Exhibit 10.34
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
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IN RE HEALTHSOUTH CORP. ERISA LITIGATION | : | CV-03-BE-1700 | ||
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CLASS ACTION SETTLEMENT AGREEMENT
This CLASS ACTION SETTLEMENT AGREEMENT(“Settlement Agreement”)is entered into by and amongSettlement Class Representativesfor themselves and on behalf of theSettlement Class,theSettling Defendantsand theUnderwriters.Italicized and capitalized terms and phrases have the meanings provided in Section 1 below.
RECITALS
WHEREAS,Settlement Class Representativeshave commenced actions comprising theERISA Actionasserting variousClaimsfor relief against theSettling Defendantsand others, all of whichClaimsare disputed by theSettling Defendants;
WHEREAS, a dispute exists with respect to the existence and/or extent of insurance coverage available or exclusions or policy defenses applicable to certainDefendantsunder theInsurance Policies;
WHEREAS, the parties have engaged in mediation before Eric Green (the“Mediator”)to explore settlement possibilities, and theMediatorhas conducted a series of mediation sessions in which theSettling Partieshave participated;
WHEREAS, theSettling Partiesare desirous of promptly and fully resolving and settling with finality all of theReleased Claimsasserted bySettlement Class Representatives,for themselves and on behalf of theSettlement Class,against theSettling Defendants,and theSettling DefendantsandUnderwritersare desirous of promptly and fully resolving and settling with finality anyClaimsagainst each other relating to theInsurance Policies;
WHEREAS, to accomplish that goal, theSettling Partieshave reached a settlement by and through their respective undersigned counsel on the terms and conditions set forth in thisSettlement Agreement;
WHEREAS, on June 3, 2005, theSettling Partiesexecuted a term sheet setting forth their settlement agreement in principle, and pursuant thereto, on June 17, 2005, theSettling Defendantsand theUnderwritersdeposited theSettlement Amountinto theSettlement Fund;
NOW, THEREFORE, theSettling Parties,in consideration of the promises, covenants and agreements herein described and for other good and valuable consideration acknowledged by each of them to be satisfactory and adequate, and intending to be legally bound, do hereby mutually agree as follows:
1. As used in thisSettlement Agreement,italicized and capitalized terms and phrases not otherwise defined have the meanings provided below:
1.1“Affiliate”shall mean: any entity which owns or controls, is owned or controlled by, or is under common ownership or control with, aPerson.For purposes of this definition, “control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of suchPerson,whether through the ownership of voting securities or otherwise.
1.2“Agreement Execution Date”shall mean: the date on which thisSettlement Agreementis fully executed, as provided in Section 20.12 below.
1.3“Approval Order”shall have the meaning set forth in Section 2.2.
1.4“Bar Order”shall have the meaning set forth in Section 2.2 below.
1.5 “Bar Order Notice” shall mean: the form of notice appended as Exhibit C to the formof Preliminary Approval Orderattached hereto as Exhibit .
1.6“Barred Persons”shall have the meaning set forth in Section 9.1.
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1.7“Claims”shall mean: any and all claims of any nature whatsoever (including claims for any and all losses, damages, unjust enrichment, attorneys’ fees, disgorgement of fees, litigation costs, injunction, declaration, contribution, indemnification or any other type or nature of legal or equitable relief), whether accrued or not, whether already acquired or acquired in the future, whether known or unknown, in law or equity, brought by way of demand, complaint, cross-claim, counterclaim, third-party claim or otherwise.
1.8“Class Exemption “shall mean: Prohibited Transaction Exemption 2003- 39, “Release of Claims and Extensions of Credit in Connection with Litigation” issued December 31, 2003, by the United States Department of Labor, 68 Fed. Reg. 75,632.
1.9“Class Notice”shall mean: the form of notice appended as Exhibit A to the form ofPreliminary Approval Orderattached hereto as Exhibit 1.
1.10 “Class Period” shall mean: the period from January 1, 1996 to the date of theFairness Hearing.
