Employment Agreement - HealthSouth Corp. and Anthony J. Tanner


                              EMPLOYMENT AGREEMENT

          EMPLOYMENT  AGREEMENT,  dated as of April 1, 1998 (this  'Agreement'),
between HEALTHSOUTH  Corporation,  a Delaware  corporation (the 'Company'),  and
ANTHONY J. TANNER, a resident of Hoover, Alabama (the 'Executive').

                              W I T N E S S E T H:

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

          WHEREAS,  the  Executive  is a founder  of the  Company  and serves as
Executive Vice President - Administration  and Secretary of the Company and as a
member of its Board of Directors; and

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

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

     1. EMPLOYMENT

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

     2. TERM

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

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

     3. POSITION, DUTIES AND RESPONSIBILITIES

               (a) The Executive shall serve as, and with the title,  office and
authority of, the Executive Vice President - Administration and Secretary of the
Company and as a member of the Board of Directors  of the Company (the  'Board')
and shall report  directly to the Chief  Executive  Officer of the Company.  The
Executive  shall  also hold  similar  titles,  offices  and  authority  with the
Company's subsidiaries and/or their successors. The Company shall use its






best efforts to cause the Executive to be nominated and elected (or  renominated
and reelected, as the case may be) during the Employment Period as a director of
the Company and its subsidiaries or their successors.

               (b) The Executive shall have all of the powers, authority, duties
and responsibilities  usually incident to the positions and offices of Executive
Vice President Administration and Secretary of the Company.

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

     4. PLACE OF PERFORMANCE

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

     5. COMPENSATION AND BENEFITS

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

               (a) Salary.  The Company  shall pay the  Executive an annual base
salary (the 'Base Salary') of at least  $375,000.  The  Executive's  Base Salary
shall be paid in arrears in substantially  equal installments at monthly or more
frequent  intervals,  in  accordance  with the normal  payroll  practices of the
Company.  The Executive's Base Salary shall be reviewed at least annually by the
Compensation   Committee  of  the  Board  (the  'Compensation   Committee')  for
consideration  of appropriate  merit increases and, once  established,  the Base
Salary shall not be decreased during the Employment Period.

               (b) Incentive  Plans.  The  Executive  shall  participate  in all
annual and long-term  bonus or incentive  plans or  arrangements  in which other
senior  executives  of  the  Company  of a  comparable  level  are  eligible  to
participate from time to time,  including,  without  limitation,  any management
bonus pool arrangement.  The Executive's  incentive  compensation  opportunities
under such plans and  arrangements  shall be determined from time to time by the
Compensation Committee.

               (c)   Equity   Incentives.   The   Executive   shall   be   given
consideration, at least annually, by the Compensation Committee for the grant of
options to purchase shares of the common stock of the Company. In addition,  the
Executive shall be entitled to receive awards


                                        2






under any stock option,  stock purchase or equity-based  incentive  compensation
plan or  arrangement  adopted by the  Company  from time to time for which other
senior  executives  of  the  Company  of a  comparable  level  are  eligible  to
participate.  The Executive's  awards under such plans and arrangements shall be
determined from time to time by the Compensation Committee.

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

                    (i) long-term  disability insurance coverage paying benefits
               equal to at least  60% of the  Executive's  Base  Salary  for the
               duration of any permanent and total  disability of the Executive;
               and

                    (ii)  continued  provision of  split-dollar  life  insurance
               coverage.


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

                    (i) provision of executive offices and secretarial staff;

                    (ii) vacation in accordance with Company's  policy for other
               senior executives of a comparable level;

                    (iii) provision of a  non-accountable  automobile  allowance
               equal to $500 per month; and

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

     6. TERMINATION OF EMPLOYMENT

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

               (a)  Resignation.  The  Executive may  voluntarily  terminate his
employment hereunder for any reason at any time.

               (b)  Termination  for  Cause.   The  Company  may  terminate  the
Executive's


                                        3






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

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

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

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

     7. COMPENSATION UPON TERMINATION OF EMPLOYMENT

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

               (a)   Resignation.   In  the  event  the  Executive   voluntarily
terminates  his employment  hereunder for any reason,  the Company shall pay and
provide to the Executive any Accrued Rights (as defined in paragraph (c) below).

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


                                        4






               (c) Termination other than for Cause, Disability or Death. In the
event the Executive's  employment hereunder is terminated by the Company for any
reason  other than for Cause,  Disability  or death,  the Company  shall pay the
Executive and provide him with the following:

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

                    (ii)  Severance  Payment.  The  Company  shall  provide  the
               Executive with continued  payment of the Executive's Base Salary,
               as in  effect  on the date of  termination,  for a period  of two
               years following the Executive's termination, payable at the times
               and in the manner  such Base  Salary  would have been paid if the
               Executive had continued in the employment of the Company.

