exv10w81






Exhibit 10.81




SELECT MEDICAL HOLDINGS CORPORATION

LONG-TERM CASH INCENTIVE PLAN



(As Amended — September 2005)



     1. Purpose. The purpose of the Select Medical Holdings Corporation Long-Term Cash
Incentive Plan is to:




     (a) attract and retain key employees of the Company and its Subsidiaries;




     (b) motivate participating key employees, by means of appropriate cash incentives, to
achieve long-range goals;




     (c) provide incentive compensation opportunities which are competitive with those of
other major corporations in the Company’s peer group; and




     (d) further align the interests of participating key employees with those of the
Company’s stockholders through cash compensation alternatives based on the future value of
the Company’s stock;


and thereby promote the long-term financial interest of the Company and its Subsidiaries, including
the growth in value of the Company’s equity and enhancement of long-term stockholder return.




     2. Plan Benefits.




     (a) If the Cumulative Value of a Strip of Company Securities, valued at the earlier to
occur of a Qualified IPO or Change of Control, exceeds the greater of (i) the IRR Hurdle or
(ii) the Price Hurdle, each Participant shall be entitled to receive a cash payment equal to
the Final Bonus Payment in respect of each of his then vested Units.




     (b) Upon a Preferred Stock Liquidity Event, each Participant shall be entitled to
receive without duplication a cash payment equal to the Preferred Stock Liquidity Payment in
respect of each of his then vested Units.




     (c) Except as the Committee otherwise provides in a Participant’s Unit Award Agreement,




     (i) a Participant will forfeit all of his Units for no consideration upon the
termination of the Participant’s employment with the Company or its Subsidiaries
other than due to the Participant’s death or Disability, and




     (ii) upon the termination of the Participant’s employment due to the
Participant’s death or Disability: (1) the Participant (or his estate, in the case
of death) shall remain entitled to the benefits of this Plan in respect of 50% his
Units and (2) all remaining Units, if any, shall be forfeited.



 









 





     3. Effective Date; Term; Tax Matters.




     (a) The Plan has been unanimously approved by a majority of the stockholders of the
Company and shall be effective as of the Effective Time.




     (b) If any amount payable to a Participant under the Plan would be subject to any
income or penalty tax prior to such Participant’s receipt of the Final Bonus Payment or
Preferred Stock Special Dividend Payment, as the case may be, by reason of the application
of Section 409A of the Code or regulations promulgated thereunder, the Company shall take
such reasonable steps as the Company may determine to be necessary or desirable, with the
consent of the affected Participant, to ensure that such amounts are not subject to such
income or penalty tax; provided, that the Company shall not be required to take any action
pursuant to this Section 3(b) if the Company determines that such action would
adversely effect the Company.



     4. Administration. The Plan shall be administered by the Committee. If for any
reason there is no Committee, the duties of the Committee shall be performed by the Board. Subject
to the provisions of the Plan, the Committee shall have authority, in its sole discretion, to
select Participants to receive awards of Units, to determine the time or times of receipt and to
determine the number of Units covered by the awards. The Committee is authorized to interpret the
Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine
the terms and provisions of any agreements made pursuant to the Plan, to modify such agreements,
and to make all other determinations that may be necessary or advisable for the administration of
the Plan. Decisions of the Committee (including decisions regarding the interpretation and
application of the Plan) shall be binding on the Company and on all Participants and other
interested parties. The Committee shall hold its meetings at such times and places as it deems
advisable. A majority of the Committee shall constitute a quorum for a meeting. All determinations
of the Committee shall be made by a majority of its members attending the meeting. Furthermore,
any decision or determination reduced to writing and signed by all of the members of the Committee
shall be as effective as if it had been made by a majority vote at a meeting properly called and
held.



     5. Participation.




     (a) Subject to the terms and conditions of the Plan, the Committee shall from time to
time determine and designate, in its sole discretion, the employees of the Company or its
Subsidiaries who will participate in the Plan. The number of Units awarded as of the
effective date of the Plan is set forth on Schedule I hereto. Schedule I may be
amended from time to time by the Committee to reflect new grants by the Committee,
forfeitures, cancellation, and any other changes that effect the number of Units then
outstanding. In the discretion of the Committee, a Participant may be awarded Units, and
more than one award of Units may be granted to a Participant. Except as otherwise agreed to
by the Company and the Participant, any award under the Plan shall not affect any previous
award to the Participant under the Plan or any other plan maintained by the Company or its
Subsidiaries.



