EXHIBIT 10.12.1

HEALTHSOUTH CORPORATION

2004 AMENDED AND RESTATED

DIRECTOR INCENTIVE PLAN

1.    PURPOSE OF THE PLAN. The purpose of the 2004 Amended and Restated Director
Incentive Plan (hereinafter called the “Plan”) of HEALTHSOUTH Corporation, a
Delaware corporation (hereinafter called the “Corporation”), is to provide
incentives for future endeavors and to advance the interests of the Corporation
and its stockholders by encouraging ownership of the Common Stock, par value
$.01 per share (hereinafter called the “Common Stock”), of the Corporation by
its directors who are not employees of the Corporation (hereinafter called the
“Outside Directors”) as designated by the Board of Directors of the Corporation
(hereinafter called the “Board”) and upon whose judgment, interest and
continuing special efforts the Corporation is largely dependent for the
successful conduct of its operations, and to enable the Corporation to compete
effectively with other enterprises for the services of such Outside Directors as
may be needed for the continued improvement of the Corporation’s business,
through the award of shares of unrestricted Common Stock, restricted shares of
Common Stock (hereinafter called the “Restricted Stock”) and/or through the
award of a right to receive shares of Common Stock (hereinafter called “RSUs”
and collectively the “Awards”).

2.    PARTICIPANTS. Awards shall be granted under the Plan to Outside Directors
of the Corporation as set forth herein.

3.    TERM OF THE PLAN. The Plan shall become effective as of January 1, 2005.
No Award shall be granted under the Plan after the earliest of (a) March 31,
2008, (b) such time as all shares of Common Stock reserved for issuance under
the Plan have been acquired through the issuance of Awards granted under the
Plan or (c) such earlier time as the Board may determine. Awards granted under
the Plan at the time of its termination shall continue in effect in accordance
with its terms and conditions and those of the Plan.

4.    STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11, the
aggregate number of shares of Common Stock for which Awards may be granted under
the Plan shall not exceed 2,000,000. If an Award is cancelled or repurchased by
the Corporation, the cancelled or repurchased shares shall again be available
under the Plan.

The shares to be delivered under the Plan shall be made available, at the
discretion of the Board, either from authorized but previously unissued shares
as permitted by the Certificate of Incorporation of the Corporation or, from
shares re-acquired by the Corporation, including shares of Common Stock
purchased in the open market, or from shares held in the treasury of the
Corporation.

5.    ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board.
The acts of a majority of the Board, at any meeting thereof at which a quorum is
present, or acts reduced to or approved in writing by a majority of the members
of the Board, shall be the valid acts of the Board. The expenses of
administering the Plan shall be borne by the Corporation.

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The interpretation and construction of any provision of the Plan or of any Award
granted hereunder by the Board shall be final, conclusive and binding upon all
parties, including the Corporation, its stockholders and directors, and the
executives and employees of the Corporation and its subsidiaries. No member of
the Board shall be liable to the Corporation, any stockholder, any Award holder
or any employee of the Corporation or its subsidiaries for any action or
determination made in good faith with respect to the Plan or any Award granted
under it.

6.    ANNUAL AWARDS. Each Outside Director shall be granted during the term of
the Plan, on the date the Corporation grants awards to its management employees
(or, in the case of an Outside Director first appointed or elected to the Board
following such date, the date on which such Outsider Director is first appointed
or elected to the Board), (i) Restricted Stock Units having a value on the date
of grant equal to $95,000 or (ii) to the extent elected by the Outside Director
prior to the beginning of the calendar year in which an Award would otherwise be
made and in accordance with the election form prescribed by the Corporation,
shares of unrestricted Common Stock having a value on the date of grant equal to
$95,000, in each case, determined using the fair market value of the Common
Stock pursuant to the provisions of Section 8 and rounding up to the nearest
number of full shares.

