[HealthSouth letterhead]
 
 

 
                         November 30, 2010

Mr. Jay Grinney

c/o HealthSouth Corporation

3660 Grandview Parkway, Suite 200

Birmingham, Alabama 35243

 

Dear Jay:
 

The Board of Directors (the “Board”) of HealthSouth Corporation (the
“Company”) is delighted to have you continue your employment as President and Chief Executive
Officer (“CEO”) of the Company.
This letter (“Letter”) outlines certain of the terms and
conditions of your continued employment with the Company.

1.           Position, Duties, and Term of Letter. Subject to the terms and
conditions of this Letter, you have been and will be employed as the President
and CEO of the Company, reporting directly to the Board. In your capacity as
President and CEO, you have the overall charge and responsibility for the
business and affairs of the Company, subject to the Board’s direction and the
policies of the Company, and such other duties and responsibilities as are
commensurate with such positions. During your employment, and excluding any
periods of Paid Time Off (“PTO”) to which you are entitled, you agree to devote
your full business attention and time to the business and affairs of the Company
and to use your best efforts to perform faithfully and efficiently such
responsibilities. Your services primarily will be performed at the Company’s
headquarters in Birmingham, Alabama and from time to time, you may be required
to travel to other locations in carrying out your responsibilities. This Letter
will be in effect for three (3) years following the date of execution by you and
will automatically be extended by consecutive periods of twelve (12) additional
months each (the three year period plus any extension thereof being referred to
herein as the “Term”), unless either party provides written notice to the other
party no less than ninety (90) days prior to the date of any such scheduled
extension of the party’s intention not to renew the terms of this Letter.

2.           Board Membership. You will also continue to be nominated to be a
member of the Board, so long as you continue to be employed as the President and
CEO of the Company. However, as a member of the Board, you will not participate
in any deliberations or determinations regarding your own compensation.
 
 
 

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3.           Compensation, Generally. Your base salary, annual incentive
compensation and long-term incentive compensation (“Total Compensation”) will be
determined by the Compensation Committee of the Board (the “Committee”) on an
annual basis. The Committee intends, subject to its discretion, its review of
your individual and Company performance and other market trends, to provide you
during your employment  with the opportunity to receive  Total Compensation an
amount generally comparable to the 65th percentile of amounts paid to CEOs of
other publicly traded companies in the healthcare industry (“Peer Group Data”),
which companies will be determined by the Committee in its sole discretion, for
target performance. The Committee will establish, in its sole discretion, the
performance and payment conditions applicable to your Total Compensation, and
such performance and payment conditions for annual and/or long-term incentive
compensation awards will be established no later than 90 days into the
applicable performance period.

4.           Base Salary and Annual Bonus. Your base salary as President and CEO
of the Company for the period beginning on January 1, 2011 and ending on
December 31, 2011 will be at an annualized rate of $1,000,000.00. For future
calendar years during your employment, your base salary may be increased, but
not decreased. During your employment, you will continue to be a participant in
the Company’s Senior Management Bonus Plan. Your target annual bonus for 2011 as
President and CEO will be 100% (and your maximum bonus will be 200%) of your
annualized rate of base salary as referenced above. For future calendar years
during your employment, the Committee retains discretion to modify the
applicable target bonus percentage in response to changes in Peer Group Data, no
later than 90 days into the applicable performance period.

5.           Benefits, Etc. You will also be eligible to participate in all of
the Company’s plans, programs and policies, and to receive all benefits
generally available to senior executives of the Company. In addition, during
your employment, you will be entitled, at the Company’s expense, to disability
insurance coverage that provides for an annual long-term disability benefit
equal to 60% of your base salary, subject to your eligibility for such coverage
from a third-party at commercially reasonable rates.

6.           Long-Term Incentives.  Your  annual equity and other long-term
incentive grants during your employment ( the “Awards”) will be determined by
the Committee in its discretion and as described in Section 3 hereof, and will
have such terms and conditions as are applicable to similarly situated
executives in accordance with the terms and conditions the applicable plans and
programs.

