Employment Agreement - HealthSouth Corp. and Richard M. Scrushy
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:
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.
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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 Executive shall also hold similar titles, offices and authority with
the Company's subsidiaries and/or their successors. 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 and its subsidiaries or their successors.
(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 the Executive the amounts
and benefits set forth below.
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(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. 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 for 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.
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(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
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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 forth 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.
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(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 of 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:
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(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 (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.
(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.
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(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.
(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.
8. FOUNDERS' BENEFITS
Upon the Executive's termination of employment hereunder for any
reason, and in
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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
Founders' 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 a voluntary
termination of employment by the Executive pursuant to Section 6(b) hereof that
occurs 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 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.
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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.
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(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 then 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.
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(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 Sections 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 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
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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.
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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
with a copy to:
Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at One HealthSouth Parkway,
Birmingham, Alabama 35243, or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent, provided that any notice required under
Section 6 hereof or notice given pursuant to Section 2 hereof shall be deemed
given only when received. Any party may by like notice to the other party change
the address at which he or they are to receive notices hereunder.
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.
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20. ARBITRATION
Any controversy or claim arising out of, or related to, this
Agreement, or the breach thereof, shall be settled by binding arbitration in the
City of Birmingham, Alabama, in accordance with the rules then obtaining of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
21. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement should the Company fail to perform
its obligations under this Agreement or should the Company or any subsidiary,
affiliate or stockholder of the Company contest the validity or enforceability
of this Agreement, the Company shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of a claim that the Company has breached or otherwise failed to perform
this Agreement or any provision hereof to be performed by the Company or as a
result of the Company or any subsidiary, affiliate or stockholder of the Company
contesting the validity or enforceability of this Agreement or any provision
hereof to be performed by the Company, in each case regardless of which party,
if any, prevails in the contest.
22. 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 under the terms and conditions hereof. In the event of an
election by the Executive to maintain Chairman-Only Status, (i) the Base Salary
described in Section 5(a) hereof and the Annual Target Bonus described in
Section 5(b) hereof shall be reduced to an amount equal to 50% of their
then-current level (subject to possible merit increases at the discretion of the
Board) at the time of such election and (ii) all other provisions of this
Agreement, including the compensation and benefits provisions of Sections 5(c)
through 5(f) hereof, shall remain in full force and effect for the remainder of
the Agreement Term. An election by the Executive to maintain Chairman-Only
Status, and the related reduction in his Base Salary and Annual Target Bonus
thereof, 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.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
/s Richard M. Scrushy/
--------------------------------
Richard M. Scrushy
HEALTHSOUTH CORPORATION
By /s/ Anthony J. Tanner
------------------------------
Name: Anthony J. Tanner
Title: Executive Vice President -
Administration and Secretary
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EXHIBIT A
HEALTHSOUTH CORPORATION
EXECUTIVE RETIREMENT PLAN
FOR RICHARD M. SCRUSHY
Summary of Terms
Benefit Formula: Annual retirement benefit equal to 60% of Base
Compensation at Normal Retirement Age
Base Compensation: Average base salary of Executive in 3 highest
consecutive calendar years of service with
HEALTHSOUTH
Vesting: Fully vested at all times
Normal Retirement Age: Age 60
Early Retirement: Benefit is fully vested and accrued if termi-
nation for any reason prior to age 60, but
earliest benefit commencement date is age 55
(with actuarial reduction)
Forms of Payment: Executive's choice of alternative forms:
Single Life Annuity
Single Life Annuity with 10 year
guarantee Joint and Survivor
Annuity (50% or 100%) Lump Sum
Death Benefit: For death prior to benefit commencement date,
spouse receives 50% survivor annuity payable
at later of date of death or 55th birthday
Actuarial Assumptions: Pre-age 60 commencement and alternative forms
of payment adjusted on an actuarial equivalent
basis:
interest rate - 30-year Treasury rate
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