7.    AWARD AGREEMENT. Awards granted under the Plan shall be granted pursuant
to and subject to the terms and conditions of an Award Agreement to be entered
into between the Corporation and the director at the time of such grant. Each
such agreement shall be in a form from time-to-time adopted for use under the
Plan by the Board (such form being hereinafter called an “Agreement”). Any such
Agreement shall incorporate by reference all of the terms and provisions of the
Plan as in effect at the time of grant and may contain such other terms and
provisions as shall be approved and adopted by the Board.

8.    VALUE OF AWARD. If the Common Stock is not listed upon a national
securities exchange or exchanges, the fair market value shall be as determined
by the Board (which determination shall be conclusive and binding for all
purposes) or, if applicable, shall be deemed to be the last reported sale price
for the Common Stock as quoted by brokers and dealers trading in the Common
Stock in the over-the-counter market (or if the Common Stock shall be quoted by
the National Association of Securities Dealers Automated Quotation system, then
such NASDAQ quote) on the date on which the Award is granted. If the Common
Stock is listed upon a national securities exchange or exchanges, such fair
market value shall be deemed to be the last reported sale price at which the
shares of Common Stock were traded on such securities exchange or exchanges on
the date on which the Award is granted, or if no sale of the Common Stock was
made on any national securities exchange on such date, then the closing price
per share of the Common Stock on such securities exchange or exchanges on the
next preceding day on which there was a sale of the Common Stock.

9.    TERMS OF RESTRICTED STOCK. (a) With respect to an award of Restricted
Stock granted prior to the date of the adoption of this Amended and Restated
Director Incentive Plan, the following terms and conditions shall apply:

(i)    STOCKHOLDER RIGHTS. Holders of Restricted Stock shall have any rights to
dividends, voting and/or other rights of a stockholder subject to the
restrictions and terms of the Plan and the Agreement.

 

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(ii)    CERTIFICATES. The Corporation shall, upon the date of the Restricted
Stock grant, issue the shares of Common Stock by registering such shares in book
entry form with the Corporation’s transfer agent in the name of the recipient.
No certificate(s) representing all or a part of such shares shall be issued
until the conclusion of the Restricted Period (as defined in subparagraph
(vi)(1) below.

(iii)    PRICE. Except as otherwise determined by the Board of Directors, all
Restricted Stock issued hereunder shall be issued without the payment of any
cash purchase price by the recipients (in which case the “price per share
originally paid” for purposes of clause (2) of paragraph (vi) below shall be
zero).

(iv)    VESTING. Except as otherwise provided in the Plan, the forfeiture
provisions of each grant of Restricted Stock shall lapse on January 1 of each
year following the date of grant (beginning on January 1 of the year following
the year in which the grant is made) with regard to one-third of the number of
shares granted until all such restrictions have lapsed and such shares of
Restricted Stock shall become fully vested in the recipient thereof.
Notwithstanding the foregoing, the forfeiture provisions of the Restricted Stock
granted under this Plan shall immediately lapse in the event (A) a Change in
Control (as defined in Section 17) of the Corporation occurs, or (B) the
recipient ceases to serve as a director of the Corporation due to his or her
death, Director Disability or Director Retirement (both as defined in
Section 18), provided that the recipient has held such Restricted Stock for a
period of at least twelve months. Notwithstanding the foregoing, if any Outside
Director ceases to serve as a director of the Corporation by reason of Director
Misconduct (as defined in Section 18) during the course of such Outside
Director’s term, the Outside Director’s rights to any shares of Restricted Stock
for which the holding period set forth in subparagraph (v) below has not expired
shall be forfeited as of the date of the occurrence of such Director Misconduct.

(v)    HOLDING PERIOD. Except as set forth below, the restrictions on transfer
of the Restricted Stock shall apply during the course of the Outside Director’s
term and for a period of twelve months thereafter. Notwithstanding the
foregoing, the restrictions on transfer of the Restricted Stock granted under
this Plan shall immediately lapse in the event (A) a Change in Control of the
Corporation occurs, or (B) the recipient ceases to serve as a director of the
Corporation due to his or her death, Director Disability or Director Retirement.