 
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7.           Restrictive Covenants. During your employment as President and
CEO  (and for such extended periods after your employment ends, as applicable,
under the Restrictive Covenant Agreement attached hereto as Annex B (the
“Restrictive Covenant Agreement”)), you agree to be bound by the terms of the
Restrictive Covenant Agreement, which is incorporated herein in its entirety.

8.           Termination, Severance, and Change in Control.

(a)                                                      If your employment
relationship with HealthSouth ends during the Term, by either party and for any
or no reason, all rights to compensation and benefits cease as of the last date
of employment, except as expressly set forth in the HealthSouth Corporation
Second Amended and Restated Executive Severance Plan (the “Executive Severance
Plan”) and the HealthSouth Corporation Amended and Restated Change in Control
Benefits Plan (the “Change in Control Benefits Plan”), each as in effect on the
date hereof.

(b)           The parties agree that nothing in this Agreement (including the
non-renewal thereof) shall limit the parties’ rights under the Executive
Severance Plan (notwithstanding Section 3.01(d) of the Executive Severance Plan)
or the Change in Control Benefits Plan. The parties agree that notwithstanding
any amendments after the date of this Letter to either the Executive Severance
Plan or the Change in Control Benefits Plan,  the rights, payments, and benefits
provided under such plans,  each as in effect on the date hereof shall control.
(c)           Your entitlement to payments and benefits under the Executive
Severance Plan, the Change in Control Benefits Plan and Section 8(d) below,
shall be contingent upon your compliance with the provisions of the Restrictive
Covenant Agreement.

(d)    If your employment terminates as a result of a termination by the Company
without Cause, by your resigning with Good Reason, as such terms are defined in
the Executive Severance Plan, or due to your death, you shall have continued
exercisability of any outstanding portion of the stock option granted to you in
2004 to purchase 1,000,000 shares of the Company’s common stock, par value
$0.01, (the “2004 Option”), for twelve (12) months following the date of
termination (provided that such termination is prior to the expiration of the
2004 Option). Otherwise, the exercisability of all other outstanding Restricted
Stock Awards and Options shall be governed by the terms of the Executive
Severance Plan, and/or the applicable equity incentive plan(s), and/or the
applicable agreements pursuant to which the Restricted Stock Award and Options
are granted.
 
9.           Resignation. Upon termination of your employment for any reason,
you agree to resign, effective as of the date of your termination of employment,
from any positions that you hold with the Company and its affiliates, the Board
(and any committees thereof) and the board of directors (and any committees
thereof) of any of the Company’s affiliates.

 
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10.           Indemnification. You will be entitled to indemnification in
connection with a litigation or proceeding arising out of you acting as
President and CEO or an employee, officer or director of the Company, to the
fullest extent permitted under the Company’s charter and by-laws and by
applicable law. In addition, you will be entitled to liability insurance
coverage pursuant to a Company-purchased directors’ and officers’ liability
insurance policy on the same basis as other directors and officers of the
Company.

11.           Tax. The Company may withhold from any amounts payable under this
Letter such Federal, state, local or foreign taxes as will be required to be
withheld pursuant to any applicable law or regulation. This Letter is intended
to comply with Section 409A of the Internal Revenue Code of 1986, as amended
(“Section 409A”). Unless otherwise provided herein or in any applicable plan,
program or policy of the Company, payments to you under this Letter are intended
to comply with the short-term deferral exemption from Section 409A and as such,
will be made no later than March 15th of the calendar year following the
calendar year in which you have a legally binding right to the payment. Further,
reimbursements provided herein will be made no later than December 31st of the
calendar year following the year in which the expense incurred, and in no event
will the amount of in-kind benefits available in one taxable year affect the
amount of in-kind benefits available in a different taxable year. In the event
that any payments to you under this Letter (including pursuant to the Executive
Severance Plan and the Change in Control Benefits Plan) are considered
“non-qualified deferred compensation” under Section 409A, and of a type
requiring payments six months after the date of your separation from service, to
the extent required by Section 409A such payment will be delayed until six
months and one day after the date of your separation from service (within the
meaning of Section 409A); provided, however, that a payment delayed pursuant to
this clause will commence earlier in the event of your death prior to the end of
the six-month period.

