EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 1998 (this 'Agreement'), between
HEALTHSOUTH Corporation, a Delaware corporation (the 'Company'), and RICHARD M.
SCRUSHY, a resident of Birmingham, Alabama (the 'Executive').
W I T N E S S E T H:
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WHEREAS, the Company provides comprehensive rehabilitative, clinical,
diagnostic and surgical healthcare services;
WHEREAS, the Executive is a founder of the Company and serves as Chief
Executive Officer of the Company and as Chairman 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 fifth
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 Chief Executive Officer of the Company and the Chairman of the Board of
Directors of the Company (the 'Board') and shall report directly to the Board.
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.
(b) The Executive shall have effective supervision and control over, and
responsibility for, the strategic direction and general and active day-to-day
leadership and management of the business and affairs of the Company and the
direct and indirect subsidiaries of the Company, subject only to the authority
of the Board, and shall have all of the powers, authority, duties and
responsibilities usually incident to the positions and offices of Chief
Executive Officer and Chairman of the Board 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.
(d) The foregoing provisions of this Section 3 shall be subject to the
Executive's right to elect to serve the Company solely as the Chairman of the
Board, as provided in Section 22 hereof.
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 to 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 $1,200,000. 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, except as otherwise contemplated by
Section 22 hereof.
(b) Annual Target Bonus. The Company shall provide the Executive with the
opportunity to earn an annual target bonus (the 'Annual Target Bonus') equal to
at least $2,400.000. The amount of the Annual Target Bonus will be reviewed at
least annually by the Compensation Committee for consideration of appropriate
merit increases and, once established at a specified amount, the Annual Target
Bonus shall not be decreased during the Employment Period, except as otherwise
contemplated by Section 22 hereof. The Annual Target Bonus will be payable in
the event that the Company's operations meet the annual performance standard set
forth in the Company's business plan, as approved by the Compensation Committee
in each year of the Employment Period (the 'Business Plan'). In the event that
the Company's operations meet the monthly performance standard set forth in the
Business Plan, an amount equal to one-twelfth (1/12) of the Annual Target Bonus
(a 'Monthly Target Bonus') shall be payable within five days following the date
the Company's internal monthly financial statements have been completed. In the
event that any Monthly Target Bonus shall not be paid during the course of such
calendar year because the relevant monthly performance standard was not met,
such Monthly Target Bonus shall again become available for payment if the
Company attains its annual performance standard for such calendar year. In the
event that the annual performance standards are not met, Executive shall
nevertheless be entitled to retain all amounts theretofore received in respect
of any Monthly Target Bonuses paid during the course of such calendar year. For
the remainder of the 1998 calendar year following the Effective Date, the
Executive will be paid $200,000 within five days following the date the
Company's internal monthly financial statements have been completed for each
calendar month ending following the Effective Date in which the relevant monthly
performance standard is met and, in the event the Company attains its annual
performance standard for 1998, the Executive shall be paid $200,000 of any
month, dating back to January, 1998, in which the Executive was not paid the
Monthly Target Bonus due to the relevant monthly performance standard not having
been met.
(c) Other Incentive Plans. The Executive shall participate in all other
bonus or incentive plans or arrangements in which other senior executives of the
Company 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 upon consultation
with the Executive.
(d) 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 senior executives of the Company are eligible to
participate. The Executive's awards under such plans and arrangements shall be
determined from time to time by the Compensation Committee upon consultation
with the Executive.
(e) 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 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) provision of long-term disability insurance coverage paying
benefits equal to at least 100% of the Executive's Base Salary and Annual
Target Bonus for the duration of any permanent and total disability of the
Executive, either through an individual disability insurance policy or
otherwise;
(ii) continued provision of split-dollar life insurance coverage and
payment of premiums pursuant to that certain Split-Dollar Agreement between
the Executive and the Company, dated February 1, 1992, as amended; and
(iii) provision of the pension benefits provided under a non-qualified
retirement plan for the Executive, a summary of the terms of which is
attached hereto as Exhibit A.