1.11 The“Company”shall mean: HEALTHSOUTH Corporation, a Delaware corporation, each of itsAffiliates,as well as each of its predecessors andSuccessors-In-Interest.
1.12 The“Court”shall mean: the United States District Court for the Northern District of Alabama.
1.13 “Custodian” shall mean: Wells Fargo Bank, N.A., as custodian of theSettlement Fund.
1.14“Derivative Actions”shall mean all derivative actions filed by shareholder plaintiffs in the name of theCompany,including but not limited toTuckerv.Scrushy,No. CV-02-5212 (Ala. Cir. Ct).
1.15“DOL “shall mean: the United States Department of Labor.
1.16“ERISA “shall mean: the Employee Retirement Income Security Act of 1974, as amended, including all regulations promulgated and case law thereunder.
1.17“ERISA Action”shall mean:In re HealthSouth Corp. ERISA Litigation,CV-03-BE-1700, a consolidated action pending in theCourt,and any and all cases now or hereafter consolidated therewith.
1.18“Fairness Hearing “shall have the meaning set forth in Section 2.2.
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1.19 “Final” shall mean: with respect to theApproval Order,that such order shall have been entered by theCourtand the time for appeal or writ of certiorari shall have expired without the initiation of an appeal or petition for writ of certiorari, or, if an appeal or petition for writ of certiorari has been timely initiated, that there has occurred a full and final disposition of any such appeal or writ of certiorari without a reversal or modification, including the exhaustion of proceedings in any remand and/or subsequent appeal after remand. Notwithstanding any other provision hereof, theApproval Ordershall be deemedFinalregardless of whether theCourthas entered an order regarding thePlan of Allocationor the award of legal fees and expenses and regardless of whether any such order, if entered, has becomeFinal.
1.20 “Independent Fiduciary” shall mean: aPlanfiduciary retained at theCompany’sexpense that has no “relationship to” or “interest in” (as those terms are used in theClass Exemption)any of theSettling Parties.
1.21“Insurance Policies”shall mean: (a) Federal Insurance Company Excess Policies Nos. 5152-84-82 and 8152-84-82A-BHM; and (b) Travelers Casualty & Surety Company of America Policy No. 076 FF 103027063 BCM.
1.22“Judgment Reduction Amount”shall have the meaning set forth in Section 10.
1.23 “Lead Counsel” shall mean: Keller Rohrback, L.L.P., as lead counsel for theSettlement Class Representativesin theERISA Action.
1.24“Mediator”shall mean: Eric Green.
1.25“Named Settling Defendants”shall mean: theCompany,Brandon Hale, Dennis Wade, Kimberly McCracken, Marca Pearson, Barbara Roper, Philip Watkins, James P. Bennett, P. Daryl Brown, John S. Chamberlin, Larry D. Striplin, Jr., Charles W. Newhall, III, George H. Strong, Richard F. Celeste, C. Sage Givens, Joel C. Gordon, Larry R. House, Anthony J. Tanner, Raymond J. Dunn, III, Allan R. Goldstein, Robert P. May, Jan L. Jones, Jon F. Hanson and Lee S. Hillman.
1.26“Net Settlement Amount”shall have the meaning set forth in Section 5.
1.27“Non-Settling Defendants”shall mean: Richard Scrushy, Aaron Beam, Jr., Michael D. Martin, and William T. Owens.
1.28“Person”shall mean: an individual, partnership, corporation, governmental entity or any other form of entity or organization.
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1.29“Plan”shall mean: the HealthSouth Corporation Employee Stock Benefit Plan, including all amendments thereto in effect at any point between January 1, 1991 and the present.
1.30“Plan of Allocation”shall mean: the plan of allocation approved by theCourtas contemplated by Section 13.
1.31“Preliminary Approval Order”shall have the meaning set forth in Section 2.
1.32“Preliminary Motion”shall have the meaning set forth in Section 2.
1.33“Released Claims”shall have the meaning set forth in Section 7.
1.34 “Releasees” shall mean: theSettling Defendants,thePlan,theUnderwriters,and the present and formerRepresentativesof each of them; provided, however, thatReleaseesshall not include theNon-Settling Defendants.