12.           Other Matters.

(a)           In no event will you be entitled to duplicate payments or benefits
under different provisions of this Letter or pursuant to the terms of any other
plan, program or arrangement of the Company or its affiliates. In the event of
any termination of your employment, you will be under no obligation to seek
other employment, and, there will be no offset against amounts due to you under
this Letter on account of any remuneration attributable to any subsequent
employment, unless provided otherwise under the Company’s applicable plans.

 
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(b)           Except to the extent necessary to enforce the provisions of the
Restrictive Covenant Agreement, any disputes under this Letter will be settled
by arbitration in Birmingham, Alabama in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Subject to review of
time entries and other documentation, the Company will pay reasonable legal fees
incurred by you in connection with the negotiation and documentation of this
Letter  up to a maximum of $15,000.

(c)           This Letter is personal to you and without the prior written
consent of the Company will not be assignable by you. This Letter will inure to
the benefit of and be enforceable by your legal representatives, heirs or
legatees. This Letter will inure to the benefit of and be binding upon the
Company and its successors and assigns.

 (d)           This Letter will be governed by and construed in accordance with
the laws of the State of Delaware, without reference to principles of conflict
of laws. This Letter may not be amended or modified otherwise than by a written
agreement executed by the Chairman of the Board of the Company and you or the
respective successors and legal representatives of the Company and you.

(e)           The invalidity or unenforceability of any provision of this Letter
will not affect the validity or enforceability of any other provision of this
Letter. No waiver will be valid unless in writing signed by the party providing
the waiver (that is, by you or an authorized officer of the Company, as the case
may be). The Company’s or your failure to insist upon strict compliance with any
provisions of, or to assert any right under, this Letter will not be deemed to
be a waiver of such provision or right or of any other provision or right under
this Letter.

(f)           This Letter and the applicable Company incentive, equity, welfare
and benefit plans, programs and policies, including the Executive Severance Plan
and the Change in Control Benefit Plan, contain the entire agreement between the
parties concerning the subject matter hereof and supersede all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the parties with respect thereto (including, without limitation,
the 2004 Employment Agreement and the Letter of Understanding between you and
the Company dated October 31, 2007. In the event of any inconsistency between
the provisions of this Letter and the provisions of any other agreement or plan,
the provisions of this Letter will control.
 
 
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Please confirm your acceptance of the foregoing by signing and returning a copy
of this Letter to the undersigned no later than Friday, December 3, 2010. This
Letter may be executed in one or more counterparts, each of which will be deemed
to be an original but all of which together will constitute one and the same
instrument. This Letter will not be effective until you execute and deliver a
copy of it to the Company.

 

  Yours sincerely,           HEALTHSOUTH Corporation        
 
 /s/  JON F. HANSON      Jon F. Hanson      Chairman of the Board of Directors  
                 Agreed and accepted:                /s/ JAY GRINNEY        
 Jay Grinney                        Date:  December 2, 2010      

 

 
 
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ANNEX A
RESTRICTIVE COVENANT AGREEMENT

This Restrictive Covenant Agreement (“Agreement”) formalizes in writing certain
understandings between HealthSouth Corporation and its current and future
subsidiaries and affiliates (collectively, the “Company”) and you, Jay Grinney:

1.           Confidentiality. During your employment  and thereafter, other than
in the ordinary course of performing your duties for the Company, you agree that
you will not disclose to anyone or make use of any trade secret or proprietary
or confidential information of the Company or any affiliate of the Company,
including such trade secret or proprietary or confidential information of any
customer or other entity to which the Company owes an obligation not to disclose
such information, which you acquire during the course of your employment,
including, but not limited to, records kept in the ordinary course of business,
except when required to do so by a court of law, by any governmental agency
having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
or actual jurisdiction to order you to divulge, disclose or make accessible such
information. In the event you are requested to disclose information as
contemplated in the preceding sentence, you agree, unless otherwise prohibited
by law, to use your best efforts to give the Company’s General Counsel prompt
written notice of any request for disclosure in advance of you making such
disclosure in order to permit the Company a reasonable opportunity to challenge
such disclosure. The foregoing will not apply to information that (i) was known
to the public prior to its disclosure by you; or (ii) becomes known to the
public through no wrongful disclosure or act of you or any of your
representatives.

