any
                  valid and legal directive of the Chief Executive Officer or
                  the Board that is not remedied within thirty (30) days of
                  the Participant being provided written notice thereof from
                  the Company; or
 
                           (vii) other than as provided in clauses (i) through
                  (vi) above, the Participant's material breach of any
                  material provision of this Plan that is not remedied within
                  thirty (30) days or the repeated breaches of a similar
                  nature, such as the failure to report to work, perform
                  duties, or follow directions, all as provided herein, shall
                  not require additional notices as provided in clauses (i)
                  through (vi) above. The Participant shall not have acted in
                  a "willful" manner if the Participant acted, or failed to
                  act, in a manner that he believed in good faith to be in, or
                  not opposed to, the best interests of the Company. Cause
                  shall be determined by the affirmative vote of at least
                  fifty percent (50%) of the members of the Board (excluding
                  the Participant, if a Board member, and excluding any member
                  of the Board involved in events leading to the Board's
                  consideration of terminating the Participant for Cause).
 
                  "Change in Control" shall mean:
 
                           (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 Common Stock 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 the Effective Date,
                  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 clause (ii), considered as though
                  such person were a member of the Incumbent Board; or
 
                           (iii) consummation 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 at least fifty percent (50%) 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.
 
 
                  "Code" shall mean the Internal Revenue Code of 1986, as
         amended. Reference in this Plan to any section of the Code shall be
         deemed to include any amendments or successor provisions to such
         section and any regulations under such section.
 
                  "Common Stock" means common stock of the Company.
 
                  "Compensation Committee" shall mean the Compensation
         Committee of the Board.
 
                  "Disability" shall have the meaning set forth in Section
         409A(a)(2)(C) of the Code.
 
                  "Effective Date" shall mean November 4, 2005.
 
                  "ERISA" shall mean the Employee Retirement Income Security
         Act of 1974, as amended and the rules and regulations promulgated
         thereunder.
 
                  "Exchange Act" means the Securities Exchange Act of 1934, as
         amended and the rules and regulations promulgated thereunder.
 
                  "Good Reason" shall mean, when used with reference to any
         Participant, any of the following actions or failures to act, but in
         each case only if it occurs while such Participant is employed by the
         Company and then only if it is not consented to by such Participant
         in writing:
 
                           (i) assignment of a position that is of a lesser
                  rank than held by the Participant prior to the assignment
                  and that results in a material adverse change in such
                  Participant's reporting position, duties or responsibilities
                  or title or elected or appointed offices as in effect
                  immediately prior to the effective date of such change, or
                  in the case of a Tier 1 or Tier 2 Participant who was
                  immediately prior to the Change in Control an executive
                  officer of the Company, such Participant ceasing to be an
                  executive officer of a company with securities registered
                  under the Securities Exchange Act of 1934;
 
                           (ii) a reduction in such Participant's base salary
                  or target bonus opportunity (including an adverse change in
                  performance criteria or a decrease in ultimate target bonus
                  opportunity) in effect immediately prior to the Effective
                  Date; or
 
                           (iii) any change of more than fifty (50) miles in
                  the location of the principal place of employment of such
                  Participant immediately prior to the effective date of such
                  change.
 
 
                  For purposes of this definition, none of the actions
                  described in clauses (i) and (ii) above shall constitute
                  "Good Reason" with respect to any Participant if it was an
                  isolated and inadvertent action not taken in bad faith by
                  the Company and if it is remedied by the Company within
                  thirty (30) days after receipt of written notice thereof
                  given by such Participant (or, if the matter is not capable
                  of remedy within thirty (30) days, then within a reasonable
                  period of time following such thirty (30) day period,
                  provided that the Company has commenced such remedy within
                  said thirty (30) day period); provided that "Good Reason"
                  shall cease to exist for any action described in clauses (i)
                  through (iii) above on the sixtieth (60th) day following the
                  later of the occurrence of such action or the Participant's
                  knowledge thereof, unless such Participant has given the
                  Company written notice thereof prior to such date.
 
                  "Participant" shall mean an employee of the Company who is
         included on Schedule A hereto, as that schedule may be amended in
         accordance with Section 2.01.
 
                  "Plan" shall mean this HealthSouth Corporation Change in
         Control Benefits Plan, as amended, supplemented or modified from time
         to time in accordance with its terms.
 
                  "Potential Change in Control" shall be deemed to have
         occurred if the event set forth in any one of the following
         paragraphs shall have occurred:
 
                           (i) the Company enters into an agreement, the
                  consummation of which would result in the occurrence of a
                  Change in Control; or
 
                           (ii) the Company or any person, entity or "group"
                  (within the meaning of Sections 13(d)(3) or 14(d)(2) of the
                  Exchange Act, 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) publicly
                  announces an intention to take or to consider taking actions
                  which, if consummated, would constitute a Change in Control;
                  or
                           (iii) 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 Exchange Act, 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
                  Exchange Act) of fifteen (15%) or more of either the
                  then-outstanding shares of Common Stock or the combined
                  voting power of the Company's then-outstanding voting
                  securities entitled to vote generally in the election of
                  Directors; or
 
                           (iv) the Board adopts a resolution to the effect
                  that a Potential Change in Control has occurred.
 
                  "Successor" shall mean a successor to all or substantially
         all of the business, operations or assets of the Company.
 
                  "Termination Date" shall mean, with respect to any
         Participant, the termination date specified in the Termination Notice
         delivered by such Participant to the Company in accordance with
         Section 2.02 or as set forth in any Termination Notice delivered by
         the Company, or as applicable, the Participant's date of death.
 
                  "Termination Notice" shall mean, as appropriate, written
         notice from (a) a Participant to the Company purporting to terminate
         such Participant's employment for Good Reason in accordance with
         Section 2.02 or (b) the Company to any Participant purporting to
         terminate such Participant's employment for Cause or Disability in
         accordance with Section 2.03.
 
                  "Tier 1 Participant" shall mean each Participant designated
         in Schedule A hereto as a Tier 1 Participant, as that schedule may be
         amended in accordance with Section 2.01.
 
                  "Tier 2 Participant" shall mean each Participant designated
         in Schedule A hereto as a Tier 2 Participant, as that schedule may be
         amended in accordance with Section 2.01.
 
                  "Tier 3 Participant" shall mean each Participant designated
         in Schedule A hereto as a Tier 3 Participant, as that schedule may be
         amended in accordance with Section 2.01.
 
         Section 1.02 Interpretation. In this Plan, unless a clear contrary
intention appears, (a) the words "herein," "hereof" and "hereunder" refer to
this Plan as a whole and not to any particular Article, Section or other
subdivision, (b) reference to any Article or Section, means such Article or
Section hereof and (c) the words "including" (and with correlative meaning
"include") means including, without limiting the generality of any description
preceding such term. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
 
                                  ARTICLE II
 
                           ELIGIBILITY AND BENEFITS
                           ------------------------
 
Section 2.01      Eligible Employees.
 
                  (a) An employee of the Company shall be a "Participant" in
the Plan during each calendar year (or partial calendar year) for which he or
she has been designated as a Participant (and in the Tier so designated) by
the Chief Executive Officer of the Company and for each succeeding calendar
year, unless the Participant is given written notice by October 31 of the
preceding year of the determination of the Chief Executive Officer or the
Board that such Participant shall cease to be a Participant or shall
participate in a different Tier for such succeeding calendar year.
Notwithstanding the foregoing, any Participant may not be removed from the
Plan, nor placed in a lower tier (with Tier 1 being the highest Tier and Tier
3 being the lowest Tier), during the pendency of, or within six (6) months
following, a Potential Change in Control or within two years following a
Change in Control.
 
                  (b) This Plan is only for the benefit of Participants, and
no other employees, personnel, consultants or independent contractors shall be
eligible to participate in this Plan or to receive any rights or benefits
hereunder.
 
         Section 2.02 Termination Notices from Participants. For purposes of
this Plan, in order for any Participant to terminate his or her employment for
Good Reason, such Participant must give a Termination Notice to the Company,
which notice shall be signed by such Participant, shall be dated the date it
is given to the Company, shall specify the Termination Date and shall state
that the termination is for Good Reason and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for such Good
Reason. Any Termination Notice given by a Participant that does not comply in
all material respects with the foregoing requirements as well as the "Good
Reason" definition provisions set forth in Section 1.01 shall be invalid and
ineffective for purposes of this Plan. If the Company receives from any
Participant a Termination Notice that it believes is invalid and ineffective
as aforesaid, it shall promptly notify such Participant of such belief and the
reasons therefor. Any termination of employment by the Participant that either
does not constitute Good Reason or fails to meet the Termination Notice
requirements set forth above shall be deemed a termination by the Participant
without Good Reason.
 
         Section 2.03 Termination Notices from Company. For purposes of this
Plan, in order for the Company to terminate any Participant's employment for
Cause, the Company must give a Termination Notice to such Participant, which
notice shall be dated the date it is given to such Participant, shall specify
the Termination Date and shall state that the termination is for Cause and
shall set forth in reasonable detail the particulars thereof. For purposes of
this Plan, in order for the Company to terminate any Participant's employment
for Disability, the Company must give a Termination Notice to such
Participant, which notice shall be dated the date it is given to such
Participant, shall specify the Termination Date and shall state that the
termination is for Disability and shall set forth in reasonable detail the
particulars thereof. Any Termination Notice given by the Company that does not
comply, in all material respects, with the foregoing requirements shall be
invalid and ineffective for purposes of this Plan. Any Termination Notice
purported to be given by the Company to any Participant after the death or
retirement of such Participant shall be invalid and ineffective.
 
         Section 2.04 Accelerated Vesting of Equity. Upon the occurrence of a
Change in Control, notwithstanding the provisions of any Benefit Plan or
agreement (except as provided in this Section 2.04):
 
                  (a) each outstanding option to purchase Company Common Stock
(each, a "Stock Option") shall become automatically vested and exercisable and
 
                         (i) in the case of those Stock Options outstanding as
of the Effective Date, shall remain exercisable by such Participant until the
later of the 15th day of the third month following the date at which, or
December 31 of the calendar year in which, the Stock Option would have
otherwise expired, but in no event beyond the original term of such Stock
Option; and
 
                         (ii) in the case of all Stock Options granted to a
Participant after the Effective Date, shall remain exercisable by such
Participant for a period of (x) three years in the case of a Tier 1
Participant, (y) two years in the case of a Tier 2 Participant or (z) one year
in the case of a Tier 3 Participant, beyond the date at which the Stock Option
would have otherwise expired, but in no event beyond the original term of such
Stock Option;
 
                  (b) the vesting restrictions on all other awards relating to
Common Stock (including but not limited to restricted stock, restricted stock
units and stock appreciation rights) held by a Participant shall immediately
lapse and in the case of restricted stock units and stock appreciation rights
shall become immediately payable.
 
                                 ARTICLE III
 
                  SEVERANCE AND RELATED TERMINATION BENEFITS
                  ------------------------------------------
 
 
         Section 3.01 Termination of Employment. In the event that a
Participant's employment is terminated within twenty-four months following a
Change in Control or within three (3) months following a Potential Change in
Control provided that a Change in Control occurs within six (6) months
following such Potential Change in Control, (i) by the Participant for Good
Reason or (ii) by the Company without Cause, then in each case, such
Participant (or his or her beneficiary) shall be entitled to receive, and the
Company shall be obligated to pay to the Participant, subject to Sections 3.02
through 3.04 hereof:
 
                  (a) In the case of a Tier 1 Participant, (i) a lump sum
payment within sixty (60) days following such Participant's Termination Date
in an amount equal to 2.99 times the sum of (A) the Participant's highest
Annual Salary in the three years preceding the Termination Date plus (B) the
Participant's highest target bonus for the year of termination or for the year
in which the Change in Control occurred, whichever is larger; plus (ii) a lump
sum payment equal to all unused vacation time accrued by such Participant as
of the Termination Date under the Company's vacation policy plus (iii) all
accrued but unpaid compensation earned by such Participant as of the
Termination Date to be paid by the Company as soon as practicable following
the Termination Date ((ii) and (iii), together referred to herein as the
"Accrued Obligations"). In addition, for a period of thirty-six months
following the Termination Date, such Participant and his or her dependents
shall continue to be covered by all life, health care, medical and dental
insurance plans and programs (excluding disability) maintained by the Company
under which the Participant was covered immediately prior to the Termination
Date (collectively the "Continued Benefits") at the same cost sharing between
the Company and Participant as a similarly situated active employee.
 