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

               (d) Disability. In the event the Executive's employment hereunder
is terminated by reason of the Executive's Disability, the Company shall pay and
provide to the Executive any Accrued Rights,  including all disability insurance
coverage.

               (e) Death. In the event the Executive's  employment  hereunder is
terminated by reason of the Executive's death, the Company shall pay and provide
to the Executive's  representative  or estate any Accrued Rights,  including all
life insurance coverage.

     8. FOUNDERS' BENEFITS

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


                                        5






     9. CHANGE IN CONTROL

               (a) Supplemental  Termination Rights. In the event of a voluntary
termination of employment by the Executive  pursuant to Section 6(a) hereof that
occurs  within six months  following a Change in Control,  the Company shall pay
the Executive and provide him with the benefits and rights  described in Section
7(c) hereof.

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

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

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

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

     10. NO MITIGATION OR OFFSET

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


                                        6






     11. TAX WITHHOLDING; METHOD OF PAYMENT

         All compensation  payable pursuant to this Agreement,  shall be subject
to reduction by all applicable  withholding,  social security and other federal,
state and local taxes and  deductions.  Any  lump-sum  payments  provided for in
Sections 7 or 9 hereof shall be made in a cash payment,  net of any required tax
withholding, no later than the fifth business day following the Executive's date
of  termination.  Any payment  required to be made to the  Executive  under this
Agreement that is not made in a timely manner shall bear interest until the date
of payment at a rate equal to 100% of the monthly compounded  applicable federal
rate, as in effect under Section  1274(d) of the Internal  Revenue Code of 1986,
as amended, for the month in which payment was required to be made.

     12. RESTRICTIVE COVENANTS

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

               (b)  Noncompetition.  During the  Employment  Period and, for any
applicable period the Executive is entitled to severance  benefits under Section
7(c) hereof  following the  termination of his  employment,  the Executive shall
not,  without  the  prior  written  consent  of  the  Company,   engage  in  the
comprehensive  rehabilitative and related healthcare services business on behalf
of any person,  firm or corporation  within any  geographical  area in which the
Company  transacts  such  business,  and the  Executive  shall not  acquire  any
financial  interest  (except for an equity interest in  publicly-held  companies
that do not exceed 5% of any  outstanding  class of equity of that company),  in
any  business  that  engages in the  comprehensive  rehabilitative  and  related
healthcare  services  business within any geographical area in which the Company
transacts such business. Notwithstanding the foregoing, upon the occurrence of a
Change in Control  (whether  before or after the  termination  of the Employment
Period),  the  restrictions  of this  Section  12(b) shall cease to apply to the
Executive for any period following his termination of employment hereunder.

               (c)  Enforcement.  The  Company  shall  be  entitled  to  seek  a
restraining  order or  injunction  in any  court of  competent  jurisdiction  to
prevent any continuation of any violation of the provisions of this Section 12.

     13. SUCCESSORS

               (a) This  Agreement  shall be binding upon and shall inure to the
benefit of the  Company,  its  successors  and  assigns  and any  person,  firm,
corporation  or other entity which succeeds to all or  substantially  all of the
business,  assets or  property of the  Company.  The  Company  will  require any
successor  (whether direct or indirect,  by purchase,  merger,  consolidation or
otherwise) to all or  substantially  all of the business,  assets or property of
the


                                        7






Company,  to expressly  assume and agree to perform  this  Agreement in the same
manner and to the same extent  that the Company  would be required to perform it
if no such succession had taken place. As used in this Agreement,  the 'Company'
shall  mean  the  Company  as  hereinbefore  defined  and any  successor  to its
business,  assets or  property  as  aforesaid  which  executes  and  delivers an
agreement  provided for in this Section 13 or which  otherwise  becomes bound by
all the terms and provisions of this Agreement by operation of law.

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

     14. NO ASSIGNMENT

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

     15. ENTIRE AGREEMENT

         This Agreement  contains the entire  understanding  of the parties with
respect to the  subject  matter  hereof  and,  except as  specifically  provided
herein,  cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of this
Agreement  shall not be binding  unless in writing and signed by the Company and
the Executive.

     16. SEVERABILITY

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

     17. NOTICES

         All notices  which may be necessary or proper for either the Company or
the Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or


                                        8






certified mail, return receipt  requested,  or by air courier,  to the Executive
at:

                           Mr. Anthony J. Tanner
                           2112 Swan Lake Cove
                           Hoover, Alabama  35243

with a copy to:

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

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

     18. GOVERNING LAW

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

     19. ARBITRATION

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

     20. LEGAL FEES AND EXPENSES

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


                                        9






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

                                    EXECUTIVE

                                    /s/ Anthony J. Tanner
                                    --------------------------------
                                    Anthony J. Tanner

                                    HEALTHSOUTH CORPORATION

                                    By /s/ Richard M. Scrushy
                                      ------------------------------
                                      Richard M. Scrushy
                                      Chairman of the Board and
                                      Chief Executive Officer




                                       10