1998 Restricted Stock Plan - HealthSouth Corp.


                             HEALTHSOUTH CORPORATION

                           1998 RESTRICTED STOCK PLAN

     1.  PURPOSE  OF THE PLAN.  The  purpose of the 1998  Restricted  Stock Plan
(hereinafter  called  the  'Plan')  of  HEALTHSOUTH   Corporation,   a  Delaware
corporation (hereinafter called the 'Corporation'),  is to provide incentive for
future  endeavor  and to  advance  the  interests  of the  Corporation  and  its
stockholders  by encouraging  ownership of the Common Stock,  par value $.01 per
share  (hereinafter  called  the  'Common  Stock'),  of the  Corporation  by its
executives and other key employees, upon whose judgment, interest and continuing
special efforts the Corporation is largely dependent for the successful  conduct
of its  operations,  and to enable the Corporation to compete  effectively  with
other  enterprises  for the services of such new executives and employees as may
be needed for the continued improvement of the Corporation's  business,  through
the grant of restricted  stock awards  ('Awards')  covering shares of the Common
Stock.

     2.  PARTICIPANTS.  Awards may be granted under the Plan to such  executives
and key employees of the Corporation and its subsidiaries as shall be determined
by the  Committee  appointed by the Board of Directors as set forth in Section 5
of the Plan;  provided,  however,  that no Award may be granted to any person if
such grant would  cause the Plan to cease to be an  'employee  benefit  plan' as
defined in Rule 405 of  Regulation C  promulgated  under the  Securities  Act of
1933.

     3. TERM OF THE PLAN.  The Plan shall  become  effective as of May 21, 1998,
subject to the approval by the holders of a majority of the shares of issued and
outstanding  Common  Stock of the  Corporation  present  and  voting at the 1998
Annual Meeting of Stockholders of the  Corporation.  The Plan shall terminate on
the earliest of (a) April 30, 2008,  (b) such time as all shares of Common Stock
reserved for issuance  under the Plan have been issued and are fully vested,  or
(c)  such  earlier  time  as the  Board  of  Directors  of the  Corporation  may
determine.  Any Award  outstanding under the Plan at the time of its termination
shall remain in effect in accordance  with its terms and conditions and those of
the Plan. No Award shall be granted under the Plan after April 30, 2008.

     4. STOCK SUBJECT TO THE PLAN.  Subject to the provisions of Section 11, the
aggregate number of shares of Common Stock for which Awards may be granted under
the Plan shall not exceed 3,000,000 shares,  and the maximum number of shares of
Common  Stock for which any  individual  may be  granted  Awards  under the Plan
during any calendar year is 100,000.  If, on or prior to the  termination of the
Plan as  provided  in  Section  3, an Award  granted  under the Plan  shall have
expired or terminated for any reason without having vested in full, the unvested
shares  covered  thereby  shall again become  available  for the grant of Awards
under the Plan.

     The shares to be delivered  upon exercise of Awards under the Plan shall be
made  available,  at the  discretion  of the  Board of  Directors,  either  from
authorized but  previously  unissued  shares as permitted by the  Certificate of
Incorporation of the Corporation or from shares  re-acquired by the Corporation,
including  shares of Common Stock purchased in the open market,  and shares held
in the treasury of the Corporation.






     5.  ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Audit
and  Compensation  Committee  of the  Board  of  Directors  of  the  Corporation
(hereinafter  called the 'Committee').  The acts of a majority of the Committee,
at any  meeting  thereof  at which a quorum is  present,  or acts  reduced to or
approved in writing by a majority of the members of the Committee,  shall be the
valid acts of the Committee.  The Committee  shall  determine the executives and
key  employees  of the  Corporation  and its  subsidiaries  who shall be granted
Awards and the number of shares of Common Stock to be subject to each Award.

     The  interpretation and construction of any provision of the Plan or of any
Award granted under it by the Committee  shall be final,  conclusive and binding
upon all parties, including the Corporation, its stockholders and Directors, and
the executives and employees of the Corporation and its subsidiaries.  No member
of the Board of Directors or the Committee  shall be liable to the  Corporation,
any  stockholder,  any  optionholder  or any employee of the  Corporation or its
subsidiaries for any action or determination  made in good faith with respect to
the Plan or any Award granted under it.

     The expenses of administering the Plan shall be borne by the Corporation.