(f) 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 senior executives of the Company 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) six weeks paid vacation during each calendar year;
(iii) provision of an automobile of the Executive's choice (which may
be traded in for a new automobile each year), plus payment of all related
automobile expenses, including gas, maintenance expenses and automobile
insurance;
(iv) payment of initiation fees and annual dues for two country clubs
of the Executive's choice, and payment of dues for any professional
societies and associations of which the Executive is a member in
furtherance of his duties hereunder;
(v) in order to ensure the accessibility and security of the
Executive, use of the Company's aircraft and related facilities for both
business and personal travel and provision of appropriate personal
residence security services, a 24-hour bodyguard service, a
security-trained driver/bodyguard and any other measures prescribed from
time to time by the Company's corporate security advisor and approved by
the Board; and
(vi) 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 for Good Reason. The Executive may voluntarily terminate
his employment hereunder for Good Reason. For purposes of this Agreement, 'Good
Reason' shall mean:
(i) the assignment to the Executive of any duties inconsistent with
the Executive's position (including status, offices, titles or reporting
relationships), authority, duties or responsibilities as contemplated by
Section 3 hereof, or any action by the Company that results in a diminution
in such position, authority, duties or responsibilities, but excluding for
these purposes any isolated and insubstantial action not taken in bad faith
and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any material change in the Executive's reporting
responsibilities;
(iii) any material failure by the Company to honor its obligations
under this Agreement;
(iv) a notice of non-extension of the Agreement Term provided by the
Company to the Executive as set froth in Section 2 hereof;
(v) the relocation of the Company's principal executive offices to a
location more than 40 miles from its current location in Birmingham,
Alabama, or the location of the Executive's own office to other than the
Company's principal executive offices;
(vi) any failure by the Company to obtain an assumption of this
Agreement by a successor corporation as required under Section 14(a)
hereof;
(vii) the failure of the Company to renominate the Executive to the
Board or the failure of the Company's stockholders to reelect the Executive
to the Board; or
(viii) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement.
However, in no event shall the Executive be considered to have terminated his
employment for 'Good Reason' unless and until the Company receives written
notice from the Executive identifying in reasonable detail the acts or omissions
constituting 'Good Reason' and the provision of this Agreement relied upon, and
such acts or omissions are not cured by the Company to the reasonable
satisfaction of the Executive within 30 days of the Company's receipt of such
notice.
(b) Resignation other than for Good Reason. The Executive may voluntarily
terminate his employment hereunder for any reason other than Good Reason.
(c) 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 or 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.
(d) Termination other than for Cause. The Board 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.
(e) 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.
(f) 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 for Good Reason. In the event the Executive voluntarily
terminates his employment hereunder for Good Reason, 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 Annual Target Bonus for
any completed calendar year, (C) any earned but unpaid Monthly Target Bonus
for any completed month in the calendar year of the Executive's 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 (including, but not limited to, any
retirement benefits set forth on Exhibit A to which Executive is entitled)
(together with the lump-sum payment, the 'Accrued Rights').
(ii) Severance Payment. The Company shall pay the Executive a lump-sum
amount equal to the sum of the Executive's then-current Base Salary and
Annual Target Bonus at the time of the Executive's termination, for each
year remaining in the Agreement Term (with pro-rated amounts of such Base
Salary and Annual Target Bonus, on a daily basis, for any partial calendar
years during such remaining Agreement Term), with such lump-sum payment
discounted to present value using an interest rate equal to 100% of the
monthly compounded applicable federal rate (the 'Applicable Rate'), as in
effect under Section 1274(d) of the Internal Revenue Code of 1986, as
amended (the 'Code'), for the month in which payment is required to be
made. For purposes of determining the portion of the severance payment
based on the Annual Target Bonus to be payable hereunder, the relevant
performance standards for the Company shall be deemed to have been
achieved.