2.           Property Rights. Whether during your employment or thereafter, you
agree to hereby assign and transfer to the Company all of your right, title and
interest in and to all inventions, discoveries, improvements and copyrightable
subject matter (the “Rights”) which during the period of your employment are
made or conceived by you, alone or with others, and which are within or arise
out of any general field of the Company’s business or arise out of any work you
perform, or information you receive regarding the business of the Company, while
employed by the Company. You will fully disclose to the Company as promptly as
available all information known or possessed by you concerning any Rights, and
upon request by the Company and without any further remuneration in any form to
you by the Company, but at the expense of the Company, execute all applications
for patents and for copyright registration, assignments thereof and other
instruments and do all things which the Company may deem necessary to vest and
maintain in it the entire right, title and interest in and to all such Rights.
You agree that at the time of the termination of employment, whether at the
instance of you
 
 
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or the Company, and regardless of the reasons therefor, you will promptly
deliver to the Company’s General Counsel, and not keep or deliver to anyone
else, any and all of the following which is in your possession or control: (i)
Company property (including, without limitation, credit cards, computers,
communication devices, home office equipment and other Company tangible
property) and (ii) notes, files, memoranda, papers and, in general, any and all
physical matter and computer files containing confidential or proprietary
information of the Company or any of its affiliates, including any and all
documents relating to the conduct of the business of the Company or any of its
affiliates and any and all documents containing confidential or proprietary
information of the customers of the Company or any of its affiliates, except for
(x) any documents for which the Company’s General Counsel has given written
consent to removal at the time of termination of your employment and (y) any
information necessary for you to retain for your tax purposes.

3.           Non-Competition. You acknowledge that in your capacity in
management you have had or will have a great deal of exposure and access of the
Company’s trade secrets and confidential and proprietary information. Therefore,
during your employment and for 24 months following termination of such
employment if you are terminated for Cause or resign without Good Reason (each,
as defined in the HealthSouth Corporation Executive Severance Plan) or, for 12
months following termination of such employment as a result of a non-renewal of
the Term by the Company or if you are terminated by the Company without Cause or
due to Disability, or if you resign for Good Reason or due to a Change in
Control (each, as defined in the HealthSouth Corporation Executive Severance
Plan or HealthSouth Corporation Change in Control Benefits Plan, as applicable),
to protect the Company’s trade secrets and other confidential and proprietary
information, you agree that you will not, other than in the ordinary course of
performing your duties hereunder or as agreed by the Company in writing, engage
in a “Competitive Business,” directly or indirectly, as an individual, partner,
shareholder, director, officer, principal, agent, employee, trustee, consultant,
or in any relationship or capacity, in any geographic location in which the
Company or any of its affiliates is engaged in business. You will not be deemed
to be in violation of this Section 3 by reason of the fact that you own or
acquire, solely as an investment, 2% or less of the outstanding equity
securities (measured by value) of any publicly traded company. “Competitive
Business” will mean (x) your participation in any unsolicited offer to purchase
the stock or assets of the Company or (y) any business that competes anywhere in
the world where the Company conducts any business or activity with (I) any
business or activity, conducted by the Company prior to or as of the date of
termination of your employment or (II) any business or activity in which the
Company is actively considering to engage prior to or as of the date of
termination of your employment.