1.35“Representatives”shall mean: representatives, attorneys, agents, directors, officers, employees, insurers and reinsurers.
1.36“RICO”shall mean: the Racketeer Influenced and Corrupt Organizations Act of 1970, as amended, including all regulations promulgated and case law thereunder.
1.37“Securities Actions”shall mean: all securities actions pertaining to theCompany,including but not limited to the action proceeding as a consolidated class action captionedIn re HealthSouth Corp. Securities Litig.,No. CV-03-BE-1500-S (N.D. Ala.), and all actions that are or will be consolidated therein.
1.38 “Settlement” shall mean: the settlement to be consummated under thisSettlement Agreementpursuant to theApproval Order.
1.39“Settlement Agreement”means this Class Action Settlement Agreement.
1.40“Settlement Amount”shall mean: $25,000,000.
1.41“Settlement Class”shall have the meaning set forth in Section 12.
1.42“Settlement Class Representatives”shall mean: the followingPersons,as plaintiffs on behalf of themselves and on behalf of all members of theSettlement Class:Kim Coggins, Kim French, and Robert J. Lancaster and each of theirSuccessors-In-Interest. Settlement Class Representativesintend that all rights and obligations that are binding onSettlement Class Representativesunder this
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Settlement Agreement, including each and every covenant, agreement, and warranty, also shall be binding on all members of theSettlement Class.
1.43“Settlement Fund”shall mean: an account established byLead Counselat Wells Fargo Bank, N.A., denominated Healthsouth ERISA Litigation Settlement Fund.
1.44 “Settling Defendants” shall mean: theNamed Settling Defendants,each of their respectiveAffiliates,predecessors, andSuccessors-in-Interest,and, except for the individuals identified asNon-Settling Defendants,any directors, officers or employees of theCompany.
1.45“Settling Defendant’s Counsel”or“Underwriter’s Counsel”shall mean, for eachSettling DefendantorUnderwriter,as the case may be, the counsel identified as suchSettling Defendant’sorUnderwriter’scounsel in Section 20.9.
1.46 “Settling Parties” shall mean: theSettlement Class Representatives,theSettling Defendants,and theUnderwriters.
1.47“Successor-In-Interest”shall mean: aPerson’sestate, legal representatives, heirs, successors or assigns.
1.47“Underwriters”shall mean: Travelers Casualty & Surety Company of America and Federal Insurance Company and each of their respectiveAffiliates,predecessors, andSuccessors-ln-Interest.
2. As soon as practicable following the complete execution of thisSettlement Agreementby allSettling Parties, Settlement Class Representativeswill file a motion(“Preliminary Motion”)with theCourtfor an order substantially in the form annexed hereto as Exhibit 1, including the exhibits thereto (the“Preliminary Approval Order”).TheSettlement Class Representativesand theSettling Defendantsshall request that a preliminary hearing to consider the compromise and settlement before theCourtbe held as soon as practicable thereafter.
2.1 On the date and in the manner set by theCourtin itsPreliminary Approval Order,theSettlement Class Representativesshall cause theClass Noticeand theBar Order Noticeto be (a) transmitted in the form and manner approved by theCourtto thePersonsas directed by theCourtin thePreliminary Approval Order,and (b) published as directed by theCourtin thePreliminary Approval Order.Costs associated with the publication and service of notice, establishment of theSettlement Fund,and tax payments relating to theSettlement Fundshall be paid from the
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Settlement Amount. Lead Counselagrees to be responsible for arranging publication and distribution of theClass NoticeandBar Order Noticeto the proposedSettlement Classand otherPersonsas required by thePreliminary Approval Order.TheSettling Defendantsand theUnderwritersshall have no responsibility for providing publication or distribution of theSettlementor the notice of theSettlementto theSettlement Class,butSettling Defendantsreserve the right to approve the contents of theClass Noticeand theBar Order Notice.TheSettlement Class Representativesand theSettling Defendantsshall request that a hearing before theCourtto consider final approval of theSettlementbe held as soon as possible following preliminary approval and due and proper notice being served or published.