                  (b) In the case of a Tier 2 Participant, (i) a lump sum
payment within sixty (60) days following such Participant's Termination Date
in an amount equal to two times the sum of (A) the Participant's highest
Annual Salary in the three years preceding the Termination Date plus (B) the
Participant's highest target bonus for the year of termination or for the year
in which the Change in Control occurred, whichever is larger; plus (ii)
payment of all Accrued Obligations as soon as practicable following the
Termination Date. In addition, for a period of twenty-four months following
the Termination Date, such Participant and his or her dependents shall receive
Continued Benefits at the same cost sharing between the Company and
Participant as a similarly situated active employee.
 
                  (c) In the case of a Tier 3 Participant, (i) a lump sum
payment within sixty (60) days following such Participant's Termination Date
in an amount equal to the sum of (A) the Participant's highest Annual Salary
in the three years preceding the Termination Date plus (B) the Participant's
highest target bonus for the year of termination or for the year in which the
Change in Control occurred, whichever is larger; plus (ii) payment of all
Accrued Obligations as soon as practicable following the Termination Date. In
addition, for a period of twelve months following the Termination Date, such
Participant and his or her dependents shall receive Continued Benefits at the
same cost sharing between the Company and Participant as a similarly situated
active employee.
 
                  (d) Notwithstanding anything herein to the contrary, in the
event that a Participant is deemed to be a "specified employee" for purposes
of Section 409A(a)(2)(B)(i) of the Code, the lump sum severance payment shall
be paid to such Participant immediately following the six-month anniversary of
the Termination Date and in no event may the provision of Continued Benefits
extend beyond December 31 of the second calendar year following the year in
which the Termination Date occurs. In any event, all Accrued Obligations shall
be paid to the Participant as soon as practicable following the Termination
Date and no later than sixty (60) days following the Termination Date.
 
         Section 3.02 Golden Parachute Tax.
 
                  (a) Anything in this Plan to the contrary notwithstanding,
in the event it shall be determined that any payment or distribution to or for
the benefit of any Participant (the "Triggering Payment") would be subject to
the excise tax imposed by Section 4999 of the Code or any interest or
penalties with respect to such excise tax (collectively, such excise tax,
together with any such interest or penalties, the "Excise Tax") (all such
payments and benefits, including any cash severance payments payable pursuant
to this Plan hereinafter referred to as the "Total Payments"), then in the
case of a Tier 1 Participant, after taking into account any reduction in the
Total Payments provided by reason of section 280G of the Code in such other
plan, arrangement or agreement, the cash severance payments shall first be
reduced, and the noncash severance payments shall thereafter be reduced, to
the extent necessary so that no portion of the Total Payments is subject to
the Excise Tax but only if (A) the net amount of such Total Payments, as so
reduced (and after subtracting the net amount of federal, state and local
income taxes on such reduced Total Payments and after taking into account the
phase out of itemized deductions and personal exemptions attributable to such
reduced Total Payments) is greater than or equal to (B) the net amount of such
Total Payments without such reduction (but after subtracting the net amount of
federal, state and local income taxes on such Total Payments and the amount of
Excise Tax to which the Tier 1 Participant would be subject in respect of such
unreduced Total Payments and after taking into account the phase out of
itemized deductions and personal exemptions attributable to such unreduced
Total Payments); provided, however, that the Tier 1 may elect to have the
noncash severance payments reduced (or eliminated) prior to any reduction of
the cash severance payments.
 
                  (b) Anything to the contrary in the Plan notwithstanding, in
the event that any Triggering Payment received or to be received by any Tier 2
or Tier 3 Participant would be subject to the Excise Tax, then, after taking
into account any reduction in the Total Payments provided by reason of section
280G of the Code in such other plan, arrangement or agreement, the cash
severance payments shall first be reduced, and the noncash severance payments
shall thereafter be reduced, to the extent necessary so that no portion of the
Total Payments is subject to the Excise Tax; provided, however, that the Tier
2 or Tier 3 Participant may elect to have the noncash severance payments
reduced (or eliminated) prior to any reduction of the cash severance payments.
 
                  (c) All determinations required to be made under this
Section 3.02 with respect to a particular Participant shall be made in writing
within ten (10) business days of the receipt of notice from the Participant
that there has been a Triggering Payment (or at such earlier time as is
requested by the Company and the Participant) by the independent accounting
firm then retained by the Company in the ordinary course of business (which
firm shall provide detailed supporting calculations to the Company and such
Participant) and such determinations shall be final and binding on the Company
(including the Compensation Committee) and all Participants. Any fees incurred
as a result of work performed by any independent accounting firm pursuant to
this Section 3.02 shall be paid by the Company.
 
         Section 3.03 Condition to Receipt of Severance Benefits. As a
condition to receipt of any payment or benefits under this Article III, such
Participant must enter into a Non-Solicitation, Non-Disclosure,
Non-Disparagement and Release Agreement with the Company and its affiliates in
the form then currently used by the Company.
 
         Section 3.04 Limitation of Benefits.
 
                  (a) Anything in this Plan to the contrary notwithstanding,
the Company's obligation to provide the Continued Benefits shall cease if and
when the Participant becomes employed by a third party that provides such
Participant with substantially comparable health and welfare benefits.
 
                  (b) Any amounts payable under this Plan shall be in lieu of
and not in addition to any other severance or termination payment under any
other plan or agreement with the Company. Without limiting the generality of
the foregoing, in the event that a Participant becomes entitled to any payment
under this Plan, such Participant shall not be entitled to receive any payment
under the Company's Executive Severance Plan. As a condition to receipt of any
payment under this Plan, the Participant shall waive any entitlement to any
other severance or termination payment by the Company.
 
                                  ARTICLE IV
 
                              DISPUTE RESOLUTION
                              ------------------
 
         Section 4.01 Negotiation. In case a claim, dispute or controversy
shall arise between any Participant (or any person claiming by, through or
under any Participant) and the Company (including the Compensation Committee)
relating to or arising out of this Plan, either disputant shall give written
notice to the other disputant ("Dispute Notice") that it wishes to resolve
such claim, dispute or controversy by negotiations, in which event the
disputants shall attempt in good faith to negotiate a resolution of such
claim, dispute or controversy. If the claim, dispute or controversy is not so
resolved within 30 days after the effective date of the Dispute Notice (as
described in Section 5.08), either disputant may initiate arbitration of the
claim, dispute or controversy as provided in Section 4.02, except in the case
of a dispute regarding the determination of Good Reason which shall be
adjudicated by the Bankruptcy Court. All negotiations pursuant to this Section
4.01 shall be held at the Company's principal offices in Birmingham, Alabama
(or such other place as the disputants shall mutually agree) and shall be
treated as compromise and settlement negotiations for the purposes of the
federal and state rules of evidence and procedure.
 
         Section 4.02 Arbitration. Any claim, dispute or controversy arising
out of or relating to this Plan which has not been resolved by negotiations in
accordance with Section 4.01 within 30 days of the effective date of the
Dispute Notice (as described in Section 5.08) shall, upon the written request
of either disputant, be finally settled by arbitration conducted expeditiously
in accordance with the commercial arbitration rules of the American
Arbitration Association regarding resolution of employment-related disputes.
The arbitrator may, without limitation, award injunctive relief, but shall not
be empowered to award damages in excess of compensatory damages and each
disputant shall be deemed to have irrevocably waived any damages in excess of
compensatory damages, such as punitive damages. The arbitrator's decision
shall be final and legally binding on the disputants and their successors and
assigns, and judgment by the arbitrator may be entered in any court having
jurisdiction. Each party shall pay its own fees, disbursements, and costs
relating to or arising out of any arbitration, provided that the Company shall
pay on behalf of the Participant all fees, disbursements, and costs relating
to or arising out of any arbitration in respect of any claim brought by a
Participant at any time following a Change in Control. All arbitration
conferences and hearings shall be held within a thirty (30) mile radius of
Birmingham, Alabama.
 
                                  ARTICLE V
 
                           Miscellaneous Provisions
                           ------------------------
 
         Section 5.01 Cumulative Benefits. Except as provided in Section 3.03,
the rights and benefits provided to any Participant under this Plan are in
addition to and shall not be a replacement of, all of the other rights and
benefits provided to such Participant under any Benefit Plan or any agreement
between such Participant and the Company except for any severance or
termination benefits.
 
         Section 5.02 No Mitigation. No Participant shall be required to
mitigate the amount of any payment provided for in this Plan by seeking or
accepting other employment following a termination of his or her employment
with the Company or otherwise. Except as otherwise provided in Section 3.04,
the amount of any payment provided for in this Plan shall not be reduced by
any compensation or benefit earned by a Participant as the result of
employment by another employer or by retirement benefits. The Company's
obligations to make payments to any Participant required under this Plan shall
not be affected by any set off, counterclaim, recoupment, defense or other
claim, right or action that the Company may have against such Participant.
 
         Section 5.03 Amendment or Termination. The Board may amend or
terminate the Plan at any time; provided however that the Plan may not be
amended or terminated during the pendency of, or within six (6) months
following, a Potential Change in Control, or within two (2) years following a
Change in Control. Notwithstanding the foregoing, nothing herein shall abridge
the authority of the Compensation Committee to designate a new Participant or
to determine that a Participant shall no longer be entitled to participate in
the Plan in accordance with Section 2.01(a) hereof. The Plan shall terminate
when all of the obligations to Participants hereunder have been satisfied in
full.
 
         Section 5.04 Enforceability. The failure of Participants or the
Company to insist upon strict adherence to any term of the Plan on any
occasion shall not be considered a waiver of such party's rights or deprive
such party of the right thereafter to insist upon strict adherence to that
term or any other term of the Plan.
 
         Section 5.05 Administration.
 
                  (a) The Compensation Committee shall have full and final
authority, subject to the express provisions of the Plan, with respect to
designation of Participants and administration of the Plan, including but not
limited to, the authority to construe and interpret any provisions of the Plan
and to take all other actions deemed necessary or advisable for the proper
administration of the Plan.
 
                  (b) The Company shall indemnify and hold harmless each
member of the Compensation Committee and any other employee of the Company
that acts at the direction of the Compensation Committee against any and all
expenses and liabilities arising out of his or her administrative functions or
fiduciary responsibilities, including any expenses and liabilities that are
caused by or result from an act or omission constituting the negligence of
such member in the performance of such functions or responsibilities, but
excluding expenses and liabilities that are caused by or result from such
member's or employee's own gross negligence or willful cause. Expenses against
which such member or employee shall be indemnified hereunder shall include,
without limitation, the amounts of any settlement or judgment, costs, counsel
fees, and related charges reasonably incurred in connection with a claim
asserted or a proceeding brought or settlement thereof.
 
         Section 5.06 Consolidations, Mergers, Etc. In the event of a merger,
consolidation or other transaction, nothing herein shall relieve the Company
from any of the obligations set forth in the Plan; provided, however, that
nothing in this Section 5.06 shall prevent an acquirer of or Successor to the
Company from assuming the obligations, or any portion thereof, of the Company
hereunder pursuant to the terms of the Plan provided that such acquirer or
Successor provides adequate assurances of its ability to meet this obligation.
In the event that an acquirer of or Successor to the Company agrees to perform
the Company's obligations, or any portion thereof, hereunder, the Company
shall require any person, firm or entity which becomes its Successor to
expressly assume and agree to perform such obligations in writing, in the same
manner and to the same extent that the Company would be required to perform
hereunder if no such succession had taken place.
 
         Section 5.07 Successors and Assigns. This Plan shall be binding upon
and inure to the benefit of the Company and its Successors and assigns. This
Plan and all rights of each Participant shall inure to the benefit of and be
enforceable by such Participant and his or her personal or legal
representatives, executors, administrators, heirs and permitted assigns. If
any Participant should die while any amounts are due and payable to such
Participant hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Plan to such Participant's
devisees, legatees or other designees or, if there be no such devisees,
legatees or other designees, to such Participant's estate. No payments,
benefits or rights arising under this Plan may be assigned or pledged by any
Participant, except under the laws of descent and distribution.
 
         Section 5.08 Notices. All notices and other communications provided
for in this Plan shall be in writing and shall be sent, delivered or mailed,
addressed as follows: (a) if to the Company, at the Company's principal office
address or such other address as the Company may have designated by written
notice to all Participants for purposes hereof, directed to the attention of
the General Counsel, and (b) if to any Participant, at his or her residence
address on the records of the Company or to such other address as he or she
may have designated to the Company in writing for purposes hereof. Each such
notice or other communication shall be deemed to have been duly given or
mailed by United States certified or registered mail, return receipt
requested, postage prepaid, except that any change of notice address shall be
effective only upon receipt.
 
         Section 5.09 Tax Withholding. The Company shall have the right to
deduct from any payment hereunder all taxes (federal, state or other) which it
is required to be withhold therefrom.
 