(iii) Continued Benefits. The Company shall pay or provide the
Executive with all employee and fringe benefits referred to in Sections
5(e) and 5(f) hereof for the balance of the Agreement Term; provided,
however, that if and to the extent the Company determines that any such
benefits cannot be paid or provided under the plans in question due to Code
or other restrictions, the Company shall provide payments, coverages or
benefits, which are at least as favorable to the Executive on an after-tax
basis, through other means reasonably satisfactory to the Executive.
(iv) 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 B (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.
(b) Resignation other than for Good Reason. In the event the Executive
voluntarily terminates his employment hereunder other than for Good Reason, the
Company shall pay the Executive and provide him with the following:
(i) Accrued Rights. The Company shall pay and provide to the Executive
any Accrued Rights.
(ii) Severance Payment. The Company shall pay the Executive a lump-sum
amount equal to two times the sum of the Executive's then-current Base
Salary and Annual Target Bonus at the time of the Executive's termination,
with such lump-sum payment discounted to present value using the Applicable
Rate for the month in which payment is required to be made. For purposes of
determining the portion of the severance payment based on the Annual Target
Bonus to be payable hereunder, the relevant performance standards for the
Company shall be deemed to have been achieved.
(c) 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.
(d) 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 all severance benefits set forth in Section 7(a) hereof.
(e) Disability. In the event the Executive's employment hereunder is
terminated by reason of the Executive's Disability, the Company shall pay the
Executive and provide him with the following:
(i) Accrued Rights. The Company shall pay and provide to the Executive
any Accrued Rights, including all disability insurance coverage.
(ii) Severance Payment. The Company shall provide the Executive with
continued payment of the Executive's Base Salary and Annual Target Bonus,
as in effect on the date of termination, for a period of three years
following the Executive's termination, payable at the times and in the
manner such Base Salary and Annual Target Bonus would have been paid if the
Executive had continued in the employment of the Company and as if all
relevant performance standards had been achieved during such periods.
(f) Death.
In the event the Executive's employment hereunder is terminated by reason
of the Executive's death, the Company shall pay the Executive's representatives
or estate the following:
(i) Accrued Rights. The Company shall pay and provide to the
Executive's representatives or estate any Accrued Rights, including all
life insurance coverage.
(ii) Severance Payment. The Company shall pay the Executive's
representatives or estate a lump-sum amount equal to the sum of the
Executive's then-current Base Salary and Annual Target Bonus at the time of
the Executive's death, with such lump-sum payment discounted to present
value using the Applicable Rate for the month in which payment is required
to be made. For purposes of determining the portion of the severance
payment based on the Annual Target Bonus to be payable
hereunder, the relevant performance standards for the Company shall be
deemed to have been achieved.
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
Founder's 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.
9. CHANGE IN CONTROL
(a) Supplemental termination Rights. In the event of Executive's
termination other than for Cause, Disability or death or in the event a
voluntary termination of employment by the Executive pursuant to either Section
6(a) or Section 6(b) hereof, in either case occurring within two years following
a Change in Control, the Company shall pay to the Executive, in addition to the
severance benefits payable under Section 7(b) hereof, an additional lump-sum
amount equal to the Executive's then-current Base Salary and Annual Target Bonus
at the time of the Executive's termination, with such lump-sum payment
discounted to present value using the Applicable Rate for the month in which
payment is required to be made.
(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 the 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. PARACHUTE TAX INDEMNITY
(a) If it shall be determined that any amount paid, distributed or treated
as paid or distributed by the Company to or for the Executive's benefit (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 10) (a 'Payment') would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, being hereinafter collectively
referred to as the 'Excise Tax'), then the Executive shall be entitled to
receive an additional payment (a 'Gross-Up Payment') in an amount such that
after payment by the Executive of all federal, state and local taxes (including
any interest or penalties imposed with respect to such taxes), including without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) All determinations required to be made under this Section 10, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by a nationally recognized accounting firm as may be designated by
the Executive (the 'Accounting Firm') which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change in Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ('Underpayment'),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to this Section 10 and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
Executive's benefit.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order to effectively
contest such claim; and
(iv) permit the Company to participate in any proceeding relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation on the foregoing provisions of
this Section 10, the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate courts
as the Company shall determine; provided, however, that if the Company directs
the Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis, and
shall indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the Executive's taxable year
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the Executive's receipt of an amount advanced by the Company
pursuant to this Section 10, the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of this Section 10) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the Executive's receipt of an amount
advanced by the Company pursuant to this Section 10, a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
11. NO MITIGATION OR OFFSET
The Executive shall not be required to seek other employment or to reduce
any severance benefit payable to him under Section 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.