(vi)    RESTRICTIONS ON TRANSFER / FORFEITURE PROVISIONS. In addition to such
other terms, conditions and restrictions on Restricted Stock contained in the
Plan or the applicable Restricted Stock Agreement, all Restricted Stock shall be
subject to the following restrictions:

(1)    No shares of Restricted Stock shall be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of until they become vested pursuant
to paragraph (iv) above and the holding period set forth in subparagraph
(v) above has expired. The period during which such restrictions are applicable
is referred to as the “Restricted Period.”

(2)    Except as set forth in the last two sentences of subparagraph (iv) above,
if a recipient ceases to be a director of the Corporation within the

 

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Restricted Period for any reason, the shares of Restricted Stock that have not
become fully vested shall be forfeited by the holder and cancelled by the
Corporation.

(3)    Notwithstanding subparagraphs (1) and (2) above, the Board may, in its
discretion, either at the time that shares of Restricted Stock are awarded or at
any time thereafter, waive the restrictions on transfer and forfeiture
provisions of any Restricted Stock upon the occurrence of any of the events
described in this paragraph (vi) or remove or modify any part or all of the
restrictions. In addition, the Board may, in its discretion, impose upon the
recipient of Restricted Stock at the time that such shares of Restricted Stock
are granted such other restrictions on any Restricted Stock as the Board may
deem advisable.

(vi)    ADDITIONAL SHARES. Any shares received by a recipient of Restricted
Stock as a stock dividend, or as a result of stock splits, combinations,
exchanges of shares, reorganizations, mergers, consolidations or otherwise with
respect to such Restricted Stock shall have the same status and shall bear the
same restrictions, all on a proportionate basis, as the shares or Restricted
Stock initially subject to such restrictions.

(vii)    TRANSFERS IN BREACH OF RESTRICTED STOCK. If any transfer of Restricted
Stock is made or attempted contrary to the terms of the Plan and of such
Restricted Stock, the Board shall have the right to purchase for the account of
the Corporation those shares from the owner thereof or his or her transferee at
any time before or after the transfer at the price paid for such shares by the
person to whom they were awarded under the Plan. In addition to any other legal
or equitable remedies that it may have, the Corporation may enforce its rights
by specific performance to the extent permitted by law. The Corporation may
refuse for any purpose to recognize as a shareholder of the Corporation any
transferee who receives any shares contrary to the provisions of the Plan and
the applicable Restricted Stock or any recipient of Restricted Stock who
breaches his or her obligation to resell shares as required by the provisions of
the Plan and the applicable Restricted Stock, and the Corporation may retain
and/or recover all dividends on such shares which were paid or payable
subsequent to the date on which the prohibited transfer or breach was made or
attempted.

(b)    With respect to an award of Restricted Stock awarded following the date
of the adoption of this Amended and Restated Director Incentive Plan, the terms
and conditions relating to such Restricted Stock shall be set forth in the Award
Agreement evidencing the grant of such award.

10.    TERMS OF RSUS AND UNRESTRICTED COMMON STOCK. The terms and conditions
relating to the RSUs, or if applicable, the shares of Common Stock, shall be set
forth in the Award Agreement evidencing the grant of such Award.

11.    ADJUSTMENT OF AND CHANGES IN CAPITALIZATION. In the event that the
outstanding shares of Common Stock shall be changed in number or class by reason
of split-ups, combinations, mergers, consolidations or recapitalizations, or by
reason of stock dividends, the number of shares available for grant and Awards
granted under the Plan, both in the aggregate and as to any individual, shall be
adjusted so as to reflect such change, all as

 

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determined by the Board. In the event there shall be any other change in the
number or kind of the outstanding shares of Common Stock, or of any stock or
other securities into which such Common Stock shall have been changed, or for
which it shall have been exchanged, then if the Board, in its sole discretion,
determine that such change equitably requires an adjustment to Awards
theretofore granted or which may be granted under the Plan, such adjustment
shall be made in accordance with such determination.