2.2 On or after the date set by theCourtfor the hearing to consider final approval of theSettlement(the “FairnessHearing”) theSettlement Class Representativesand theSettling Defendantsshall request that theCourtdetermine: (i) whether to enter judgment finally approving theSettlementand entering a bar order satisfying all of the terms of Section 9 below (the “Bar Order”), all substantially in the form attached hereto as Exhibit 2 (which judgment is referred to herein as the “Approval Order”); (ii) whether the distribution of theSettlement Amountas provided in thePlan of Allocationshould be approved; and (iii) what legal fees, compensation and further expenses should be awarded or reserved for award toLead Counseland other counsel forSettlement Class Representativesas contemplated by Section 4 of thisSettlement Agreement.
3.Settlement Class Representatives,on behalf of theSettlement Classand thePlan,agree to settle and fully resolve theClaimsasserted in theERISA Actionagainst theSettling Defendantsfor theSettlement Amount.
3.1 In consideration of all the promises and agreements set forth in thisSettlement Agreement,theUnderwritersand theCompanyhave caused theSettlement Amountto be deposited into theSettlement Fund.Interest earned on theSettlement Amountshall be applied to the expenses of settlement administration, if any, or otherwise shall accrue for the benefit of theSettlement Class.TheSettlement Fundshall be invested only in United States Treasury securities, and/or securities issued by government entities backed by the full faith and credit of the United States Treasury, and/or securities of United States Government Sponsored Enterprises that carry a
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rating of Aaa, and money market mutual funds that invest exclusively in the foregoing securities.
3.2 TheSettlement Fundshall be structured and managed to qualify as a Qualified Settlement Fund under Section 468B of the Internal Revenue Code and Treasury regulations promulgated thereunder and shall make tax filings and provide reports toLead Counselfor tax purposes. TheSettling Partiesshall not take a position in any filing or before any tax authority inconsistent with such treatment.
3.3 TheSettlement Amountshall be the full and sole monetary payments made by or on behalf of theSettling Defendantsand theUnderwritersto theSettlement Classin connection with theSettlement.Nothing herein or in theSettlement Agreementshall bar, or otherwise affect, any claims between or among theNamed Settling Defendants.
4. Upon the entry by theCourtof theApproval Orderand an order grantingLead Counsel’s request for attorneys’ fees and costs as contemplated by Section 2.2(iii),Lead Counselshall be entitled to withdraw from theSettlement Fundattorneys’ fees and costs as approved by theCourtbased on the common fund doctrine.Settling Defendantsshall take no position with respect to the amount of the costs or attorneys’ fees sought byLead Counsel in this matter, and shall leave the amount to the sound discretion of theCourt.Upon the entry by theCourtof theApproval Order,the threeSettlement Class Representativesmay apply to theCourtfor compensation in an amount not to exceed five thousand dollars ($5,000) for each of the threeSettlement Class Representatives,payable solely from theSettlement Fundto the extent awarded by theCourt.TheCourt’s consideration ofLead Counsel’s request for attorneys’ fees and costs and theSettlement Class Representatives’application for compensation are matters separate and apart from theSettlementbetween theSettling Parties, and no decision by theCourtconcerning theLead Counsel’s attorneys’ fees and costs or theSettlement Class Representatives’compensation shall affect the validity of theSettlement Agreementor finality of theSettlementin any manner.
5. TheSettlement Amountplus interest earned, less costs of administration pursuant to Section 2.1,Lead Counsel’s reasonable expenses, costs, and attorneys’ fees, andSettlement Class Representatives’compensation as approved by theCourt (“Net Settlement Amount”), shall be released from escrow and paid to thePlan,subject to the procedures set forth in Section 6, upon written notification to theCustodianthat theApproval OrderisFinal.TheNet Settlement Amountwill be
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paid to thePlanin order to preserve to the fullest extent possible its tax protected status underERISA.