     6.  GRANT OF  AWARDS.  (a)  Awards  may be  granted  under  the Plan by the
Committee in  accordance  with the  provisions of Section 5 at any time prior to
the  termination of the Plan. In making any  determination  as to executives and
key  employees to whom Awards shall be granted and as to the number of shares to
be covered by such Awards,  the Committee  shall take into account the duties of
the  respective  executives  and key  employees,  their  present  and  potential
contribution  to the success of the  Corporation,  and such other factors as the
Committee  shall deem  relevant in  connection  with the  accomplishment  of the
purposes of the Plan.

          (b) Each Award granted under the Plan shall be granted pursuant to and
subject  to the terms and  conditions  of a  restricted  stock  agreement  to be
entered into between the  Corporation  and the  participant  at the time of such
grant. Each such restricted stock agreement shall be in a form from time-to-time
adopted  for use under the Plan by the  Committee  (such form being  hereinafter
called a 'Restricted  Stock  Agreement').  Any such  Restricted  Stock Agreement
shall incorporate by reference all of the terms and provisions of the Plan as in
effect at the time of grant and may contain such other terms and  provisions  as
shall be approved and adopted by the Committee.

     7. CERTAIN  CONDITIONS OF AWARDS.  Awards  granted under this Plan shall be
subject to the following terms and conditions:

          (a) The  prospective  recipient of an Award shall not, with respect to
such Award,  be deemed to have become a  participant  or to have any rights with
respect to such Award  unless and until  such  recipient  shall have  executed a
Restricted Stock Agreement or other agreement evidencing the Award and its terms
and conditions and delivered a  fully-executed  copy thereof to the  Corporation
and otherwise complied with the  then-applicable  terms and conditions under the
Plan.

          (b) Each  participant  shall be issued a  certificate  in  respect  of
shares of  Common  Stock  awarded  under the  Plan.  Such  certificate  shall be
registered in the name of the participant,  and shall bear an appropriate legend
referring to the terms,  conditions  and  restrictions  applicable to such Award
substantially in the following form:


                                       2



     'The  transferability of this certificate and the shares of stock
     represented  hereby  are  subject  to the  terms  and  conditions
     (including  forfeiture)  of the  1998  Restricted  Stock  Plan of
     HEALTHSOUTH  Corporation and a Restricted Stock Agreement entered
     into between the registered  owner and  HEALTHSOUTH  Corporation.
     Copies of such Plan and Restricted Stock Agreement are on file in
     the offices of the Secretary of HEALTHSOUTH Corporation.'

          (c) The  Committee  may  adopt  rules  which  provide  that the  stock
certificates  evidencing  shares covered by Awards might be held in custody by a
bank or other  institution,  or that the Corporation may itself hold such shares
in custody until the restrictions  thereon shall have lapsed, and may require as
a condition of any Award that the participant shall have delivered a stock power
endorsed in blank relating to the stock covered by such Award.

          (d)  Recipients  of Awards under the Plan are not required to make any
payment or provide  consideration  therefor other than the rendering of services
to the Corporation.

     8.  RESTRICTIONS  AND  FORFEITURES.  The  shares  of Common  Stock  awarded
pursuant  to the  Plan  shall  be  subject  to the  following  restrictions  and
conditions:

          (a) During a period set by the Committee of not less than one year nor
more  than 10 years  commencing  with the  date of an  Award  (the  'Restriction
Period'), a participant will not be permitted to sell, transfer,  pledge, assign
or otherwise  dispose of shares of Common Stock awarded  pursuant to said Award.
Within these limits, the Committee may provide for the vesting of Awards and the
lapse of such  restrictions in installments  based upon the passage of time, the
achievement by the Corporation of certain  identified  performance goals, or the
occurrence of other events,  or any  combination  thereof,  all as the Committee
deems appropriate.

          (b) Except as provided in Section 8(a), a participant  shall have with
respect to the shares of Common Stock covered by an Award all of the rights of a
stockholder  of the  Corporation,  including  the right to vote such  shares and
receive dividends and other distributions thereon.

          (c)  Subject to the  provisions  of  Section  8(d),  unless  otherwise
provided in the applicable  Restricted  Stock  Agreement,  upon termination of a
participant's  employment  for any reason  during the  Restriction  Period,  all
shares awarded to such  participant  and still subject to  restriction  shall be
forfeited by the  participant  and be  reacquired  by the  Corporation,  without
consideration or payment therefor.