         Section 5.10 No Employment Rights Conferred. This Plan shall not be
deemed to create a contract of employment between any Participant and the
Company and/or its affiliates. Nothing contained in this Plan shall (i) confer
upon any Participant any right with respect to continuation of employment with
the Company or (ii) subject to the rights and benefits of any Participant
hereunder, interfere in any way with the right of the Company to terminate
such Participant's employment at any time.
 
         Section 5.11 Entire Plan. This Plan contains the entire understanding
of the Participants and the Company with respect to severance arrangements
maintained on behalf of the Participants by the Company. There are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the Participants and the Company with respect to the subject matter
herein other than those expressly set forth herein.
 
         Section 5.12 Prior Agreements. This Plan supersedes all prior
agreements, programs and understandings (including verbal agreements and
understandings) between the Participants and the Company regarding the terms
and conditions of Participant's severance arrangements in the event of a
Change in Control.
 
         Section 5.13 Severability. If any provision of the Plan is, becomes
or is deemed to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions of this Plan
shall not be affected thereby.
 
         Section 5.14 Governing Law. This Plan shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to its conflict of laws rules, and applicable federal law.
 
<PAGE>
 
 
         IN WITNESS WHEREOF, and as conclusive evidence of the adoption of
this Plan by the HealthSouth Corporation Board of Directors, HealthSouth
Corporation has caused this Plan to be duly executed in its name and behalf by
its proper officer thereunto duly authorized as of the Effective Date.
 
                                    HealthSouth Corporation
 
 
                                    By: /s/ Gregory L. Doody
                                       ------------------------------------
                                    Printed Name: Gregory L. Doody
                                    Title: Executive Vice President, General
                                           Counsel & Secretary
</TEXT>
</DOCUMENT>
Top of the Document

EX-10 4 exhibit_10-1310k.htm EXHIBIT 10.11

Exhibit 10.11

HEALTHSOUTH CORPORATION

AMENDED AND RESTATED

CHANGE IN CONTROL  

BENEFITS PLAN

 

HEALTHSOUTH Corporation, a Delaware corporation (the "Company") has adopted the HealthSouth Corporation Change in Control Benefits Plan (the "Plan") for the benefit of certain Participant employees of the Company and its subsidiaries, on the terms and conditions hereinafter stated. The Plan is intended to help retain qualified employees, maintain a stable work environment and provide financial security to certain Participant employees of the Company in the event of a Change in Control. The Plan, as a "severance pay arrangement" within the meaning of Section 3(2)(B)(i) of ERISA, is intended to be excepted from the definitions of "employee pension benefit plan" and "pension plan" set forth under Section 3(2) of ERISA, and is intended to meet the descriptive requirements of a plan constituting a "severance pay plan" within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations § 2510.3-2(b).

ARTICLE I

 

DEFINITIONS AND INTERPRETATIONS

Section 1.01Definitions. Capitalized terms used in this Plan shall have the following respective meanings, except as otherwise provided or as the context shall otherwise require:

"Annual Salary" shall mean the base salary paid to a Participant immediately prior to his or her Termination Date on an annual basis exclusive of any bonus payments or additional payments under any Benefit Plan.

"Benefit Plan" shall mean any "employee benefit plan" (including any employee benefit plan within the meaning of Section 3(3) of ERISA), program, arrangement or practice maintained, sponsored or provided by the Company, including those relating to compensation, bonuses, profit-sharing, stock option, or other stock related rights or other forms of incentive or deferred compensation, paid time off benefits, insurance coverage (including any self-insured arrangements) health or medical benefits, disability benefits, workers' compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance or other benefits).

"Board" means the Board of Directors of the Company.

 

1

 

 


"Cause" shall have the meaning set forth in any individual employment, severance or similar agreement between the Company and a Participant, or in the event that a Participant is not party to such an agreement, Cause shall mean:

(i)        the Company's procurement of evidence of the Participant's act of fraud, misappropriation, or embezzlement with respect to the Company;

(ii)       the Participant's indictment for, conviction of, or plea of guilty or no contest to, any felony (other than a minor traffic violation);

(iii)      the suspension or debarment of the Participant or of the Company or any of its affiliated companies or entities as a direct result of any willful or grossly negligent act or omission of the Participant in connection with his employment with the Company from participation in any Federal or state health care program. For purposes of this clause (iii), the Participant shall not have acted in a “willful” manner if the Participant acted, or failed to act, in a manner that he believed in good faith to be in, or not opposed to the best interests of the Company;

(iv)      the Participant's admission of liability of, or finding by a court or the SEC (or a similar agency of any applicable state) of liability for, the violation of any "Securities Laws" (as hereinafter defined) (excluding any technical violations of the Securities Laws which are not criminal in nature). As used herein, the term "Securities Laws" means any Federal of state law, rule or regulation governing the issuance or exchange of securities, including without limitation the Securities Act of 1933, the Securities Exchange and the rules and regulations promulgated thereunder;

(v)       a formal indication from any agency or instrumentality of any state or the United States of America, including but not limited to the United States Department of Justice, the SEC or any committee of the United States Congress that the Participant is a target or the subject of any investigation or proceeding into the actions or inactions of the Participant for a violation of any Securities Laws in connection with his employment by the Company (excluding any technical violations of the Securities law which are not criminal in nature);

(vi)      the Participant's failure after reasonable prior written notice from the Company to comply with any valid and legal directive of the Chief Executive Officer or the Board that is not remedied within thirty (30) days of the Participant being provided written notice thereof from the Company; or

(vii)     other than as provided in clauses (i) through (vi) above, the Participant's breach of any material provision of any employment agreement, if applicable, or the Participant’s breach of the material duties

 

2

 

 


of the Participant’s job that is not remedied within thirty (30) days or repeated breaches of a similar nature, such as the failure to report to work, perform duties, or follow directions, all as provided herein, which shall not require additional notices as provided in clauses (i) through (vi) above.

Cause shall be determined by the affirmative vote of at least fifty percent (50%) of the members of the Board (excluding the Participant, if a Board member, and excluding any member of the Board involved in events leading to the Board's consideration of terminating the Participant for Cause).

 

"Change in Control" shall mean

(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 Exchange Act, 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 Exchange Act) of 25% or more of either the then-outstanding shares of Common Stock 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 the Effective Date, 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 clause (ii), considered as though such person were a member of the Incumbent Board; or

 

(iii)      consummation 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 at least fifty percent (50%) 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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"Code" shall mean the Internal Revenue Code of 1986, as amended. Reference in this Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations under such section.

"Common Stock" means $.01 par value common stock of the Company, and such other securities of the Company as may be substituted for Common Stock.

"Compensation Committee" shall mean the Compensation Committee of the Board.

"Disability" shall mean a physical or mental condition which is expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months and which renders the Participant incapable of performing the work for which he is employed or similar work, as evidenced by eligibility for and actual receipt of benefits payable under a group disability plan or policy maintained by the Company or any of its subsidiaries that is by its terms applicable to the Participant.

"Effective Date" shall mean November 4, 2005, the original effective date of this Plan. The amendment and restatement contained herein shall be effective as of July __, 2008.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder.

"Exchange Act" means the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder.

"Good Reason" shall mean, when used with reference to any Participant, any of the following actions or failures to act, but in each case only if it occurs while such Participant is employed by the Company and then only if it is not consented to by such Participant in writing:

(i)        assignment of a position that is of a lesser rank than held by the Participant prior to the assignment and that results in a material adverse change in such Participant's reporting position, duties or responsibilities or title or elected or appointed offices as in effect immediately prior to the effective date of such change, or in the case of a Tier 1 or Tier 2 Participant who was immediately prior to the Change in Control an executive officer of the Company, such Participant ceasing to be an executive officer of a company with securities registered under the Exchange Act;

 

(ii)       a material reduction in such Participant’s total compensation from that in effect immediately prior to the Change in Control. For purposes of this clause (ii), “total compensation” shall mean

 

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the sum of base salary, target bonus opportunity and the opportunity to receive compensation in the form of equity in the Company. Notwithstanding the foregoing, a reduction will not be deemed to have occurred hereunder on account of (A) any change to a plan term other than ultimate target bonus opportunity or equity opportunity, (B) the actual payout of any bonus amount or equity amount, (C) any reduction resulting from changes in the market value of securities or other instruments paid or payable to the Participant, or (D) any reduction in the total compensation of a group of similarly situated Participants that includes such Participant; or

 

(iii)      any change in a Participant’s status as a Tier 1 Participant, Tier 2 Participant or Tier 3 Participant to a status that provides a lower benefit hereunder in the event of a Change in Control if such change in status occurs during the period beginning six (6) months prior to a Change in Control and ending twenty-four (24) months after a Change in Control; or

 

(iv)      any change of more than fifty (50) miles in the location of the principal place of employment of such Participant immediately prior to the effective date of such change.

 

For purposes of this definition, none of the actions described in clauses (i) and (ii) above shall constitute "Good Reason" with respect to any Participant if it was an isolated and inadvertent action not taken in bad faith by the Company and if it is remedied by the Company within thirty (30) days after receipt of written notice thereof given by such Participant (or, if the matter is not capable of remedy within thirty (30) days, then within a reasonable period of time following such thirty (30) day period, provided that the Company has commenced such remedy within said thirty (30) day period); provided that "Good Reason" shall cease to exist for any action described in clauses (i) through (iii) above on the sixtieth (60th) day following the later of the occurrence of such action or the Participant's knowledge thereof, unless such Participant has given the Company written notice thereof prior to such date.

"Participant" shall mean an employee of the Company who is included on Schedule A hereto, as that schedule may be amended in accordance with Section 2.01.

"Plan" shall mean this HealthSouth Corporation Change in Control Benefits Plan, as amended, restated, supplemented or modified from time to time in accordance with its terms.

"Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

 

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(i)        the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; or

(ii)       the Company or any person, entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act, 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) publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; or

(iii)      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 Exchange Act, 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 Exchange Act) of fifteen (15%) or more of either the then-outstanding shares of Common Stock or the combined voting power of the Company's then-outstanding voting securities entitled to vote generally in the election of Directors; or

(iv)      the Board adopts a resolution to the effect that a Potential Change in Control has occurred.

"Successor" shall mean a successor to all or substantially all of the business, operations or assets of the Company.

"Termination Date" shall mean, with respect to any Participant, the termination date specified in the Termination Notice delivered by such Participant to the Company in accordance with Section 2.02 or as set forth in any Termination Notice delivered by the Company, or as applicable, the Participant's date of death.

"Termination Notice" shall mean, as appropriate, written notice from (a) a Participant to the Company purporting to terminate such Participant's employment for Good Reason in accordance with Section 2.02 or (b) the Company to any Participant purporting to terminate such Participant's employment for Cause or Disability in accordance with Section 2.03.

"Tier 1 Participant" shall mean each Participant designated in Schedule A hereto as a Tier 1 Participant, as that schedule may be amended in accordance with Section 2.01.

"Tier 2 Participant" shall mean each Participant designated in Schedule A hereto as a Tier 2 Participant, as that schedule may be amended in accordance with Section 2.01.

 

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"Tier 3 Participant" shall mean each Participant designated in Schedule A hereto as a Tier 3 Participant, as that schedule may be amended in accordance with Section 2.01.

Section 1.02      Interpretation. In this Plan, unless a clear contrary intention appears, (a) the words "herein," "hereof" and "hereunder" refer to this Plan as a whole and not to any particular Article, Section or other subdivision, (b) reference to any Article or Section, means such Article or Section hereof and (c) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term. The Article and Section headings herein are for convenience only and shall not affect the construction hereof.

ARTICLE II

 

ELIGIBILITY AND BENEFITS

 

Section 2.01

Eligible Employees.

(a)       An employee of the Company shall be a "Participant" in the Plan during each calendar year (or partial calendar year) for which he or she has been designated as a Participant (and in the Tier so designated) by the Chief Executive Officer of the Company and for each succeeding calendar year, unless the Participant is given written notice by October 31 of the preceding year of the determination of the Chief Executive Officer or the Board that such Participant shall cease to be a Participant or shall participate in a different Tier for such succeeding calendar year. Notwithstanding the foregoing, any Participant may not be removed from the Plan, nor placed in a lower tier (with Tier 1 being the highest Tier and Tier 3 being the lowest Tier), during the pendency of, or within six (6) months following, a Potential Change in Control or within two years following a Change in Control.

(b)       This Plan is only for the benefit of Participants, and no other employees, personnel, consultants or independent contractors shall be eligible to participate in this Plan or to receive any rights or benefits hereunder.