5.1 Within 180 days after theApproval OrderbecomesFinal,theCompanyshall take any action that it deems necessary or appropriate, as determined in its sole discretion, including but not limited to amending, terminating, or in any way changing thePlan,with the intent that theNet Settlement Amountis not invested or paid from the Plan as benefits in the form of theCompany’scommon stock, and is not invested in cash except as necessary to administer thePlan.Such amendments or changes may include, but are not limited to, any amendments or changes to the Plan that permit all or a portion of theNet Settlement Amountallocated toClassmembers who are then current participants in the HealthSouth Retirement Investment Plan to be invested by them in the same or similar investment options available under the HealthSouth Retirement Investment Plan or successors thereto.
6. In the event theApproval Orderis not approved by theCourtor does not becomeFinal,theSettling Partiesshall negotiate in good faith in order to modify the terms of theSettlement Agreementin order to revive theSettlement.In the event that such efforts are not successful:
(i) theSettlement Amount,plus any interest at the rate of the escrow account, minus the amount already reasonably applied to costs ofSettlement as permitted in Section 2.1, shall be immediately returned to theCompanyand theUnderwritersin proportion to the parties’ contributions thereto, less a reserve sufficient to meet the income tax liability of theSettlement Fundwith respect to its earnings, withLead Counselbeing jointly and severally liable for any failure to return this amount;
(ii) theSettling Defendantswill not be deemed to have consented to the certification of any class, and the agreements and stipulations in thisSettlement Agreementconcerning class definition or class certification shall not be used as evidence or argument to support class certification or class definition, and theSettling Defendantswill retain all rights to oppose class certification, including certification of a class identical to that provided for in thisSettlement Agreementfor any other purpose; and
(iii) theSettlementand thisSettlement Agreement,including but not limited to the releases and orders therein, shall become null and void and of no further force and effect, the parties shall be deemed to have reverted to
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their respective status and positions as of the date immediately before the date of the execution hereof, and the parties shall proceed in all respects as if thisSettlement Agreementhad not been executed.
7. Upon the entry of theApproval Orderby theCourt, Settlement Class Representatives,on behalf of theSettlement Classand thePlan,will absolutely and unconditionally release and discharge theReleasesfrom:
(i) any and allERISA-based andRICO-basedClaims related to the acquisition, disposition, or retention of stock by thePlanand/or its fiduciaries during theClass Period;
(ii) any and allClaimsrelated to the appointment, removal, or monitoring of any fiduciary for thePlan;
(iii) any and allClaimsrelated to the preparation or dissemination, directly or indirectly, toPlanparticipants and beneficiaries of information relating toCompanystock;
(iv) any and allClaimsrelated to theInsurancePolicies;
(v) any and allERISA-basedClaimsasserted, or that could have been asserted, in theERISA ActionandERISA-basedClaims, known or unknown, arising from or related to the acts, omissions, facts or events alleged in theERISA Action;
(vi) any and allClaimsin connection with, based upon, arising out of, or relating to theSettlement,but excludingClaimsto enforce the terms of theSettlement; and
(vii) any and allClaimsbased upon, arising out of, or relating to anyPerson’sliability to theSettlement Classor thePlanforClaimsset forth in any of the preceding subsections (i) through (vi),
and any fees, costs, judgments, and/or settlement amounts arising out of suchClaims.TheClaimsdescribed above in this paragraph shall be referred to collectively as theReleased Claims. Released Claimsdo not include andSettlement Class Representativescannot release any securitiesClaimsbrought or that could have been brought in theSecurities Actions,or insurance for suchClaims,if any.Released Claimsdo not include andSettlement Class Representativesand theCompanycannot
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release anyClaimsbrought or that could have been brought in theDerivative Actions,or insurance for suchClaims,if any.Released Claimsdo not include andSettlement Class Representativescannot release any benefitClaimsor otherERISA-based Claims that any individualPlanparticipant or beneficiary has now or may have in the future with respect to thePlanor any otherCompanybenefit plan, to the extent that suchClaimsdo not relate to or arise out of theReleased Claimsand/or theERISA Action.