          (d) In the event of a participant's  retirement,  disability or death,
all restrictions with respect to such  participant's  Award shall lapse (subject
to Section 8(e)) and such  participant or his  beneficiary  shall be entitled to
receive (if held in custody by the  Corporation or a bank or other  institution)
and retain all of the stock subject to the Award; provided, however, that in the
case of retirement, the Committee in its sole discretion may determine that such
restrictions  shall not lapse as to all or a portion  of an Award or that all or
any of the shares subject to restriction shall be forfeited.

          (e) The  Committee  may  impose  any  conditions  on an Award it deems
advisable to ensure the participant's payment to the Corporation of any federal,
state or local taxes required to be withheld with respect to such award.


                                       3




          (f) Notwithstanding  any contrary provision  contained herein,  unless
otherwise  expressly  provided  in the  Restricted  Stock  Agreement,  any Award
granted hereunder shall become immediately vested in full upon the occurrence of
a Change in Control of the  Corporation.  For  purposes  of this  Section  8(f),
'Change in Control' shall mean

          (i) the acquisition  (other than from the  Corporation) 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
     Corporation  or its  subsidiaries,  or any  employee  benefit  plan  of the
     Corporation  or its  subsidiaries  which acquires  beneficial  ownership of
     voting  securities of the Corporation) 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 Corporation's  then-outstanding  voting
     securities entitled to vote generally in the election of Directors; or

          (ii)  individuals  who, as of May 21,  1998,  constitute  the Board of
     Directors of the Corporation (as of such date, the 'Incumbent Board') cease
     for any reason to constitute at least a majority of the Board of Directors;
     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 Corporation) shall be,
     for purposes of this Section 8(f),  considered as though such person were a
     member of the Incumbent Board; or

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

     9.  NONTRANSFERABILITY OF AWARDS. (a) Except to the extent that such Awards
are vested,  Awards  granted under the Plan shall be assignable or  transferable
only by will or pursuant to the laws of descent and distribution,  except to the
extent set forth in the following paragraph.

          (b)  Upon  written  notice  to the  Secretary  of the  Corporation,  a
participant  may,  except as otherwise  prohibited by applicable  law,  transfer
shares  granted  under  the Plan to one or more  members  of such  participant's
immediate  family,  to  a  partnership   consisting  only  of  members  of  such
participant's  immediate  family,  or to a trust all of whose  beneficiaries are
members of the participant's  immediate family.  For purposes of this section, a
participant's  'immediate  family'  shall be deemed  to  include  such  holder's
spouse, children and grandchildren only.

     10.  NO  RIGHT  OF  CONTINUED  EMPLOYMENT.  Nothing  in the  Plan or in the
Restricted  Stock  Agreement  shall  confer  upon any  participant  the right to
continue in the employ of the  Corporation or



                                       4




any of its subsidiaries or in any other relationship thereto or interfere in any
way with the right of the  Corporation  to terminate  such  employment  or other
relationship at any time.

     11.  ADJUSTMENT  OF AND  CHANGES IN  CAPITALIZATION.  In the event that the
outstanding shares of Common Stock shall be changed in number or class by reason
of split-ups, combinations, mergers, consolidations or recapitalizations,  or by
reason of stock dividends, the number or class of shares which thereafter may be
acquired  through Awards granted under the Plan, both in the aggregate and as to
any  individual,  and the  number  and class of shares  then  subject  to Awards
theretofore  granted  shall be adjusted  so as to reflect  such  change,  all as
determined  by the Board of  Directors  of the  Corporation.  In the event there
shall be any other  change in the  number or kind of the  outstanding  shares of
Common Stock,  or of any stock or other  securities into which such Common Stock
shall have been changed, or for which it shall have been exchanged,  then if the
Board of Directors  shall,  in its sole  discretion,  determine that such change
equitably  requires an adjustment in any Award theretofore  granted or which may
be granted under the Plan, such adjustment shall be made in accordance with such
determination.

     Notice of any adjustment  shall be given by the  Corporation to each holder
of an Award which shall have been so adjusted  and such  adjustment  (whether or
not such notice is given) shall be effective and binding for all purposes of the
Plan.

     Fractional  shares resulting from any adjustment in Awards pursuant to this
Section 11 may be settled in cash or  otherwise  as the Board of  Directors  may
determine.

