Employment Agreement - HealthSouth Corp. and Robert E. Thomson


                              EMPLOYMENT AGREEMENT

          EMPLOYMENT  AGREEMENT,  dated as of April 1, 1998 (this  'Agreement'),
between HEALTHSOUTH  Corporation,  a Delaware  corporation (the 'Company'),  and
ROBERT E. THOMSON, a resident of Indian Springs, 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  serves  as  President  and  Chief  Operating
Officer, Inpatient Division of the Company; 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, President and Chief Operating  Officer,  Inpatient Division of the
Company and shall report directly to the Chief Operating Officer of the Company.

               (b) The Executive shall have all of the powers, authority, duties
and responsibilities  usually incident to the positions and offices of President
and Chief Operating Officer, Inpatient






Division 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  $300,000.  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  of  directors  of  the  Company  (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 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


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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 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.

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

                    (ii) provision of a non-accountable  automobile allowance of
               $500 per month;

                    (iii)  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 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,  (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, or (iii) the Executive is found to have committed
a deliberate violation of Company policy. The determinations required by clauses
(ii) and  (iii)  above  are to be made by the  Chief  Executive  Officer  of the
Company.

               (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


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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(d)  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).

               (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) a 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(d) and 5(e) 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 one year
               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.


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               (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.   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  of  directors  of  the  Company  (as  of  such  date,  the
               'Incumbent  Board') cease for any reason to constitute at least a
               majority  of the board of  directors  of the  Company;  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  8(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.

     9.   NO MITIGATION OR OFFSET



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          The  Executive  shall not be required to seek other  employment  or to
reduce any severance benefit payable to him under Sections 7 or 8 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.

     10.  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 8 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.

     11.  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 that the Executive is entitled to receive  severance  payments
pursuant to Section  7(c) hereof,  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 11(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 11.



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     12.  SUCCESSORS

          This Agreement shall be binding upon and shall inure to the benefit of
the Company,  its  successors and assigns and any person,  firm,  corporation or
other entity which succeeds to all or substantially all of the business,  assets
or property of the  Company.  The Company will  require any  successor  (whether
direct or indirect, by purchase,  merger,  consolidation or otherwise) to all or
substantially  all of the  business,  assets  or  property  of the  Company,  to
expressly  assume and agree to perform this  Agreement in the same manner and to
the same  extent  that the  Company  would be  required to perform it if no such
succession had taken place. As used in this Agreement,  the 'Company' shall mean
the Company as hereinbefore defined and any successor to its business, assets or
property as aforesaid  which executes and delivers an agreement  provided for in
this Section 12 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.

          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.

     13.  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.

     14.  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.

     15.  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.


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     16.  NOTICES

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

                           Mr. Robert E. Thomson
                           101 Indian Trail
                           Indian Springs, Alabama 35124

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.

     17.  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.

     18.  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.

     19.  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


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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.


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

                                         EXECUTIVE

                                         /s/ Robert E. Thomson
                                         --------------------------------
                                         Robert E. Thomson


                                         HEALTHSOUTH CORPORATION

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



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