8. ThisSettlement Agreementwill not release or in any way bar, preclude, or compromise theClaimsin theERISA Actionthat theSettlement Class Representativesand theSettlement Classhave asserted against theNon-Settling Defendants.Nor will thisSettlement Agreementrelease or in any way bar, preclude, or compromise anyClaims,demands, interests, rights or obligations that theSettling Partiesmay have with respect to insurance other than theInsurance Policies.
9. It is an essential element to theSettling Defendants’ and theUnderwriters’participation in theSettlementthat they obtain the fullest possible release from further liability to anyone relating to theReleased Claims,as set forth below, and it is the intention of theSettling Partiesthat theSettlementeliminate all further risk and liability of theSettling Defendantsand theUnderwritersrelating to theReleased Claims,as set forth below. Accordingly, theSettling Partiesagree that theCourtshall include in theApproval OrderaBar Orderthat meets all of the following requirements, or such lesser requirements as are acceptable to theSettling Defendantsand theUnderwriters:
9.1. AllReleased Claimsbrought by anyPerson(except anyNamed Settling Defendant,theUnderwriters,or theDOL)against theSettling Defendantsor theUnderwritersshall be permanently barred, including but not limited to anyClaimfor contribution or indemnification (whether contractual or otherwise), and anyPersonreceiving notice of theClass Noticeor theBar Order Notice,or having actual knowledge of theClass Noticeor theBar Order Notice,or having actual knowledge of sufficient facts that would cause suchPersonto be charged with constructive notice of theClass Noticeor theBar Order Notice(except anyNamed Settling Defendant,theUnderwriters,or theDOL)shall be permanently enjoined from bringing, either derivatively or on behalf of themselves, or through anyPersonpurporting to act on their behalf or purporting to assert aClaimunder or through them, anyReleased Claimsagainst theSettling Defendantsor theUnderwritersin any forum, action or
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proceeding of any kind. For purposes of theSettlement AgreementandBar Order, Barred Personsshall be defined as anyPersonwho is barred and/or enjoined by this Section 9.1; including, but not limited to,Settlement Class Representatives,theSettlement Class,thePlan,and theNon-Settling Defendants,but not including anyNamed Settling Defendant, Underwriteror theDOL;
9.2. From and after the date of its entry, theBar Ordershall permanently bar and enjoin allClaimsby anyBarred Personor anySettling Partyagainst theUnderwriters,and each of them, (i) under or in any way involving theInsurance Policies,or (ii) upon anyReleased Claimor for coverage under theInsurance Policiesfor anyReleased Claim; provided, however, that nothing in theSettlement AgreementorBar Orderin any way bars or enjoins theSettling Defendantsfrom asserting any rights they may have under any insurance policies other than theInsurance Policies,or from bringing or maintaining anyClaims,whether direct or indirect, to the extent that suchClaimsare not based on theInsurance Policiesand are based upon, arise from, are in consequence of or relate to litigation other than theERISA Action,including, but not limited to, theSecurities Actionsand theDerivative Actions, irrespective of the extent, if any, to which such rights andClaimsmay be related to theReleased Claimsand/or theERISA Action;
9.3. TheSettling Defendantsshall be permanently barred and enjoined from bringing against theBarred Persons,either derivatively or on behalf of themselves, or through anyPersonpurporting to act on their behalf or purporting to assert aClaimunder or through them, any of theReleased Claimsin any forum, action or proceeding of any kind; provided, however, that aSettling Defendantshall not be barred or enjoined from bringingReleased Claimsagainst aBarred Personif for any reason suchBarred Personasserts, or is legally not barred by theBar Orderfrom bringingReleased Claimsagainst suchSettling Defendant; and further provided that nothing in theSettlement AgreementorBar Orderin any way bars or enjoins theSettling Defendantsfrom asserting any rights they may have under any insurance policies other than theInsurance Policies,or from bringing or maintaining anyClaims,whether direct or indirect, to the extent that suchClaimsare not based on theInsurance Policiesand are based upon, arise from, are in consequence of or relate to
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litigation other than theERISA Action,including, but not limited to, theSecurities Actionsand theDerivative Actions,irrespective of the extent, if any, to which such rights andClaimsmay be related to theReleased Claimsand/or theERISA Action;