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     (b) Notwithstanding the provisions set forth in Section 5(a) above, if within
the 30-day period prior to the consummation of a Qualified IPO or Change of Control, any of
the Units remain unawarded or any of the Units are held in treasury for re-granting pursuant
to Section 6 below, then Rocco A. Ortenzio and Robert A. Ortenzio, so long as they
are employed by the Company, may award such ungranted Units to employees of the Company
other than themselves; it being undertsood that if only one of Rocco A. Ortenzio or Robert
A. Ortenzio continues to be employed by the Company then such award may be made individually
by the continuing employee.



     6. Units. Subject to the provisions of Section 16, the number of Units
available under the Plan for awards shall not exceed 100,000. If any award under the Plan or any
portion of an award shall terminate or be forfeited or cancelled, such Units shall be deemed
outstanding and held in treasury by the Company and again be available for future awards, if any,
under the Plan, subject to the foregoing limit.



     7. Withholding of Taxes. All awards and payments under the Plan are subject to
withholding of all applicable taxes. The Company shall have the right to deduct from all amounts
paid in cash under the Plan any taxes required by law to be withheld with respect to such cash
payments as determined by the Committee in its sole discretion.



     8. Transferability. Except to the extent provided in a Participant’s Unit Award
Agreement, units awarded under the Plan are not transferable, except as designated by the
Participant by last will and testament or by the laws of descent and distribution.



     9. Employee Status. The Plan does not constitute a contract of employment or for
services, and selection as a Participant will not give any employee the right to be retained in the
employ of the Company or any Subsidiary.



     10. Agreement With Company. At the time of any awards under the Plan, the Committee
will require a Participant to enter into an agreement with the Company in a form specified by the
Committee, agreeing to the terms and conditions of the Plan and to such additional terms and
conditions, not inconsistent with the Plan, as the Committee may, in its sole discretion,
prescribe. In the event of any inconsistency or conflict between the terms of the Plan and the
agreement, the terms of the Plan shall govern, unless a Participant’s Unit Award Agreement provides
otherwise in which case the Unit Award Agreement shall govern. For the avoidance of doubt, it is
understood that such agreement between the Participant and the Company shall be subordinate and
subject to the terms of the covenants contained in the indentures, credit agreements or other
instruments relating to the indebtedness of the Company and Select Medical Corporation in effect on
February 24, 2005, as the same may be amended.



     11. No Funds Established. It is not intended that awards under the Plan be set aside
in a trust which would qualify as an employee’s trust within the meaning of Sections 401 or 402 of
the Code, or in any other type of trust, fund, or separate account. The rights of any Participant
and any person claiming under such Participant shall not rise above or exceed those of an unsecured
creditor of the Company.



     12. Assignment. Except as contemplated by Section 8, no right or benefit
under the



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Plan shall be subject to alienation, sale, assignment, pledge, encumbrance, or charge, and any
attempt to alienate, sell, assign, pledge, encumber, or charge the same shall be void. No right or
benefit hereunder shall in any manner be liable for or subject to any debts, contracts,
liabilities, or torts of the person entitled to such benefits.




     13. Gender, Tense and Headings. Whenever the context requires such, words of the
masculine gender used herein shall include the feminine and neuter, and words used in the singular
shall include the plural. Headings as used herein are inserted solely for convenience and
reference and constitute no part of the construction of the Plan.



     14. Tax Consequences. Neither the Company nor the Committee makes any commitment or
guarantee that any federal, state or local tax treatment will apply or be available to any person
participating or eligible to participate hereunder.



     15. Severability. In the event that any provision of this Plan shall be held illegal,
invalid or unenforceable for any reason, such provision shall be fully severable, but shall not
affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the
illegal, invalid, or unenforceable provision had never been included herein.



     16. Amendment and Termination of Plan. The Board may at any time and in any way
amend, suspend or terminate the Plan. Notwithstanding the foregoing, no amendment, suspension or
termination of the Plan shall alter adversely or impair any Units previously awarded under the Plan
without the consent of the holder thereof.



     17. Definitions. The following definitions are applicable to the Plan.




     (a) “Accreted Value” has the meaning provided for such term in the Company’s
Amended and Restated Certificate of Incorporation.




     (b) “Applicable Percentage” means the quotient expressed as a percentage of (x)
the amount of Accreted Value paid at a Preferred Stock Liquidation Event plus the amount of
Accreted Value, if any, paid at all prior Preferred Stock Liquidity Events, divided by (y)
the Accreted Value at the time of determination plus the amount of Accreted Value paid at
all prior Liquidity Events.