Section 2.02      Termination Notices from Participants. For purposes of this Plan, in order for any Participant to terminate his or her employment for Good Reason, such Participant must give a Termination Notice to the Company, which notice shall be signed by such Participant, shall be dated the date it is given to the Company, shall specify the Termination Date and shall state that the termination is for Good Reason and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such Good Reason. Any Termination Notice given by a Participant that does not comply in all material respects with the foregoing requirements as well as the "Good Reason" definition provisions set forth in Section 1.01 shall be invalid and ineffective for purposes of this Plan. If the Company receives from any Participant a Termination Notice that it believes is invalid and ineffective as aforesaid, it shall promptly notify such Participant of such belief and the reasons therefor. Any termination of employment by the Participant that either does not constitute Good Reason or fails to meet the

 

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Termination Notice requirements set forth above shall be deemed a termination by the Participant without Good Reason.

Section 2.03      Termination Notices from Company. For purposes of this Plan, in order for the Company to terminate any Participant's employment for Cause, the Company must give a Termination Notice to such Participant, which notice shall be dated the date it is given to such Participant, shall specify the Termination Date and shall state that the termination is for Cause and shall set forth in reasonable detail the particulars thereof. For purposes of this Plan, in order for the Company to terminate any Participant's employment for Disability, the Company must give a Termination Notice to such Participant, which notice shall be dated the date it is given to such Participant, shall specify the Termination Date and shall state that the termination is for Disability and shall set forth in reasonable detail the particulars thereof. Any Termination Notice given by the Company that does not comply, in all material respects, with the foregoing requirements shall be invalid and ineffective for purposes of this Plan. Any Termination Notice purported to be given by the Company to any Participant after the death or retirement of such Participant shall be invalid and ineffective.

Section 2.04      Accelerated Vesting of Equity. Upon the occurrence of a Change in Control, notwithstanding the provisions of any Benefit Plan or agreement (except as provided in this Section 2.04)

(a)       each outstanding option to purchase Company Common Stock (each, a "Stock Option") shall become automatically vested and exercisable and

(i)        in the case of those Stock Options outstanding as of the Effective Date, such Stock Options shall remain exercisable by such Participant until the later of the 15th day of the third month following the date at which, or December 31 of the calendar year in which, the Stock Option would have otherwise expired, but in no event beyond the original term of such Stock Option; and

(ii)       in the case of all Stock Options granted to a Participant after the Effective Date, such Stock Options shall remain exercisable by such Participant for a period of (x) three years in the case of a Tier 1 Participant, (y) two years in the case of a Tier 2 Participant or (z) one year in the case of a Tier 3 Participant, beyond the date at which the Stock Option would have otherwise expired, but in no event beyond the original term of such Stock Option;

(b)       the vesting restrictions based upon continued employment on all other awards relating to Common Stock (including but not limited to restricted stock, restricted stock units and stock appreciation rights) held by a Participant shall immediately lapse and in the case of restricted stock units and stock appreciation rights shall become immediately payable.

(c)       the vesting restrictions based upon achievement of performance criteria on any awards related to Common Stock (including but not limited to performance shares or performance share units) held by a Participant shall deemed to

 

8

 

 


have been met to the extent determined by the Compensation Committee as constituted immediately prior to the Change of Control.

(d)       Notwithstanding the foregoing, in the event that the terms of any award under a Benefit Plan shall provide for vesting treatment of equity awards to such Participant that are more favorable than the provisions of paragraphs (a) through (c) above, the provisions of such award shall control the vesting treatment with respect to any equity awards to which such provisions are applicable.

ARTICLE III

SEVERANCE AND RELATED TERMINATION BENEFITS

 

Section 3.01      Termination of Employment. In the event that a Participant's employment is terminated within twenty-four months following a Change in Control or within three (3) months following a Potential Change in Control provided that a Change in Control occurs within six (6) months following such Potential Change in Control, (i) by the Participant for Good Reason or (ii) by the Company without Cause, then in each case, such Participant (or his or her beneficiary) shall be entitled to receive, and the Company shall be obligated to pay to the Participant, subject to Sections 3.02 through 3.04 hereof:

 

(a)

In the case of a Tier 1 Participant:

(i)  a lump sum payment within sixty (60) days following such Participant's Termination Date in an amount equal to 2.99 times the sum of (A) the Participant's highest Annual Salary in the three years preceding the Termination Date plus (B) the average of the actual bonuses received by such Participant for the three (3) years preceding the Termination Date; plus

(ii) a lump sum payment equal to all unused paid time off accrued by such Participant as of the Termination Date under the Company's paid time off policy; plus

(iii)all accrued but unpaid compensation earned by such Participant as of the Termination Date to be paid by the Company as soon as practicable following the Termination Date ((ii) and (iii), together referred to herein as the "Accrued Obligations").

(iv)In addition, for a period of thirty-six months following the Termination Date, such Participant and his or her dependents shall continue to be covered by all life, health care, medical and dental insurance plans and programs (excluding disability) maintained by the Company under which the Participant was covered immediately prior to the Termination Date (collectively the "Continued Benefits") at the same cost sharing between the Company and Participant as a similarly situated active employee.

 

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(b)

In the case of a Tier 2 Participant

(i)  a lump sum payment within sixty (60) days following such Participant's Termination Date in an amount equal to two times the sum of (A) the Participant's highest Annual Salary in the three years preceding the Termination Date plus (B) the average of the actual bonuses received by such Participant for the three (3) years preceding the Termination Date; plus

(ii) payment of all Accrued Obligations as soon as practicable following the Termination Date.

(iii)In addition, for a period of twenty-four months following the Termination Date, such Participant and his or her dependents shall receive Continued Benefits at the same cost sharing between the Company and Participant as a similarly situated active employee.

 

(c)

In the case of a Tier 3 Participant

(i)  a lump sum payment within sixty (60) days following such Participant's Termination Date in an amount equal to the sum of (A) the Participant's highest Annual Salary in the three years preceding the Termination Date plus (B) the average of the actual bonuses received by such Participant for the three (3) years preceding the Termination Date; plus

(ii) payment of all Accrued Obligations as soon as practicable following the Termination Date.

(iii)In addition, for a period of twelve months following the Termination Date, such Participant and his or her dependents shall receive Continued Benefits at the same cost sharing between the Company and Participant as a similarly situated active employee.

(d)       Notwithstanding anything herein to the contrary, in the event that a Participant is deemed to be a "specified employee" for purposes of Section 409A(a)(2)(B)(i) of the Code, the lump sum severance payment, together with interest at the an annual rate (compounded monthly) equal to the federal short-term rate (as in effect under Section 1274(d) of the Code on the Termination Date) shall be paid to such Participant immediately following the six-month anniversary of the Termination Date and no later than thirty (30) days following such anniversary and in no event may the provision of Continued Benefits extend beyond December 31 of the second calendar year following the year in which the Termination Date occurs. In any event, all Accrued Obligations shall be paid to the Participant as soon as practicable following the Termination Date and no later than sixty (60) days following the Termination Date.

 

Section 3.02

Golden Parachute Tax.

(a)       Anything in this Plan to the contrary notwithstanding, in the event it shall be determined that any payment or distribution to or for the benefit of any

 

10

 

 


Participant or the acceleration thereof (the "Triggering Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (collectively, such excise tax, together with any such interest or penalties, the "Excise Tax") (all such payments and benefits, including any cash severance payments payable pursuant to any other plan, arrangement or agreement, hereinafter referred to as the "Total Payments"), then, after taking into account any reduction in the Total Payments provided by reason of section 280G of the Code in such other plan, arrangement or agreement, the cash severance payments shall first be reduced, and the noncash severance payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (A) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments) is greater than or equal to (B) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Participant would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments); provided, however, that the Participant may elect to have the noncash severance payments reduced (or eliminated) prior to any reduction of the cash severance payments.

(b)       All determinations required to be made under this Section 3.02 with respect to a particular Participant shall be made in writing within ten (10) business days of the receipt of notice from the Participant that there has been a Triggering Payment (or at such earlier time as is requested by the Company and the Participant) by the independent accounting firm then retained by the Company in the ordinary course of business (which firm shall provide detailed supporting calculations to the Company and such Participant) and such determinations shall be final and binding on the Company (including the Compensation Committee) and all Participants. Any fees incurred as a result of work performed by any independent accounting firm pursuant to this Section 3.02 shall be paid by the Company.

Section 3.03      Condition to Receipt of Severance Benefits. As a condition to receipt of any payment or benefits under this Article III, such Participant must enter into a Non-Solicitation, Non-Disclosure, Non-Disparagement and Release Agreement with the Company and its affiliates in the form then currently used by the Company.

 

Section 3.04

Limitation of Benefits.

(a)       Anything in this Plan to the contrary notwithstanding, the Company's obligation to provide the Continued Benefits shall cease if and when the Participant becomes employed by a third party that provides such Participant with substantially comparable health and welfare benefits.

(b)       Any amounts payable under this Plan shall be in lieu of and not in addition to any other severance or termination payment under any other plan or

 

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agreement with the Company. Without limiting the generality of the foregoing, in the event that a Participant becomes entitled to any payment under this Plan, such Participant shall not be entitled to receive any payment under the Company's Executive Severance Plan. As a condition to receipt of any payment under this Plan, the Participant shall waive any entitlement to any other severance or termination payment by the Company.

 

ARTICLE IV

DISPUTE RESOLUTION

 

Section 4.01      Negotiation. In case a claim, dispute or controversy shall arise between any Participant (or any person claiming by, through or under any Participant) and the Company (including the Compensation Committee) relating to or arising out of this Plan, either disputant shall give written notice to the other disputant ("Dispute Notice") that it wishes to resolve such claim, dispute or controversy by negotiations, in which event the disputants shall attempt in good faith to negotiate a resolution of such claim, dispute or controversy. If the claim, dispute or controversy is not so resolved within 30 days after the effective date of the Dispute Notice (as described in Section 5.08), either disputant may initiate arbitration of the claim, dispute or controversy as provided in Section 4.02. All negotiations pursuant to this Section 4.01 shall be held at the Company's principal offices in Birmingham, Alabama (or such other place as the disputants shall mutually agree) and shall be treated as compromise and settlement negotiations for the purposes of the federal and state rules of evidence and procedure.

Section 4.02      Arbitration. Any claim, dispute or controversy arising out of or relating to this Plan which has not been resolved by negotiations in accordance with Section 4.01 within 30 days of the effective date of the Dispute Notice (as described in Section 5.08) shall, upon the written request of either disputant, be finally settled by arbitration conducted expeditiously in accordance with the commercial arbitration rules of the American Arbitration Association regarding resolution of employment-related disputes. The arbitrator may, without limitation, award injunctive relief, but shall not be empowered to award damages in excess of compensatory damages and each disputant shall be deemed to have irrevocably waived any damages in excess of compensatory damages, such as punitive damages. The arbitrator's decision shall be final and legally binding on the disputants and their successors and assigns, and judgment by the arbitrator may be entered in any court having jurisdiction. Each party shall pay its own fees, disbursements, and costs relating to or arising out of any arbitration, provided that the Company shall pay on behalf of the Participant all fees, disbursements, and costs relating to or arising out of any arbitration in respect of any claim brought by a Participant at any time following a Change in Control. All arbitration conferences and hearings shall be held within a thirty (30) mile radius of Birmingham, Alabama.

 

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ARTICLE V

 

Miscellaneous Provisions

Section 5.01      Cumulative Benefits. Except as provided in Section 3.04, the rights and benefits provided to any Participant under this Plan are in addition to and shall not be a replacement of, all of the other rights and benefits provided to such Participant under any Benefit Plan or any agreement between such Participant and the Company except for any severance or termination benefits.

Section 5.02      No Mitigation. No Participant shall be required to mitigate the amount of any payment provided for in this Plan by seeking or accepting other employment following a termination of his or her employment with the Company or otherwise. Except as otherwise provided in Section 3.04, the amount of any payment provided for in this Plan shall not be reduced by any compensation or benefit earned by a Participant as the result of employment by another employer or by retirement benefits. The Company's obligations to make payments to any Participant required under this Plan shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against such Participant.

Section 5.03      Amendment or Termination. The Board may amend or terminate the Plan at any time; provided however that the Plan may not be amended or terminated during the pendency of, or within six (6) months following, a Potential Change in Control, or within two (2) years following a Change in Control. Notwithstanding the foregoing, nothing herein shall abridge the authority of the Compensation Committee to designate a new Participant or to determine that a Participant shall no longer be entitled to participate in the Plan in accordance with Section 2.01(a) hereof. The Plan shall terminate when all of the obligations to Participants hereunder have been satisfied in full.