     12.  SECURITIES  ACTS  REQUIREMENTS.  As a condition to the issuance of any
shares  pursuant  to an Award  under the Plan,  the  Board of  Directors  or the
Committee,  as the case may be, may require a  participant  to furnish a written
representation  that he is acquiring  the shares for  investment  and not with a
view to  distribution  of the  shares  to the  public  and a  written  agreement
restricting the transferability of the shares solely to the Corporation, and may
affix  a  restrictive   legend  or  legends  on  the  face  of  the  certificate
representing such shares. Such representation,  agreement and/or legend shall be
required  only in cases  where in the opinion of the Board of  Directors  or the
Committee, as the case may be, and counsel for the Corporation,  it is necessary
to enable the Corporation to comply with the provisions of the Securities Act of
1933 or other Federal or state  statutes  having similar  requirements,  and any
stockholder who gives such  representation  and agreement shall be released from
it and the legend  removed at such time as the shares to which they  applied are
registered or qualified  pursuant to the Securities Act of 1933 or other Federal
or state statutes having similar requirements,  or at such other time as, in the
opinion  of the Board of  Directors  or the  Committee,  as the case may be, and
counsel for the Corporation,  the  representation and agreement and legend cease
to be necessary to enable the  Corporation  to comply with the provisions of the
Securities  Act of 1933 or  other  Federal  or  state  statutes  having  similar
requirements.

     13.  AMENDMENT OF THE PLAN. The Plan may, at any time or from time to time,
be termi nated,  modified or amended by the  stockholders  of the Corporation by
the affirmative  vote of the holders of a majority of the outstanding  shares of
the Corporation's  Common Stock present and entitled to vote at a meeting of the
Corporation's  stockholders duly called and held (or, to the extent permitted by
law, by written consent of the holders of a majority of the  outstanding  shares
of the  Corporation's  Common Stock entitled to vote). The Board of Directors of
the Corporation may, insofar as permitted by law, from time to time with respect
to any shares of Common  Stock at the time not  subject  to  Awards,  suspend or
discontinue the Plan or revise or amend it in any respect whatsoever;  provided,
however, that, without approval of the stockholders of the Corporation,  no such
revision or amendment shall increase the number


                                       5




of shares  subject to the Plan,  extend the period  during  which  Awards may be
vested, or change the provisions  relating to adjustment to be made upon changes
in capitalization.

     14.  CHANGES IN LAW.  Subject to the provisions of Section 13, the Board of
Directors  shall  have the  power to amend the Plan and any  outstanding  Awards
granted thereunder in such respects as the Board of Directors shall, in its sole
discretion, deem advisable in order to incorporate in the Plan or any such Award
any new  provision  or change  designed  to  comply  with or take  advantage  of
requirements or provisions of the Internal Revenue Code of 1986, as amended,  or
any other statute,  or Rules or Regulations of the Internal  Revenue  Service or
any other Federal or state governmental  agency enacted or promulgated after the
adoption of the Plan.

     15. LEGAL MATTERS. Every right of action by or on behalf of the Corporation
or by any stock holder  against any past,  present or future member of the Board
of  Directors,  officer or  employee  of the  Corporation  arising  out of or in
connection with this Plan shall, irrespective of the place where such action may
be brought and  irrespective  of the place of  residence  of any such  Director,
officer or employee,  cease and be barred by the  expiration of three years from
whichever  is the later of (a) the date of the act or  omission  in  respect  of
which such right of action  arises,  or (b) the first date upon which  there has
been  made  generally   available  to  stockholders  an  annual  report  of  the
Corporation  and a  proxy  statement  for the  Annual  Meeting  of  Stockholders
following  the issuance of such annual  report,  which  annual  report and proxy
statement  alone or together set forth,  for the related  period,  the aggregate
number of shares for which Awards were granted;  and any and all right of action
by any  employee  or  executive  of the  Corporation  (past,  present or future)
against the  Corporation  arising out of or in connection  with this Plan shall,
irrespective of the place where such action may be brought,  cease and be barred
by the expiration of three years from the date of the act or omission in respect
of which such right of action arises.

     This Plan and all  determinations  made and actions taken  pursuant  hereto
shall be governed by the law of Delaware,  applied  without giving effect to any
conflicts-of-law principles, and construed accordingly.


                                       6