4.           Non-Interference. You acknowledge that information regarding the
Company’s business and financial relations with its vendors and customers is
confidential information and proprietary to the
 
 
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Company and that any interference with such relations based directly or
indirectly on the use of such information would cause irreparable damage to the
Company. You acknowledge that by virtue of your employment with the Company, you
have gained or may gain knowledge of such information concerning the Company’s
vendors and customers (respectively “Vendor Information” or “Customer
Information”), and that you would inevitably have to draw on this Vendor
Information and Customer Information and on other confidential information if
you were to solicit or service the Company’s vendors or customers on behalf of a
competing business enterprise. Accordingly, and subject to the immediately
following sentence, you agree that, other than in the ordinary course of
performing your duties for the Company, during your employment and for the
36-month period following the termination of such employment (whether during the
Term or thereafter)(the “Restricted Period”), you will not, on behalf of
yourself or any other person or entity, directly or indirectly seek to encourage
or induce any vendor or customer of the Company to cease doing business with, or
lessen its business with, the Company, or otherwise interfere with or damage (or
attempt to interfere with or damage) any of the Company’s relationships with its
vendors and customers. No action by another person or entity in engaging in such
encouragement or inducement as described in the preceding sentence will be
deemed to be a breach of this provision by you unless you assisted, encouraged
or otherwise counseled such person or entity to engage in such activity.

5.           Non-Solicitation. You agree that, during the Restricted Period
(other than in the ordinary course of performing your duties for the Company),
you will not, without the prior written consent of the Company, directly or
indirectly, (i) hire any employee of the Company or any of its affiliates, who
is then an employee of the Company or such affiliate or was an employee during
the prior six-month period, or (ii) solicit or encourage any such employee to
leave the employ of the Company or such affiliate, as the case may be. No action
by another person or entity in engaging in such hiring, solicitation or
encouragement as described in the preceding sentence will be deemed to be a
breach of this provision by you unless you assisted, encouraged or otherwise
counseled such person or entity to engage in such activity.

6.           Public Comment. You, during your employment and at all times
thereafter, will not make any public derogatory comment concerning the Company
or its affiliates or anyone whom you know to be a current or former director,
officer, stockholder or employee of the Company. Further, you, during your
employment and at all times thereafter, will not publish, produce, or write any
book, article, screenplay, teleplay or similar type of publication (collectively
“Publication”) relating to the Company or its affiliates or anyone whom you know
to be a current or former director, stockholder or employee, without providing
reasonable advance written notice to the Board, along with an advance copy of
such Publication; and in such instance, you agree to cooperate with the Board to
ensure that no confidential or
 
 
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proprietary information is disclosed herein. Notwithstanding the foregoing,
nothing in this Section 6 will prohibit you from responding publicly to
incorrect, disparaging or derogatory public statements about the Company or you
relating to your employment with the Company.

7.           Blue Penciling. If any restrictions on competitive or other
activities contained in this Agreement will for any reason be held by a court of
competent jurisdiction to be excessively broad as to duration, geographical
scope, activity or subject, such restrictions will be construed so as thereafter
to be limited or reduced to be enforceable to the extent compatible with the
applicable law; it being understood that by the execution of this Agreement, (i)
you and the Company regard such restrictions as reasonable and compatible with
your and the Company’s respective rights and (ii) you acknowledge and agree that
the restrictions will not prevent you from obtaining gainful employment
subsequent to the termination of your employment.

8.           Injunctive Relief. You acknowledge and agree that the covenants and
obligations of you set forth in this Agreement relate to special, unique and
extraordinary services rendered by you to the Company and that a violation of
any of the terms of such covenants and obligations will cause the Company
irreparable injury for which adequate remedies are not available at law.
Therefore, you agree that the Company will be entitled to seek an injunction,
restraining order or other temporary or permanent equitable relief (without the
requirement to post bond) restraining you from committing any violation of the
covenants and obligations contained herein. These injunctive remedies are
cumulative and are in addition to any other rights and remedies the Company may
have at law or in equity. The existence of any claim or cause of action by you
against the Company will not constitute a defense to the enforcement by the
Company of the foregoing restrictive covenants, but such claim or cause of
action will be determined separately.

9.           Survival. The provisions of this Agreement will remain in full
force and effect until the expiration of the periods specified herein
notwithstanding the earlier termination of your employment hereunder or the
expiration or non-renewal of the Term. Your entitlement to payments and benefits
under the Executive Severance Plan and Change in Control Benefits Plan is
contingent upon your compliance with the provisions of the Restrictive Covenant
Agreement.

 

 
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