Section 5.04      Enforceability. The failure of Participants or the Company to insist upon strict adherence to any term of the Plan on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of the Plan.

 

Section 5.05

Administration.

(a)       The Compensation Committee shall have full and final authority, subject to the express provisions of the Plan, with respect to designation of Participants and administration of the Plan, including but not limited to, the authority to construe and interpret any provisions of the Plan and to take all other actions deemed necessary or advisable for the proper administration of the Plan.

(b)       The Company shall indemnify and hold harmless each member of the Compensation Committee and any other employee of the Company that acts at the direction of the Compensation Committee against any and all expenses and liabilities arising out of his or her administrative functions or fiduciary responsibilities, including

 

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any expenses and liabilities that are caused by or result from an act or omission constituting the negligence of such member in the performance of such functions or responsibilities, but excluding expenses and liabilities that are caused by or result from such member's or employee's own gross negligence or willful cause. Expenses against which such member or employee shall be indemnified hereunder shall include, without limitation, the amounts of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof.

Section 5.06      Consolidations, Mergers, Etc. In the event of a merger, consolidation or other transaction, nothing herein shall relieve the Company from any of the obligations set forth in the Plan; provided, however, that nothing in this Section 5.06 shall prevent an acquirer of or Successor to the Company from assuming the obligations, or any portion thereof, of the Company hereunder pursuant to the terms of the Plan provided that such acquirer or Successor provides adequate assurances of its ability to meet this obligation. In the event that an acquirer of or Successor to the Company agrees to perform the Company's obligations, or any portion thereof, hereunder, the Company shall require any person, firm or entity which becomes its Successor to expressly assume and agree to perform such obligations in writing, in the same manner and to the same extent that the Company would be required to perform hereunder if no such succession had taken place.

Section 5.07      Successors and Assigns. This Plan shall be binding upon and inure to the benefit of the Company and its Successors and assigns. This Plan and all rights of each Participant shall inure to the benefit of and be enforceable by such Participant and his or her personal or legal representatives, executors, administrators, heirs and permitted assigns. If any Participant should die while any amounts are due and payable to such Participant hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such Participant's devisees, legatees or other designees or, if there be no such devisees, legatees or other designees, to such Participant's estate. No payments, benefits or rights arising under this Plan may be assigned or pledged by any Participant, except under the laws of descent and distribution.

Section 5.08      Notices. All notices and other communications provided for in this Plan shall be in writing and shall be sent, delivered or mailed, addressed as follows: (a) if to the Company, at the Company's principal office address or such other address as the Company may have designated by written notice to all Participants for purposes hereof, directed to the attention of the General Counsel, and (b) if to any Participant, at his or her residence address on the records of the Company or to such other address as he or she may have designated to the Company in writing for purposes hereof. Each such notice or other communication shall be deemed to have been duly given or mailed by United States certified or registered mail, return receipt requested, postage prepaid, except that any change of notice address shall be effective only upon receipt.

 

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Section 5.09      Tax Withholding. The Company shall have the right to deduct from any payment hereunder all taxes (federal, state or other) which it is required to be withhold therefrom.

Section 5.10      No Employment Rights Conferred. This Plan shall not be deemed to create a contract of employment between any Participant and the Company and/or its affiliates. Nothing contained in this Plan shall (i) confer upon any Participant any right with respect to continuation of employment with the Company or (ii) subject to the rights and benefits of any Participant hereunder, interfere in any way with the right of the Company to terminate such Participant's employment at any time.

Section 5.11      Entire Plan. This Plan contains the entire understanding of the Participants and the Company with respect to severance arrangements maintained on behalf of the Participants by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the Participants and the Company with respect to the subject matter herein other than those expressly set forth herein.

Section 5.12      Prior Agreements. This Plan supersedes all prior agreements, programs and understandings (including verbal agreements and understandings) between the Participants and the Company regarding the terms and conditions of Participant's severance arrangements in the event of a Change in Control.

Section 5.13      Severability. If any provision of the Plan is, becomes or is deemed to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Plan shall not be affected thereby.

Section 5.14      Governing Law. This Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its conflict of laws rules, and applicable federal law.

 

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Schedule A

 

[Omitted]

 

 

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EX-10 5 exhibit_10-2210k.htm EXHIBIT 10.19

Exhibit 10.19

HEALTHSOUTH CORPORATION

SECOND AMENDED AND RESTATED EXECUTIVE SEVERANCE PLAN

 

HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), has adopted the HealthSouth Corporation Executive Severance Plan, as amended and restated herein (the "Plan"), for the benefit of certain Participant employees of the Company and its subsidiaries, on the terms and conditions hereinafter stated. The Plan is intended to help retain qualified employees and provide financial security to certain employees of the Company whose employment with the Company and its Affiliates may be terminated under circumstances entitling them to severance benefits as provided herein. The Plan, as a "severance pay arrangement" within the meaning of Section 3(2)(B)(i) of ERISA, is intended to be excepted from the definitions of "employee pension benefit plan" and "pension plan" set forth under Section 3(2) of ERISA, and is intended to meet the descriptive requirements of a plan constituting a "severance pay plan" within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations § 2510.3-2(b).

ARTICLE I

 

DEFINITIONS AND INTERPRETATIONS

Section 1.01   Definitions. Capitalized terms used in this Plan shall have the following respective meanings, except as otherwise provided or as the context shall otherwise require:

"Annual Salary" shall mean the base salary paid to a Participant immediately prior to his or her Termination Date on an annual basis exclusive of any bonus payments or additional payments under any Benefit Plan.

"Benefit Plan" shall mean any "employee benefit plan" (including any employee benefit plan within the meaning of Section 3(3) of ERISA), program, arrangement or practice maintained, sponsored or provided by the Company, including those relating to compensation, bonuses, profit-sharing, stock option, or other stock related rights or other forms of incentive or deferred compensation, paid time off benefits, insurance coverage (including any self-insured arrangements) health or medical benefits, disability benefits, workers' compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance or other benefits).

Board" means the Board of Directors of the Company.

"Cause" shall have the meaning set forth in any individual employment or similar agreement between the Company and a Participant, or in the event that a participant is not a party to such an agreement, Cause shall mean:

 

 

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(i)        the Company's procurement of evidence of the Participant's act of fraud, misappropriation, or embezzlement with respect to the Company;

(ii)       the Participant's indictment for, conviction of, or plea of guilty or no contest to, any felony (other than a minor traffic violation);

(iii)      the suspension or debarment of the Participant or of the Company or any of its affiliated companies or entities as a direct result of any willful or grossly negligent act or omission of the Participant in connection with his employment with the Company from participation in any Federal or state health care program. For purposes of this clause (iii), the Participant shall not have acted in a "willful" manner if the Participant acted, or failed to act, in a manner that he believed in good faith to be in, or not opposed to, the best interests of the Company;

(iv)      the Participant's admission of liability of, or finding by a court or the SEC (or a similar agency of any applicable state) of liability for, the violation of any "Securities Laws" (as hereinafter defined) (excluding any technical violations of the Securities Laws which are not criminal in nature). As used herein, the term "Securities Laws" means any Federal of state law, rule or regulation governing the issuance or exchange of securities, including without limitation the Securities Act of 1933, the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder;

(v)       a formal indication from any agency or instrumentality of any state or the United States of America, including but not limited to the United States Department of Justice, the SEC or any committee of the United States Congress that the Participant is a target or the subject of any investigation or proceeding into the actions or inactions of the Participant for a violation of any Securities Laws in connection with his employment by the Company (excluding any technical violations of the Securities law which are not criminal in nature);

(vi)      the Participant's failure after reasonable prior written notice from the Company to comply with any valid and legal directive of the Chief Executive Officer or the Board that is not remedied within thirty (30) days of the Participant being provided written notice thereof from the Company; or

(vii)     other than as provided in clauses (i) through (vi) above, the Participant's breach of any material provision of any employment agreement, if applicable, or the Participant’s breach of the material duties and responsibilities of the Participant’s job, that is not remedied within thirty (30) days or repeated breaches of a similar nature, such as the failure to report to work, perform duties or follow directions, all as provided herein, which shall not require additional notices as provided in clauses (i) through (vi) above..

Cause shall be determined by the affirmative vote of at least fifty percent (50%) of the members of the Board (excluding the Participant, if a Board

 

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member, and excluding any member of the Board involved in events leading to the Board's consideration of terminating the Participant for Cause).

"Code" shall mean the Internal Revenue Code of 1986, as amended. Reference in this Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations under such section.

"Compensation Committee" shall mean the Compensation Committee of the Board.

"Disability" shall mean a physical or mental condition which is expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months and which renders the Participant incapable of performing the work for which he is employed or similar work, as evidenced by eligibility for and actual receipt of benefits payable under a group disability plan or policy maintained by the Company or any of its subsidiaries that is by its terms applicable to the Participant.

"Effective Date" shall mean _____________ __, 2008, the date as of which this Amendment and Restatement of the Plan was approved by the Board.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder.

"Good Reason" shall mean, when used with reference to any Participant, any of the following actions or failures to act, but in each case only if it occurs while such Participant is employed by the Company and then only if it is not consented to by such Participant in writing:

(i)        assignment of a position that is of a lesser rank than held by the Participant prior to the assignment and that results in a material adverse change in such Participant's reporting position, duties or responsibilities or title or elected or appointed offices as in effect immediately prior to the effective date of such change;

 

(ii)       a material reduction in such Participant’s total compensation from that in effect immediately prior to the Effective Date. For purposes of this clause (ii), “total compensation” shall mean the sum of base salary, target bonus opportunity and the opportunity to receive compensation in the form of equity in the Company. Notwithstanding the foregoing, a reduction will not be deemed to have occurred hereunder on account of (A) any change to a plan term other than ultimate target bonus opportunity or equity opportunity, (B) the actual payout of any bonus amount or equity amount, (C) any reduction resulting from changes in the market value of securities or other instruments paid or payable to the

 

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Participant, or (D) any reduction in the total compensation of a group of similarly situated Participants that includes such Participant;

 

(iii)      any change of more than fifty (50) miles in the location of the principal place of employment of such Participant immediately prior to the effective date of such change; or

 

(iv)      the Participant receives a Removal Notice in accordance with Section 2.01(a) hereof.

 

For purposes of this definition, none of the actions described in clauses (i) and (ii) above shall constitute "Good Reason" with respect to any Participant if it was an isolated and inadvertent action not taken in bad faith by the Company and if it is remedied by the Company within thirty (30) days after receipt of written notice thereof given by such Participant (or, if the matter is not capable of remedy within thirty (30) days, then within a reasonable period of time following such thirty (30) day period, provided that the Company has commenced such remedy within said thirty (30) day period); provided that "Good Reason" shall cease to exist for any action described in clauses (i) through (iii) above on the sixtieth (60th) day following the later of the occurrence of such action or the Participant's knowledge thereof, unless such Participant has given the Company written notice thereof prior to such date. In the case of clause (iv), Good Reason shall cease to exist on the sixtieth (60th) day following the delivery of such Removal Notice.

"Participant" shall mean an employee of the Company who has become a Participant in accordance with Section 2.01(a).

"Plan" shall mean this HealthSouth Corporation Executive Severance Plan, as amended, supplemented or modified from time to time in accordance with its terms.

Pro-rated Portionshall mean, with respect to any equity-based grant or award, a fraction (i) whose numerator is the number of months elapsed from the date of grant of such Award through the effective date of termination of a Participant’s employment in the circumstances described in Section 3.01 below, and (ii) whose denominator is the total number of months over which the grant or award would have vested or had its restrictions lapse under the applicable award agreement.

"SEC" shall mean the United States Securities Exchange Commission.

"Severance Multiplier" shall have the meaning set forth in Article III.

"Successor" shall mean a successor to all or substantially all of the business, operations or assets of the Company.

 

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"Termination Date" shall mean, with respect to any Participant, the termination date specified in the Termination Notice delivered by such Participant to the Company in accordance with Section 2.02 or as set forth in any Termination Notice delivered by the Company, or as applicable, the Participant's date of death.

"Termination Notice" shall mean, as appropriate, written notice from (a) a Participant to the Company purporting to terminate such Participant's employment for Good Reason in accordance with Section 2.02 or (b) the Company to any Participant purporting to terminate such Participant's employment for Cause or Disability in accordance with Section 2.03.

Section 1.02      Interpretation. In this Plan, unless a clear contrary intention appears, (a) the words "herein," "hereof" and "hereunder" refer to this Plan as a whole and not to any particular Article, Section or other subdivision, (b) reference to any Article or Section, means such Article or Section hereof and (c) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term. The Article and Section headings herein are for convenience only and shall not affect the construction hereof.

