Employment Agreement - HealthSouth Corp. and Thomas W. Carman


                              EMPLOYMENT AGREEMENT

          EMPLOYMENT  AGREEMENT,  dated as of April 1, 1998 (this  'Agreement'),
between HEALTHSOUTH  Corporation,  a Delaware  corporation (the 'Company'),  and
THOMAS W. CARMAN, a resident of Birmingham, Alabama (the 'Executive').

                              W I T N E S S E T H:

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

          WHEREAS,   the  Executive   serves  as  Executive   Vice  President  -
Development 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,  Executive  Vice  President - Development of the Company and shall
report  directly  to the Chief  Executive  Officer of the  Company or such other
person  designated  from  time to time by the  Chief  Executive  Officer  of the
Company.

          (b) The Executive shall have all of the powers, authority,  duties and
responsibilities  usually  incident to the position and office of Executive Vice
President - Development 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 $325,000.  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



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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  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.



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          (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 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

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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.

          (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:



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              (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

          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

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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.

     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.

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          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.

     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:

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                           Mr. Thomas W. Carman
                           3667 West Altacrest
                           Birmingham Alabama 35243

with a copy to:

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

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

     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 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/ Thomas W. Carman
                                    --------------------------------
                                    Thomas W. Carman

                                    HEALTHSOUTH CORPORATION

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




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