Notice of any adjustment shall be given by the Corporation to each holder of an
Award which shall have been so adjusted and such adjustment (whether or not such
notice is given) shall be effective and binding for all purposes of the Plan.
Fractional shares resulting from any adjustment to Awards pursuant to this
Section 11 may be settled in cash or otherwise as the Board may determine.

12.    SECURITIES ACTS RESTRICTIONS AND REQUIREMENTS. THE CORPORATION HAS NOT
FILED FINANCIAL STATEMENTS FOR ANY PERIODS ENDED AFTER DECEMBER 31, 2004. THE
CORPORATION DOES NOT EXPECT TO BECOME CURRENT WITH RESPECT TO ALL OF ITS
PREVIOUSLY UNFILED FINANCIAL STATEMENTS UNTIL AT LEAST THE FIRST QUARTER OF
2006. THE OUTSIDE DIRECTORS ARE CAUTIONED NOT TO RELY UPON ANY OF THE
CORPORATION’S FINANCIAL STATEMENTS FILED PRIOR TO THE CORPORATION’S
COMPREHENSIVE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEARS ENDED DECEMBER 31,
2003 AND 2002 WHEN MAKING ANY INVESTMENT DECISION TO RETAIN OR TRANSFER ANY
SHARES OF COMMON STOCK AND/OR SHARES OF RESTRICTED STOCK.

The Corporation shall not be obligated to issue any shares of Common Stock in
respect of an Award if such issuance would, in the opinion of counsel for the
Corporation, violate the Securities Act of 1933 or other Federal or state
statutes having similar requirements, as they may be in effect at that time.
Each Award shall be subject to the further requirement that, at any time that
the Board shall determine, in its discretion, that the listing, registration or
qualification of the shares of Common Stock subject to such Award under any
securities exchange requirements or under any applicable law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the issuance of shares underlying any
Award, such shares shall not be issued in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board.

As a condition to the issuance of shares underlying any Award under the Plan,
the Board may require the holder to furnish a written representation that he is
acquiring the shares for investment and not with a view to distribution of the
shares to the public and a written agreement restricting the transferability of
the shares solely to the Corporation, and may affix a restrictive legend or
legends on the face of the certificate representing such shares. Such
representation, agreement and/or legend shall be required only in cases where in
the opinion of the Board and counsel for the Corporation, it is necessary to
enable the Corporation to comply with the provisions of the Securities Act of
1933 or other Federal or state statutes having similar requirements, and any
stockholder who gives such representation and agreement shall be released from
it and the legend removed at such time as the shares to which they applied are

 

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registered or qualified pursuant to the Securities Act of 1933 or other Federal
or state statutes having similar requirements, or at such other time as, in the
opinion of the Board and counsel for the Corporation, the representation and
agreement and legend cease to be necessary to enable the Corporation to comply
with the provisions of the Securities Act of 1933 or other Federal or state
statutes having similar requirements.

13.    AMENDMENT OF THE PLAN. The Plan may, at any time or from time to time, be
terminated, modified or amended by the Board; provided, however, that no such
amendment (i) may allow for the grant of Restricted Stock hereunder to any
person who is not an Outside Director of the Corporation at the time of the
grant, unless such amendment and the Plan shall have been approved by the
stockholders of the Corporation and (ii) shall be applicable to an Award
previously granted.

14.    CHANGES IN LAW. Subject to the provisions of Section 13, the Board shall
have the power to amend the Plan and any outstanding Award granted thereunder in
such respects as the Board shall, in its sole discretion, deem advisable in
order to incorporate in the Plan or any such Award any new provision or change
designed to comply with or take advantage of requirements or provisions of the
Internal Revenue Code or any other statute, or Rules or Regulations of the
Internal Revenue Service or any other Federal or state governmental agency
enacted or promulgated after the adoption of the Plan.

15.    APPLICABLE LAW. This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the law of Delaware, applied without giving
effect to any conflicts-of-law principles, and construed accordingly.