ARTICLE II

 

ELIGIBILITY AND BENEFITS

 

Section 2.01

Eligible Employees.

(a)       An employee of the Company shall be a "Participant" in the Plan during each calendar year (or partial calendar year) for which he or she is employed as the Chief Executive Officer of the Company, an Executive Vice President of the Company, or a Senior Vice President of the Company, unless the Participant is given written notice by October 31 of the preceding year of the Compensation Committee's determination that such Participant shall cease to be a Participant for such succeeding calendar year (a "Removal Notice").

(b)       This Plan is only for the benefit of Participants, and no other employees, personnel, consultants or independent contractors shall be eligible to participate in this Plan or to receive any rights or benefits hereunder.

Section 2.02      Termination Notices from Participants. For purposes of this Plan, in order for any Participant to terminate his or her employment for Good Reason, such Participant must give a Termination Notice to the Company, which notice shall be signed by such Participant, shall be dated the date it is given to the Company, shall specify the Termination Date and shall state that the termination is for Good Reason and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such Good Reason. Any Termination Notice given by a Participant that does not comply in all material respects with the foregoing requirements as well as the "Good Reason" definition provisions set forth in Section 1.01 shall be invalid and ineffective for

 

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purposes of this Plan. If the Company receives from any Participant a Termination Notice that it believes is invalid and ineffective as aforesaid, it shall promptly notify such Participant of such belief and the reasons therefor. Any termination of employment by the Participant that either does not constitute Good Reason or fails to meet the Termination Notice requirements set forth above shall be deemed a termination by the Participant without Good Reason.

Section 2.03      Termination Notices from Company. For purposes of this Plan, in order for the Company to terminate any Participant's employment for Cause, the Company must give a Termination Notice to such Participant, which notice shall be dated the date it is given to such Participant, shall specify the Termination Date and shall state that the termination is for Cause and shall set forth in reasonable detail the particulars thereof. For purposes of this Plan, in order for the Company to terminate any Participant's employment for Disability, the Company must give a Termination Notice to such Participant, which notice shall be dated the date it is given to such Participant, shall specify the Termination Date and shall state that the termination is for Disability and shall set forth in reasonable detail the particulars thereof. Any Termination Notice given by the Company that does not comply, in all material respects, with the foregoing requirements shall be invalid and ineffective for purposes of this Plan. Any Termination Notice purported to be given by the Company to any Participant after the death or retirement of such Participant shall be invalid and ineffective.

ARTICLE III

SEVERANCE AND RELATED TERMINATION BENEFITS

 

 

Section 3.01

Termination of Employment.

(a)       In the event that a Participant's employment is terminated (i) by the Participant for Good Reason, (ii) by the Company without Cause, or (iii) by the Company by reason of the Participant's Disability or (iv) as a result of the Participant's death, then in each case:

(A)      such Participant (or his or her beneficiary) shall be entitled to receive, and the Company shall be obligated to pay to the Participant, subject to Sections 3.02 and 3.03 hereof a lump sum payment within sixty (60) days following such Participant's Termination Date in an amount equal to (i) the Participant's Annual Salary on the Termination Date multiplied by the severance multiplier applicable for such Participant as set forth on Schedule A (the "Severance Multiplier") plus (ii) all unused paid time off time accrued by such Participant as of the Termination Date under the Company's paid time off policy plus (iii) all accrued but unpaid compensation earned by such Participant as of the Termination Date;

(B)      for a period of months equal to the Participant's Severance Multiplier multiplied by twelve (12), such Participant and his or her dependents shall continue to be covered by all medical and dental insurance plans and programs

 

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(excluding disability insurance) maintained by the Company under which the Participant was covered immediately prior to the Termination Date (collectively the "Continued Benefits") at the same cost sharing between the Company and Participant as a similarly situated active employee;

(C)      a Pro-rated Portion of any unvested options held by the Participant to purchase Company stock will become automatically vested and exercisable; and

(D)      the vesting restrictions based upon continued employment on a Pro-rated Portion of all other awards relating to common stock of the Company (including but not limited to restricted stock, restricted stock units and stock appreciation rights) held by the Participant shall immediately lapse and, in the case of restricted stock units and stock appreciation rights, shall become payable at the time specified in (A) above.

(E)       the vesting restrictions based upon achievement of performance criteria on any awards related to Common Stock (including but not limited to performance shares or performance share units) held by a Participant shall deemed to have been met to the extent determined by the Compensation Committee.

(F)       Notwithstanding anything herein to the contrary, in the event that a Participant is deemed to be a "specified employee" for purposes of Section 409A(a)(2)(B)(i) of the Code, the lump sum severance payment, together with interest at the an annual rate (compounded monthly) equal to the federal short-term rate (as in effect under Section 1274(d) of the Code on the Termination Date) shall be paid to such Participant immediately following the six-month anniversary of the Termination Date and no later than thirty (30) days following such anniversary. In any event, all Accrued Obligations shall be paid to the Participant as soon as practicable following the Termination Date and no later than sixty (60) days following the Termination Date.

(b)       In the event that a Participant’s employment is terminated (i) by the Company for Cause or (ii) by the Participant other than for Good Reason, then in each case:

(A)      such Participant shall be entitled to receive, and the Company shall be obligated to pay to the Participant a lump sum payment equal to (i) all unused paid time off accrued by such Participant under the Company’s paid time off policy plus (ii) all accrued but unpaid compensation earned by such Participant as of the Termination Date; and

(B)      such Participant shall be entitled to continue to maintain coverage for such Participant under the provisions of Section 4980B of the Code (“COBRA”) until the expiration of eligibility under COBRA. The Participant shall be required to make any premium payments for such coverage under the provisions of COBRA.

(c)       At the expiration of the period applicable to Continued Benefits as provided in Section 3.01(a)(B), the Participant and his or her dependents shall be entitled to continued coverage under COBRA for a period, if any, equal to the difference between

 

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the maximum coverage period applicable to such Participant or a dependent under COBRA and the period under which continued Benefits were provided pursuant to Section 3.01(a)(B).

(d)       Notwithstanding the foregoing, the failure to continue a Participant’s employment with the Company following the expiration of an Employment Agreement between the Company and the Participant shall not be treated as termination without Cause by the Company, a termination by the Participant for Good Reason, or any other termination entitling such Participant to benefits hereunder.

Section 3.02      Condition to Receipt of Severance Benefits. As a condition to receipt of any payment or benefits under Section 3.01(a), such Participant must enter into a Non-Solicitation, Non-Compete, Non-Disclosure, Non-Disparagement and Release Agreement with the Company and its affiliates substantially in the form attached hereto.

 

Section 3.03

Limitation of Benefits.

(a)       Anything in this Plan to the contrary notwithstanding, the Company's obligation to provide the Continued Benefits shall cease if and when the Participant becomes employed by a third party that provides such Participant with substantially comparable health and welfare benefits.

(b)       Any amounts payable under this Plan shall be in lieu of and not in addition to any other severance or termination payment under any other plan or agreement with the Company. As a condition to receipt of any payment under this Plan, the Participant shall waive any entitlement to any other severance or termination payment by the Company, including any severance or termination payment set forth in any employment agreement with the Company. In the event a Participant is entitled to benefits under a Change of Control Plan maintained by the Company, a Participant shall not be entitled to any benefits hereunder. Notwithstanding the foregoing, nothing in this Section 3.03(b) shall abridge the Participant's rights with respect to vested benefits under any Benefit Plan.

Section 3.04      Plan Unfunded; Participant's Rights Unsecured. The Company shall not be required to establish any special or separate fund or make any other segregation of funds or assets to assure the payment of any benefit hereunder. The right of any Participant to receive the benefits provided for herein shall be an unsecured obligation against the general assets of the Company.

ARTICLE IV

CLAIMS PROCEDURE

 

 

Section 4.01

Claims Procedure

(a)       It shall not be necessary for a Participant or beneficiary who has become entitled to receive a benefit hereunder to file a claim for such benefit with any person as a condition precedent to receiving a distribution of such benefit. However, any Participant

 

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or beneficiary who believes that he or she has become entitled to a benefit hereunder and who has not received, or commenced receiving, a distribution of such benefit, or who believes that he or she is entitled to a benefit hereunder in excess of the benefit which he or she has received, or commenced receiving, may file a written claim for such benefit with the Compensation Committee at any time on or prior to the end of the fiscal year next following the fiscal year in which he or she allegedly became entitled to receive a distribution of such benefit. Such written claim shall set forth the Participant’s or beneficiary’s name and address and a statement of the facts and a reference to the pertinent provisions of the Plan upon which such claim is based. The Compensation Committee shall, within ninety (90) days (45 days for a claim for benefits on account of disability) after such written claim is filed, provide the claimant with written notice of its decision with respect to such claim. If such claim is denied in whole or in part, the Compensation Committee shall, in such written notice to the claimant, set forth in a manner calculated to be understood by the claimant the specific reason or reasons for denial; specific references to pertinent provisions of the Plan upon which the denial is based; a description of any additional material or information necessary for the claimant to perfect his or her claim and an explanation of why such material or information is necessary; and an explanation of the provisions for review of claims set forth in Section 4.01(b) below.

(b)       A Participant or beneficiary who has filed a written claim for benefits with the Compensation Committee which has been denied may appeal such denial to the Compensation Committee and receive a full and fair review of his or her claim by filing with the Compensation Committee a written application for review at any time within sixty (60) days (180 days for a claim for benefits on account of disability) after receipt from the Benefits Compensation Committee of the written notice of denial of his or her claim provided for in Section 4.01(a) above. A Participant or beneficiary who submits a timely written application for review shall be entitled to review any and all documents pertinent to his or her claim and may submit issues and comments to the Compensation Committee in writing. Not later than sixty (60) days (45 days for a claim for benefits on account of disability) after receipt of a written application for review, the Compensation Committee shall give the claimant written notice of its decision on review, which written notice shall set forth in a manner calculated to be understood by the claimant specific reasons for its decision and specific references to the pertinent provisions of the Plan upon which the decision is based.

(c)       Any act permitted or required to be taken by a Participant or beneficiary under this Section 4.01 may be taken for and on behalf of such Participant or beneficiary by such Participant’s or beneficiary’s duly authorized representative. Any claim, notice, application of other writing permitted or required to be filed with or given to a party by this Article shall be deemed to have been filed or given when deposited in the U.S. mail, postage prepaid, and properly addressed to the party to whom it is to be given or with whom it is to be filed. Any such claim, notice, application, or other writing deemed filed or given pursuant to the next foregoing sentence shall in the absence of clear and convincing evidence to the contrary, be deemed to have been received on the fifth business day following the date upon which it was filed or given. Any such notice, application, or other writing directed to a Participant or beneficiary shall be deemed

 

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properly addressed if directed to the address set forth in the written claim filed by such Participant or beneficiary.

ARTICLE V

 

Miscellaneous Provisions

Section 5.01      Cumulative Benefits. Except as provided in Section 3.03, the rights and benefits provided to any Participant under this Plan are in addition to and shall not be a replacement of, all of the other rights and benefits provided to such Participant under any Benefit Plan or any agreement between such Participant and the Company.

Section 5.02      No Mitigation. No Participant shall be required to mitigate the amount of any payment provided for in this Plan by seeking or accepting other employment following a termination of his or her employment with the Company or otherwise. Except as otherwise provided in Section 3.03, the amount of any payment provided for in this Plan shall not be reduced by any compensation or benefit earned by a Participant as the result of employment by another employer or by retirement benefits. The Company's obligations to make payments to any Participant required under this Plan shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against such Participant.

Section 5.03      Amendment or Termination. The Board may amend or terminate the Plan at any time upon not less than 75 days' notice to each then current Participant; provided that no amendment may adversely affect the rights of any Participant who is receiving benefits under the Plan at such time of amendment. Termination of the Plan shall constitute Good Reason under the Plan for each Participant for a period of sixty (60) days following the notice of termination of the Plan referred to above. Notwithstanding the foregoing, nothing herein shall abridge the Compensation Committee's authority to designate new Participants to participate in the Plan in accordance with Section 2.01(a) hereof. Payments and benefits under the Plan are intended to comply with Section 409A of the Code (“Code Section 409A”), and all provisions of the Plan and Notice of Participation shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that the Board determines that any payments or benefits may or do not comply with Code Section 409A, the Board may adopt such amendments to the Plan (without Participant consent) or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Board determines are necessary or appropriate to (i) exempt the Plan and any payments or benefits thereunder from the application of Code Section 409A, or (ii) comply with the requirements of Code Section 409A.

Section 5.04      Enforceability. The failure of Participants or the Company to insist upon strict adherence to any term of the Plan on any occasion shall not be

 

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considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of the Plan.