     (c) “Board” means the Board of Directors of the Company.




     (d) “Change of Control” has the meaning provided for such term in the Company’s
Amended and Restated Certificate of Incorporation.




     (e) “Code” means the Internal Revenue Code of 1986, as amended.




     (f) “Committee” means the compensation committee of the Board (or, if there is
no such committee, the Board committee performing equivalent functions). The Board shall
have the power to fill vacancies on the Committee arising by resignation, death, removal or
otherwise.




     (g) “Common Stock” means the Company’s Common Stock, par value $0.001



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per share.




     (h) “Company” means Select Medical Holdings Corporation, a Delaware
corporation.




     (i) “Cumulative Value” means the value of a Strip of Company Securities upon
and after giving effect to a Qualified IPO or a Change of Control. For purposes of
determining Cumulative Value, (x) the value of a share of Common Stock will be determined by
reference to the price at which a share of Common Stock is sold to the public in the
Qualified IPO or valued in the Change of Control transaction, as applicable, (y) the value
of a share of Preferred Stock shall be the Accreted Value thereof plus the sum of all
amounts previously declared and paid in respect of such share as Special Dividends, and (z)
the issuance of shares of Common Stock in respect of the Conversion Constant (as defined in
the Company’s Amended and Restated Certificate of Incorporation) upon a Qualified IPO or
Change of Control shall be included for purposes of determining the Cumulative Value but
shall not be included for purposes of calculating the Preferred Stock Liquidity Payment. It
is understood that the calculation of Cumulative Value shall be adjusted as appropriate for
stock splits, combinations and other reclassifications




     (j) “Disability” shall mean the inability of a Participant to engage in
substantial gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than one hundred eighty (180) days. The
Committee shall determine in its reasonable discretion whether a Participant has incurred a
Disability for purposes of the Plan.




     (k) “Effective Time” means February 24, 2005.




     (l) “Final Bonus Payment” means, an amount equal to (i) $50,000,000 (ii)
divided by 100,000.




     (m) “IRR Hurdle” means the value required for a Strip of Company Securities to
yield a 25% average annual percentage return, compounded annually from the Effective Time to
the date of a Qualified IPO or Change of Control, as applicable.




     (n) “Participant” means any employee of the Company or a Subsidiary to whom the
Committee awards Units under the Plan.




     (o) “Plan” means this Long-Term Cash Incentive Plan.




     (p) “Preferred Stock” means the Company’s Participating Preferred Stock, par
value $0.001 per share.




     (q) “Preferred Stock Liquidity Event” means any time the Company pays a Special
Dividend in respect of the Preferred Stock or redeems, in whole or in
part, outstanding shares of Preferred Stock. For the avoidance of doubt, the mere conversion of Preferred
Stock to Common Stock at the time of a Qualified IPO without such shares



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being redeemed or sold in the Qualified IPO shall not be a Preferred Stock Liquidity
Event; provided, however, within the first year after a Qualified IPO, the redemption or
sale of any outstanding Preferred Stock shall constitute a Preferred Stock Liquidity Event.




     (r) “Preferred Stock Liquidity Payment” means an amount equal to (i) (x) the
product of the Applicable Percentage times $50,000,000, minus (y) the aggregate Preferred
Stock Liquidity Payments paid on Prior Preferred Stock Liquidity Events, divided by (ii)
100,000.




     (s) “Price Hurdle” means $67.25, which is two times the initial value of a
Strip of Company Securities.




     (t) “Qualified IPO” has the meaning provided for such term in the Company’s
Amended and Restated Certificate of Incorporation.




     (u) “Select Medical” means Select Medical Corporation, a Delaware corporation.




     (v) “Special Dividend” has the meaning provided for such term in the Company’s
Amended and Restated Certificate of Incorporation.




     (w) “Strip of Company Securities” means a unit consisting of (i) 1 share of
Preferred Stock and (ii) 6.75 shares of Common Stock, which had an initial value of $33.625
as of the Effective Time.




     (x) “Subsidiary” means, during any period, any corporation or other entity of
which 50% or more of the total combined voting power of all classes of stock (or other
equity interests in the case of an entity other than a corporation) entitled to vote is
owned, directly or indirectly, by the Company.




     (y) “Unit” means a unit of participation in the Plan.




     (z) “Unit Award Agreement” means an award agreement evidencing the grant of
Units to a Participant.




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