16.    WITHHOLDING.

(a)    The Corporation shall have the right to deduct from payments of any kind
otherwise due to the recipient of Award any federal, state or local taxes of any
kind required by law to be withheld or paid with respect to any shares issued
under the Plan or upon the expiration or termination of the Restricted Period
relating to an Award. Subject to the prior approval of the Corporation, the
holder of an Award may elect to satisfy such obligations, in whole or in part,
(i) by causing the Corporation to withhold shares of Common Stock otherwise
issuable pursuant to the expiration or termination of the Restricted Period
relating to the Award or (ii) by delivering to the Corporation shares of Common
Stock already owned by the holder. The shares so delivered or withheld shall
have a fair market value equal to such tax obligation. The fair market value of
the shares used to satisfy such tax obligation shall be determined by the
Corporation as of the date that the amount of tax shall be determined in
accordance with Section 8. A Restricted Stock recipient who has made an election
pursuant to this Section 11(a) may only satisfy his or her tax obligation with
shares of Common Stock which are not subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements.

(b)    If the recipient of Restricted Stock under the Plan elects, in accordance
with Section 83(b) of the Code, to recognize ordinary income in the year of
acquisition of any shares awarded under the Plan, the Corporation will require
at the time of such election an additional payment for withholding tax purposes
based on the difference, if any, between the

 

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purchase price of such shares and the fair market value of such shares as of the
date immediately preceding the date on which the Restricted Stock is awarded.

17.    CHANGE IN CONTROL. A “Change in Control” shall be deemed to have occurred
if:

(i)    the acquisition (other than from the Corporation) 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
Corporation or its subsidiaries, or any employee benefit plan of the Corporation
or its subsidiaries which acquires beneficial ownership of voting securities of
the Corporation) 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 Common Stock or the combined voting power of the
Corporation’s then-outstanding voting securities entitled to vote generally in
the election of directors; or

(ii)    individuals who, as of January 1, 2004, constitute the Board of
Directors (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
Corporation) shall be, for purposes of this Section 17(ii), considered as though
such person were a member of the Incumbent Board; or

(iii)    consummation of a reorganization, merger, consolidation or share
exchange, in each case with respect to which persons who were the stockholders
of the Corporation 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 approval by the stockholders of the
Corporation of a liquidation or dissolution of the Corporation or consummation
of the sale of all or substantially all of the assets of the Corporation.

18.    CERTAIN DEFINITIONS. The following terms shall have the meanings set
forth below:

(i)    “Director Disability” means that the Outside Director (i) has established
to the satisfaction of the Board that the Outside Director is unable to perform
his or her duties as a member of the Board by reason of any medically
determinable physical or mental impairment which can be expected to last for a
continuous period of not less than twelve (12) months and (ii) has satisfied any
requirement imposed by the Committee in regard to evidence of such disability.

 

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(ii)    “Director Misconduct” means the occurrence of any one or more of the
following (i) the willful and continued failure by a Outside Director to
substantially perform his or her duties (other than any such failure resulting
from Director Disability, death or Director Retirement), after a written demand
for substantial performance is delivered by the Board to the Outside Director
that specifically identifies the manner in which the Board believes that the
Outside Director has not substantially performed his or her duties, and the
Outside Director has failed to remedy the situation within thirty (30) calendar
days of receiving such notice or (ii) a Outside Director’s conviction for
committing an act of fraud, embezzlement, theft or another act constituting a
felony or a crime involving moral turpitude or (iii) substantial dependence or
addiction to any drug illegally taken or to alcohol that is in either event
materially and demonstrably injurious to the Corporation or (iv) the engaging by
a Outside Director in gross misconduct materially and demonstrably injurious to
the Corporation. No act or failure to act, on a Outside Director’s part shall be
considered “willful” unless done, or omitted to be done, by the Outside Director
not in good faith and without reasonable belief that his action or omission was
in the best interest of the Corporation. Director Misconduct shall be determined
by the Board in exercise of good faith and reasonable judgment.

(iii)    “Director Retirement” means mandatory retirement from service as a
member of the Board pursuant to the Corporation’s policies.

 

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