 

Section 5.05

Administration.

(a)       The Compensation Committee shall have full and final authority, subject to the express provisions of the Plan, with respect to designation of Participants and administration of the Plan, including but not limited to, the authority to construe and interpret any provisions of the Plan and to take all other actions deemed necessary or advisable for the proper administration of the Plan.

(b)       The Company shall indemnify and hold harmless each member of the Compensation Committee and any other employee of the Company that acts at the direction of the Compensation Committee against any and all expenses and liabilities arising out of his or her administrative functions or fiduciary responsibilities, including any expenses and liabilities that are caused by or result from an act or omission constituting the negligence of such member in the performance of such functions or responsibilities, but excluding expenses and liabilities that are caused by or result from such member's or employee's own gross negligence or willful cause. Expenses against which such member or employee shall be indemnified hereunder shall include, without limitation, the amounts of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof.

Section 5.06      Consolidations, Mergers, Etc. In the event of a merger, consolidation or other transaction, nothing herein shall relieve the Company from any of the obligations set forth in the Plan; provided, however, that nothing in this Section 5.06 shall prevent an acquirer of or Successor to the Company from assuming the obligations, or any portion thereof, of the Company hereunder pursuant to the terms of the Plan provided that such acquirer or Successor provides adequate assurances of its ability to meet this obligation. In the event that an acquirer of or Successor to the Company agrees to perform the Company's obligations, or any portion thereof, hereunder, the Company shall require any person, firm or entity which becomes its Successor to expressly assume and agree to perform such obligations in writing, in the same manner and to the same extent that the Company would be required to perform hereunder if no such succession had taken place.

Section 5.07      Successors and Assigns. This Plan shall be binding upon and inure to the benefit of the Company and its Successors and assigns. This Plan and all rights of each Participant shall inure to the benefit of and be enforceable by such Participant and his or her personal or legal representatives, executors, administrators, heirs and permitted assigns. If any Participant should die while any amounts are due and payable to such Participant hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such Participant's devisees, legatees or other designees or, if there be no such devisees, legatees or other designees, to such Participant's estate. No payments, benefits or rights arising under this

 

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Plan may be assigned or pledged by any Participant, except under the laws of descent and distribution.

Section 5.08      Notices. All notices and other communications provided for in this Plan shall be in writing and shall be sent, delivered or mailed, addressed as follows: (a) if to the Company, at the Company's principal office address or such other address as the Company may have designated by written notice to all Participants for purposes hereof, directed to the attention of the General Counsel, and (b) if to any Participant, at his or her residence address on the records of the Company or to such other address as he or she may have designated to the Company in writing for purposes hereof. Each such notice or other communication shall be deemed to have been duly given or mailed by United States certified or registered mail, return receipt requested, postage prepaid, except that any change of notice address shall be effective only upon receipt.

Section 5.09      Tax Withholding. The Company shall have the right to deduct from any payment hereunder all taxes (federal, state or other) which it is required to be withhold therefrom.

Section 5.10      No Employment Rights Conferred. This Plan shall not be deemed to create a contract of employment between any Participant and the Company and/or its affiliates. Nothing contained in this Plan shall (a) confer upon any Participant any right with respect to continuation of employment with the Company or (b) subject to the rights and benefits of any Participant hereunder, interfere in any way with the right of the Company to terminate such Participant's employment at any time.

Section 5.11      Entire Plan. This Plan contains the entire understanding of the Participants and the Company with respect to severance arrangements maintained on behalf of the Participants by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the Participants and the Company with respect to the subject matter herein other than those expressly set forth herein.

Section 5.12      Prior Agreements. This Plan supersedes all prior agreements, programs and understandings (including verbal agreements and understandings) between the Participants and the Company regarding the terms and conditions of Participant's severance arrangements.

Section 5.13      Severability. If any provision of the Plan is, becomes or is deemed to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Plan shall not be affected thereby.

Section 5.14      Governing Law. This Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its conflict of laws rules, and applicable federal law.

[REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY.]

 

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IN WITNESS WHEREOF, and as conclusive evidence of the adoption of this Plan by the HealthSouth Corporation Board of Directors, HealthSouth Corporation has caused this Plan to be duly executed in its name and behalf by its proper officer thereunto duly authorized as of the Effective Date.

 

HEALTHSOUTH CORPORATION

 

 

By:

____________________________________

Jon F. Hanson

Chairman

 

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Schedule A

 

Participant Job Title

Severance Multiplier

 

Chief Executive Officer

3.0 times

 

Executive Vice President

2 times

 

Senior Vice President

1 times

 

 

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Exhibit 10.1

 

 

October 31, 2007

 

Mr. Jay Grinney

c/o HealthSouth Corporation

One HealthSouth Parkway

Birmingham, Alabama 35243

 

Dear Jay:

The Board of Directors (the “Board”) of HealthSouth Corporation (the “Company”) is delighted to have you continue your employment as President and Chief Executive Officer (“CEO”) of the Company. This letter (“Letter”) outlines certain of the terms and conditions of your continued employment with the Company.

1.         Term, Position and Duties. During the period commencing on May 1, 2007 and ending on December 31, 2010 (the “Term”), you have been and will be employed as the President and CEO of the Company, reporting directly to the Board. In your capacity as President and CEO, you will have the overall charge and responsibility for the business and affairs of the Company, subject to the Board’s direction and the policies of the Company, and such other duties and responsibilities as are commensurate with such positions. During the Term, and excluding any periods of vacation and sick leave to which you are entitled, you agree to devote your full business attention and time to the business and affairs of the Company and to use your best efforts to perform faithfully and efficiently such responsibilities. Your services will be performed at the Company’s headquarters in Birmingham, Alabama.

2.         Board Membership. You will also continue to be nominated to be a member of the Board. However, as a member of the Board, you will not participate in any deliberations or determinations regarding your own compensation.

3.         Compensation, Generally. Your base salary, annual incentive compensation and long-term incentive compensation (“Total Compensation”) will be determined by the Compensation Committee of the Board (the “Committee”) on an annual basis. The Committee intends, subject to its discretion, its review of your individual and Company performance and other market trends, to provide you during the Term with the opportunity to receive for each component of Total Compensation an amount generally comparable to the 65th percentile of amounts paid by other publicly traded companies in the healthcare industry, which companies will be determined by the Committee in its sole discretion, for target performance. The Committee will establish, in its sole discretion, the performance and payment conditions

 

 


applicable to your Total Compensation, and such performance and payment conditions for annual and/or long-term incentive compensation awards will be established no later than 90 days into the applicable performance period.

4.         2007 Compensation. Your base salary for the period beginning on May 1, 2007 and ending on December 31, 2007 will be at an annualized rate of $1,000,000.00. For future calendar years within the Term, your base salary may be increased, but not decreased. Your target annual bonus for years 2007, 2008, 2009 and 2010 as CEO will be 100% (and your maximum bonus will be 200%) of your annualized rate of base salary as of May 1st of the applicable year.

5.         Benefits, Etc. You will also be eligible to participate in all of the Company’s plans, programs and policies, and to receive all benefits generally available to senior executives of the Company. In addition, you will be entitled to disability insurance coverage that provides for an annual long-term disability benefit equal to 60% of your base salary, subject to your eligibility for such coverage from a third-party at commercially reasonable rates.

6.         Long-Term Incentives. As part of your Total Compensation for 2007, you will be granted an award of 97, 403 shares of restricted stock of the Company (the “2007 Restricted Stock Award”) pursuant to the HealthSouth Corporation 1998 Restricted Stock Plan (the “RSP”). The terms and conditions of the 2007 Restricted Stock Award will be governed by the terms of the RSP and the provisions of Annex A hereto. Your future annual equity and other long-term incentive grants for during the Term for 2008 and thereafter (the “Future Awards,” together with the 2007 Restricted Stock Award, the “Awards”) will be determined by the Committee in its discretion and as described in Section 3 hereof, and will have such terms and conditions as are applicable to similarly situated executives in accordance with the terms and conditions the applicable plans and programs.

7.         Restrictive Covenants. During the Term (and for such extended periods due to your termination of employment during the Term, as applicable, under the Restrictive Covenant Agreement attached hereto as Annex B (the “Restrictive Covenant Agreement”)), you agree to be bound by the terms of the Restrictive Covenant Agreement, which is incorporated herein in its entirety.

 

8.

Severance and Change in Control.

(a)       The terms of the HealthSouth Corporation Executive Severance Plan (the “Executive Severance Plan”) and the HealthSouth Corporation Change in Control Benefits Plan (the “Change in Control Benefits Plan”), each as in effect on the date hereof, will govern your rights on termination of your employment during the Term. The Company agrees that notwithstanding any amendments to the Executive Severance Plan and the Change in Control Benefits Plan, if your employment terminates during the Term, you will be entitled to the payments and benefits provided under the Executive Severance Plan and the Change in Control Benefits Plan, as applicable, as in effect on the date hereof, and as amended pursuant to this Letter. Your entitlement to payments and benefits under the Executive Severance Plan and Change in

 

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Control Benefits Plan, and Sections 8(b) and (c) below, is contingent upon your compliance with the provisions of the Restrictive Covenant Agreement.

(b)       If, subject to the terms of the Executive Severance Plan, you are terminated without Cause or resign for Good Reason (each as defined in the Executive Severance Plan), then for any Future Award that is subject to a vesting schedule that is time-based only, the portion of the Future Award that is unvested as of the effective date of your termination without Cause or resignation for Good Reason shall remain outstanding and continue to vest as if you remained in the employ of the Company through the earlier of (x) the next time-related vesting date of the applicable Future Award and (y) any material breach by you of any provision of this Letter, including the Restrictive Covenant Agreement.

(c)       If, subject to the terms of the Executive Severance Plan, you are terminated without Cause or resign for Good Reason (each as defined in the Executive Severance Plan), then, for any Award that is subject to the achievement of performance criteria, you will receive a Pro-rated Portion (as defined in the following sentence) of the amount, if any, earned with respect to such Award, such amount to be determined at the end of the applicable performance period in accordance with, and subject to, the applicable performance criteria. The “Pro-rated Portion” means a fraction of the Award whose numerator is the number of months elapsed from the date of grant of such Award through the date that is the earlier of (x) the effective date of your termination without Cause or resignation for Good Reason and (y) any material breach by you of any provision of this Letter, including the Restrictive Covenant Agreement, and the denominator of which is 36. The Award earned in accordance with this Section 8(c) will be paid or delivered to you as soon as practicable following the end of the applicable performance period.

9.         Resignation. Upon termination of your employment for any reason, you agree to resign, effective as of the date of your termination of employment, from any positions that you hold with the Company and its affiliates, the Board (and any committees thereof) and the board of directors (and any committees thereof) of any of the Company’s affiliates.

 

10.       Indemnification. You will be entitled to indemnification in connection with a litigation or proceeding arising out of you acting as President and CEO or an employee, officer or director of the Company, to the fullest extent permitted under the Company’s charter and by-laws and by applicable law. In addition, you will be entitled to liability insurance coverage pursuant to a Company-purchased directors’ and officers’ liability insurance policy on the same basis as other directors and officers of the Company.

11.       Tax. The Company may withhold from any amounts payable under this Letter such Federal, state, local or foreign taxes as will be required to be withheld pursuant to any applicable law or regulation. This Letter is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”). Unless otherwise provided herein or in any applicable plan, program or policy of the Company, payments to you under this Letter are intended to comply with the short-term deferral exemption from Section 409A and as such, will be made no

 

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later than March 15th of the calendar year following the calendar year in which you have a legally binding right to the payment. Further, reimbursements provided herein will be made no later than December 31st of the calendar year following the year in which the expense incurred, and in no event will the amount of in-kind benefits available in one taxable year affect the amount of in-kind benefits available in a different taxable year. In the event that any payments to you under this Letter (including pursuant to the Executive Severance Plan and the Change in Control Benefits Plan) are considered “non-qualified deferred compensation” under Section 409A, and of a type requiring payments six months after the date of your separation from service, to the extent required by Section 409A such payment will be delayed until six months and one day after the date of your separation from service (within the meaning of Section 409A); provided, however, that a payment delayed pursuant to this clause will commence earlier in the event of your death prior to the end of the six-month period.

 

12.

Other Matters.

(a)       In no event will you be entitled to duplicate payments or benefits under different provisions of this Letter or pursuant to the terms of any other plan, program or arrangement of the Company or its affiliates. In the event of any termination of your employment, you will be under no obligation to seek other employment, and, there will be no offset against amounts due to you under this Letter on account of any remuneration attributable to any subsequent employment, unless provided otherwise under the Company’s applicable plans.