12. 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 at the
Applicable rate until the date of payment.
13. 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 in the event of a
resignation by the Executive for any reason other than Good Reason, for the 24
month period 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 13(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 13.
14. 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 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 14 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.
15. 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.
16. 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, including, without limitation, that
certain employment agreement dated July 23, 1986, as amended. Any amendment or
modification of this Agreement shall not be binding unless in writing and signed
by the Company and the Executive.
17. 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.
18. 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. Richard M. Scrushy
2406 Longleaf Street
Birmingham, Alabama 35243
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, with a copy to the Legal Services Department at the
same address or delivered by hand to the Secretary and to the Legal Services
Department 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.
19. 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.
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 courts 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.
21. CONVERSION TO CHAIRMAN-ONLY STATUS
The Executive may elect at any time during the Employment Period to resign
his position as Chief Executive Officer and serve the Company solely as the
Chairman of the Board ('Chairman-Only Status') for the remainder of the
Employment Period (as automatically extended in accordance with Section 2(a)
hereof) under the terms and conditions hereof. An election by the Executive to
maintain Chairman-Only Status shall not constitute a violation of the
Executive's obligations under Section 3 hereof, nor shall it constitute a
termination of the Executive's employment for any purpose under Section 6
hereof. As used in this Agreement, the term 'employment' and similar terms shall
be deemed to include service to the Company while maintaining Chairman-Only
Status.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
/s/RICHARD M. SCRUSHY
___________________________________
Richard M. Scrushy
HEALTHSOUTH Corporation
By /s/MICHAEL D. MARTIN
---------------------------------
Michael D. Martin
Executive Vice President and
Chief Financial Officer
EXHIBIT A
HEALTHSOUTH CORPORATION
EXECUTIVE RETIREMENT PLAN
FOR RICHARD M. SCRUSHY
Summary of Terms(1)
Retirement Benefits: In consideration of Executive's role as Founder,
his service to the HEALTHSOUTH since its formation
and in lieu of the benefits and compensation
offered through full-time employment as Chairman,
Executive shall be entitled to the benefits
described below upon his retirement from the
active employment with HEALTHSOUTH and continuing
until his death (as more specifically set forth
below). In addition, in recognition of the
Executive's founder status, HEALTHSOUTH shall
provide the Executive with suitable office and
secretarial support within the Corporate
headquarters for a period of up to 10 years
following his retirement.
Benefit Formula: Annual retirement benefit equal to 60% of Base
Compensation (defined below) at Normal Retirement
Age
Base Compensation: Average Base Salary and Annual Target Bonus of
Executive in effect as of the date of termination
pursuant to the terms of the Employment Agreement
Vesting: Fully vested at all times, such that all benefits
provided for in this Exhibit A are payable upon
Executive's termination for any reason during the
period from and after the date Executive qualifies
for Early Retirement. There can be no breach of
this retirement plan by the Executive except for
violation of Section 13(b) of the Employment
Agreement. This consideration is fully earned by
the Executive and HEALTHSOUTH has no right under
any circumstances to discontinue any payments or
other benefits under this plan.