(b)       Except to the extent necessary to enforce the provisions of the Restrictive Covenant Agreement, any disputes under this Letter will be settled by arbitration in Birmingham, Alabama in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Subject to review of time entries and other documentation, the Company will pay reasonable legal fees incurred by you in connection with the negotiation and documentation of this Letter (and the preceding term sheet) up to a maximum of $15,000.

(c)       This Letter is personal to you and without the prior written consent of the Company will not be assignable by you. This Letter will inure to the benefit of and be enforceable by your legal representatives, heirs or legatees. This Letter will inure to the benefit of and be binding upon the Company and its successors and assigns.

(d)       This Letter will be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. This Letter may not be amended or modified otherwise than by a written agreement executed by the Company and you or the respective successors and legal representatives of the Company and you.

(e)       The invalidity or unenforceability of any provision of this Letter will not affect the validity or enforceability of any other provision of this Letter. No waiver will be valid unless in writing signed by the party providing the waiver (that is, by you or an authorized officer of the Company, as the case may be). The Company’s or your failure to insist upon strict

 

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compliance with any provisions of, or to assert any right under, this Letter will not be deemed to be a waiver of such provision or right or of any other provision or right under this Letter.

(f)        This Letter, Sections 4(a)(iv), 4(a)(v), 4(b)(iii), 4(b)(iv), 4(c)(ii) and 4(c)(iii) of that employment agreement, dated as of May 3, 2004, by and between the Company and you (the “2004 Employment Agreement”) concerning the treatment of certain outstanding equity awards upon termination of employment, and the applicable Company incentive, equity, welfare and benefit plans, programs and policies, including the Executive Severance Plan and the Change in Control Benefit Plan, contain the entire agreement between the parties concerning the subject matter hereof and supersede all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto (including, without limitation, the 2004 Employment Agreement (except as provided earlier in this sentence) and the term sheet previously negotiated by the parties hereto). In the event of any inconsistency between the provisions of this Letter and the provisions of any other agreement or plan relating to the 2007 Restricted Stock Award, the provisions of this Letter will control. The provisions of this Letter will expire and be of no further force or effect as of December 31, 2010; provided, however, that any provision of this Letter, to the extent necessary to carry out the intent of such provision, will survive after the expiration of the Term.

 

Please confirm your acceptance of the foregoing by signing and returning a copy of this Letter to the undersigned no later than October 31, 2007. This Letter may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument. This Letter will not be effective until you execute and deliver a copy of it to the Company.

 

Yours sincerely,

 

HEALTHSOUTH CORPORATION

 

/s/ Jon F. Hanson______________________

Jon F. Hanson

Chairman of the Board of Directors

 

Agreed and accepted:

 

/s/ Jay Grinney_____________________

Jay Grinney

Date: 10/31/07

 

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ANNEX A

TERMS OF 2007 RESTRICTED STOCK AWARD

 

This Annex A formalizes in writing certain understandings between HealthSouth Corporation and its current and future subsidiaries and affiliates (collectively, the “Company”) and you, Jay Grinney with respect to your 2007 Restricted Stock Award (as defined in the employment letter, dated October 31, 2007 from the Company to you (the “Letter”)).

1.         The Board of Directors of the Company determined, in principle, on August 2, 2007 that the underlying value of the 2007 Restricted Stock Award will be $1.5 million, and the number of shares of such award is based upon the closing price of the Company’s common stock as of such date. The 2007 Restrictive Stock Award will be granted pursuant to and subject to the terms and conditions of the HealthSouth Corporation 1998 Restricted Stock Plan and such other terms and conditions as provided herein.

2.         Your 2007 Restricted Stock Award will vest and cease to be restricted on May 1, 2010 (the “Vesting Date”) only if (i) you are employed by the Company on the Vesting Date and (ii) the closing price per share of the Company’s common stock, par value $0.01, is at or above $24.00 for any 20 consecutive days within the period beginning on the date of grant and ending on the Vesting Date. You will immediately forfeit the 2007 Restricted Stock Award if you cease to be employed by the Company prior to the Vesting Date; provided, however, in accordance with Section 8(c) of the Letter, if, subject to the terms of the HealthSouth Corporation Executive Severance Plan (the “Executive Severance Plan”), you are terminated without Cause or resign for Good Reason (each as defined in the Executive Severance Plan), then you will receive a Pro-rated Portion (as defined in the following sentence) of the 2007 Restricted Stock Award if the condition set forth in clause (ii) above is satisfied. The “Pro-rated Portion” means a fraction of the 2007 Restricted Stock Award whose numerator is the number of months elapsed from the date of grant of such Award through the date that is the earlier of (x) the effective date of your termination without Cause or resignation for Good Reason and (y) any material breach by you of any provision of the Letter, including the Restrictive Covenant Agreement incorporated therein, and the denominator of which is 30. The 2007 Restricted Stock Award determined in accordance with this proviso will be delivered to you as soon as practicable following the Vesting Date.

 

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ANNEX B

RESTRICTIVE COVENANT AGREEMENT

 

This Restrictive Covenant Agreement (“Agreement”) formalizes in writing certain understandings between HealthSouth Corporation and its current and future subsidiaries and affiliates (collectively, the “Company”) and you, Jay Grinney:

1.         Confidentiality. During the Term (as defined in the employment letter, dated October 31, 2007 from the Company to you) and thereafter, other than in the ordinary course of performing your duties for the Company, you agree that you will not disclose to anyone or make use of any trade secret or proprietary or confidential information of the Company or any affiliate of the Company, including such trade secret or proprietary or confidential information of any customer or other entity to which the Company owes an obligation not to disclose such information, which you acquire during the course of your employment, including, but not limited to, records kept in the ordinary course of business, except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent or actual jurisdiction to order you to divulge, disclose or make accessible such information. In the event you are requested to disclose information as contemplated in the preceding sentence, you agree, unless otherwise prohibited by law, to use your best efforts to give the Company’s General Counsel prompt written notice of any request for disclosure in advance of you making such disclosure in order to permit the Company a reasonable opportunity to challenge such disclosure. The foregoing will not apply to information that (i) was known to the public prior to its disclosure by you; or (ii) becomes known to the public through no wrongful disclosure by or act of you or any of your representatives.

2.         Property Rights. Whether during the Term or thereafter, you agree to hereby sell, assign and transfer to the Company all of your right, title and interest in and to all inventions, discoveries, improvements and copyrightable subject matter (the “Rights”) which during the period of your employment are made or conceived by you, alone or with others, and which are within or arise out of any general field of the Company’s business or arise out of any work you perform, or information you receive regarding the business of the Company, while employed by the Company. You will fully disclose to the Company as promptly as available all information known or possessed by you concerning any Rights, and upon request by the Company and without any further remuneration in any form to you by the Company, but at the expense of the Company, execute all applications for patents and for copyright registration, assignments thereof and other instruments and do all things which the Company may deem necessary to vest and maintain in it the entire right, title and interest in and to all such Rights. You agree that at the time of the termination of employment, whether at the instance of you or the Company, and regardless of the reasons therefore, you will promptly deliver to the Company’s General Counsel, and not keep or deliver to anyone else, any and all of the following which is in your possession or control: (i) Company property (including, without limitation, credit cards, computers, communication devices, home office equipment and other Company tangible property) and (ii) notes, files, memoranda, papers and, in general, any and all physical matter and computer files containing

 

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confidential or proprietary information of the Company or any of its affiliates, including any and all documents relating to the conduct of the business of the Company or any of its affiliates and any and all documents containing confidential or proprietary information of the customers of the Company or any of its affiliates, except for (x) any documents for which the Company’s General Counsel has given written consent to removal at the time of termination of your employment and (y) any information necessary for you to retain for your tax purposes.

3.         Non-Competition. You acknowledge that in your capacity in management you have had or will have a great deal of exposure and access of the Company’s trade secrets and confidential and proprietary information. Therefore, during your employment and for 24 months following termination of such employment (whether during the Term or thereafter) or, for 12 months if you are terminated by the Company for Cause or due to Disability (each, as defined in the HealthSouth Corporation’s Executive Severance Plan or HealthSouth Corporation Change in Control Benefits Plan, as applicable), to protect the Company’s trade secrets and other confidential and proprietary information, you agree that you will not, other than in the ordinary course of performing your duties hereunder or as agreed by the Company in writing, engage in a “Competitive Business,” directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or in any relationship or capacity, in any geographic location in which the Company or any of its affiliates is engaged in business. You will not be deemed to be in violation of this Section 3 by reason of the fact that you own or acquire, solely as an investment, 2% or less of the outstanding equity securities (measured by value) of any publicly traded company. “Competitive Business” will mean (x) your participation in any unsolicited offer to purchase the stock or assets of the Company or (y) any business that competes anywhere in the world where the Company conducts any business or activity with (I) any business or activity, conducted by the Company prior to or as of the date of termination of your employment or (II) any business or activity in which the Company is actively considering to engage prior to or as of the date of termination of your employment.

4.         Non-Interference. You acknowledge that information regarding the Company’s business and financial relations with its vendors and customers is confidential information and proprietary to the Company and that any interference with such relations based directly or indirectly on the use of such information would cause irreparable damage to the Company. You acknowledge that by virtue of your employment with the Company, you have gained or may gain knowledge of such information concerning the Company’s vendors and customers (respectively “Vendor Information” or “Customer Information”), and that you would inevitably have to draw on this Vendor Information and Customer Information and on other confidential information if you were to solicit or service the Company’s vendors or customers on behalf of a competing business enterprise. Accordingly, and subject to the immediately following sentence, you agree that, other than in the ordinary course of performing your duties for the Company, during your employment and for the 36-month period following the termination of such employment (whether during the Term or thereafter) (the “Restricted Period”), you will not, on behalf of yourself or any other person or entity, directly or indirectly seek to encourage or induce any vendor or customer of the Company to cease doing business with, or lessen its business with, the Company, or otherwise interfere with or damage (or attempt to interfere with or damage) any of the Company’s

 

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relationships with its vendors and customers. No action by another person or entity in engaging in such encouragement or inducement as described in the preceding sentence will be deemed to be a breach of this provision by you unless you assisted, encouraged or otherwise counseled such person or entity to engage in such activity.

5.         Non-Solicitation. You agree that, during the Restricted Period (other than in the ordinary course of performing your duties for the Company), you will not, without the prior written consent of the Company, directly or indirectly, (i) hire any employee of the Company or any of its affiliates who is then an employee of the Company or such affiliate or was an employee during the prior six-month period, or (ii) solicit or encourage any such employee to leave the employ of the Company or such affiliate, as the case may be. No action by another person or entity in engaging in such hiring, solicitation or encouragement as described in the preceding sentence will be deemed to be a breach of this provision by you unless you assisted, encouraged or otherwise counseled such person or entity to engage in such activity.

6.         Public Comment. You, during the Term and at all times thereafter, will not (i) make any public derogatory comment concerning the Company or its affiliates or anyone whom you know to be a current or former director, officer, stockholder or employee of the Company or (ii) publish or produce any information or write any book, article, screenplay, teleplay or similar type of publication relating to the Company or its affiliates or anyone whom you know to be a current or former director, officer, stockholder or employee. Notwithstanding the foregoing, nothing in this Section 6 will prohibit you from responding publicly to incorrect, disparaging or derogatory public statements about the Company or you relating to your employment with the Company.

7.         Blue Penciling. If any restrictions on competitive or other activities contained in this Agreement will for any reason be held by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, such restrictions will be construed so as thereafter to be limited or reduced to be enforceable to the extent compatible with the applicable law; it being understood that by the execution of this Agreement, (i) you and the Company regard such restrictions as reasonable and compatible with your and the Company’s respective rights and (ii) you acknowledge and agree that the restrictions will not prevent you from obtaining gainful employment subsequent to the termination of your employment.

8.         Injunctive Relief. You acknowledge and agree that the covenants and obligations of you set forth in this Agreement relate to special, unique and extraordinary services rendered by you to the Company and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, you agree that the Company will be entitled to seek an injunction, restraining order or other temporary or permanent equitable relief (without the requirement to post bond) restraining you from committing any violation of the covenants and obligations contained herein. These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. The existence of any claim or cause of action by you

 

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against the Company will not constitute a defense to the enforcement by the Company of the foregoing restrictive covenants, but such claim or cause of action will be determined separately.

9.         Survival. The provisions of this Agreement will remain in full force and effect until the expiration of the periods specified herein notwithstanding the earlier termination of your employment hereunder or the expiration of the Term. Your entitlement to payments and benefits under the Executive Severance Plan and Change in Control Benefits Plan is contingent upon your compliance with the provisions of the Restrictive Covenant Agreement.

 

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