Normal Retirement Age: Age 60
Early Retirement: The retirement benefits provided for in this
Exhibit A are fully vested and accrued in the
event of termination for any reason prior to age
60, but earliest benefit commencement date is
January 23, 2000, the date on which Executive will
have completed sixteen consecutive years of
service with HEALTHSOUTH (with actuarial
reduction)
Change in Control: In the event of a Change in Control (as defined in
Section 9 of the Agreement) or in the event
HEALTHSOUTH completes a transaction in which it
sells or otherwise ceases to own a business unit,
subsidiary, or division representing 30% of its
consolidated revenues for the most recently
completed fiscal year, Executive shall thereafter
be entitled to full retirement benefits hereunder
(i.e. 60% of Base Compensation) upon his
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(1) All defined terms shall have the meanings given to them in the
Employment Agreement to which this Exhibit A is a part, and all determinations
shall be made in accordance with the terms and provisions hereof.
termination for any reason, regardless of age or
length of service, which benefits shall be in
addition to any other benefits to which Executive
is entitled upon such occurrence. While such a
Change in Control gives the Executive the option
to retire early regardless of age or length of
service, the Executive may, at his sole
discretion, choose to continue working for a
period of time before exercising such option.
Payment: Unless Executive chooses one of the alternative
forms of payment listed below, payment of his
retirement benefits will be in accordance with the
normal payroll practices. If HEALTHSOUTH fails to
provide payment in accordance with the selected
schedule and remains delinquent for a period of 10
business days following receipt of written notice
from the Executive (made in accordance with the
provisions of Section 18 of the Employment
Agreement), HEALTHSOUTH shall pay a penalty equal
to three times the amount owed.
Forms of Payment: Executive's choice of alternative forms:
o Single Life Annuity
o Single Life Annuity with 10 year guarantee
o Joint and Survivor Annuity (50% or 100%)
o Lump Sum
o Payment of present value of retirement
benefits in 5 equal annual installments
Death Benefit: For death prior to benefit commencement date and
for death following benefit commencement date,
Executive's estate will receive the annual
retirement benefits payable hereunder (as if
Executive had not died) for a period of 5 years
Actuarial Assumptions: Pre-age 60 commencement and alternative forms of
payment adjusted on an actuarial equivalent basis:
o interest rate - 30 year Treasury rate
o mortality assumption - 1983 GAM Table
Unfunded Status: Plan is an unfunded, unsecured obligation of
HEALTHSOUTH, but HEALTHSOUTH may elect to fund on
a tax-neutral basis to Executive
EXHIBIT B
FOUNDER RETIREMENT BENEFITS PROGRAM
In recognition of the significant contributions of the management founders
of HEALTHSOUTH Corporation, upon their retirement from the Corporation, the
Corporation shall provide the following benefits to each of them for the
remainder of their natural life or until their written election to cease
receiving them:
o Health Benefits. The Corporation will extend its regular Employee Health
Benefit Program, as it may exist from time to time, to cover the retired
founder, and his spouse, for the remainder of their natural lives, with the
founder continuing to bear the cost of dependent coverage. When the
individuals become eligible for the Medicare program, or any other such
government-funded health benefit, the HEALTHSOUTH benefit program will
become the individual's secondary coverage.
o Insurance. The Corporation will allow the retired founder to continue to
participate in any of the Company's voluntary insurance programs, as they
may exist from time to time, until age 72.
o Split-Dollar Policy. The Corporation will continue to pay the premiums on
the retired founder's existing split-dollar life insurance policies (or any
policies issued in substitution therefor) until such founder reaches age 65
or until the policies are fully paid, whichever comes first.
o Stock Options. The Corporation will waive the normal option termination
period for the retired founder, so that all vested option grants will
continue for the term of the original grant period.
o Travel. The Corporation will allow the retired founder to utilize the
Corporation's travel department to make personal travel arrangements. In
addition, the retired founder will also be able to use the Corporation's
aircraft, at no cost, if the aircraft is already scheduled for the trip and
there are seats available. Otherwise, the retired founder will be allowed
to use the Corporation's aircraft at the standard use rate, including
direct and indirect expenses.
Employment Agreement - HealthSouth Corp. and Richard M. Scrushy
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