9.4. TheUnderwritersshall be permanently barred and enjoined from bringing anyReleased Claimagainst anySettling PartyorBarred Person,either derivatively or on behalf of themselves, or through anyPersonpurporting to act on their behalf or purporting to asserta Released Claimunder or through them, in any forum, action or proceeding of any kind; provided, however, that anUnderwritershall not be barred or enjoined from bringingReleased Claimsagainst aBarred Personif for any reason suchBarred Personasserts, or is legally not barred by theBar Orderfrom bringingReleased Claimsagainst suchUnderwriter;and further provided that nothing in thisSettlement AgreementorBar Orderin any way bars or enjoins theUnderwritersfrom asserting any rights they may have under any insurance policies other than theInsurance Policies,or from bringing or maintaining anyClaims,whether direct or indirect, to the extent that suchClaimsare not based on theInsurance Policiesand are based upon, arise from, are in consequence of or relate to litigation other than theERISA Action,including, but not limited to, theSecurities Actionsand theDerivative Actions,irrespective of the extent, if any, to which such rights andClaimsmay be related to theReleased Claimsand/or theERISA Action;
9.5. Because theBarred Personsare barred from asserting anyReleased Claims against theReleasees,any judgments entered againstBarred Personsin theERISA Actionwill be reduced by theJudgment Reduction Amountas that term is defined in Section 10;
9.6. Nothing in theSettlement Agreementor in theBar Ordershall in any manner limit any joint and several liability applicable to anyNon-Settling DefendantunderERISAas to the portion of any judgment against suchNon-Settling Defendantin theERISA Actionremaining after applicationofany Judgment Reduction Amountprovided for in thisSettlement Agreement;
9.7. Nothing in theSettlement AgreementorBar Ordershall be deemed to create or acknowledge the existence or validity of
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anyClaimof theBarred Personsor limit any defense to any suchClaim;
10. TheCourtshall include aJudgment Creditwith respect to theBarred Personsthat shall provide as follows:
10.1.“Judgment Reduction Amount”shall mean, with respect to anyBarred Person,an amount determined by theCourtat the time of entry of any judgment against suchBarred Person,equal to the greatest of (a) the“Settlement Credit,”and (b) the“Contribution Credit”with such terms having the following meanings:
10.2. The“Settlement Credit”shall mean (a) $25 million – constituting the aggregate of theSettlement Amount,unless theCourtshall determine when assessing liability against theBarred Personthat some portion of the damages claimed which were settled by theSettlement,are different from those for which theBarred Personis liable, then (b) $25 million minus the portion of theSettlement Amountdetermined by theCourtto have been paid with respect to such different damages claimed; provided that theSettlement Creditshall not reduce the total amount of theSettlement Class’recovery against allBarred Personsby more than theSettlement Amount;and further provided that nothing in this paragraph shall permit theSettlement Classto recover more than their total amount of damages for theClaimsasserted in theERISA Action;
10.3. To the extent theCourtfinds that a right of contribution or equitable indemnity exists underERISA,the“Contribution Credit”shall mean an amount equal to the value of the contribution or equitable indemnificationClaim,if any, that theCourtdetermines suchBarred Personwould be entitled to assert against one or moreSettling Defendantsbut for operation of theBar Order,which shall be equal to the aggregate proportionate shares of liability, if any, of theSettling Defendantsas determined by theCourtat the time of entry of any judgment against anyBarred Person,adjusted to reflect any limitation on the financial capability of anySettling Defendantsto pay their respective proportionate shares of liability to theBarred Personhad theBarred Personobtained a contribution or equitable
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indemnification judgment against them in such amount, or in the absence of theSettlement,had a judgment been entered against any or allSettling Defendantsin this case;
10.4 Nothing herein shall be construed as indicating thatERISAprovides contribution or indemnity rights among fiduciaries, andSettlement Class Representativesexpressly dispute that any such right or entitlement exists underERISA.In addition, nothing herein or in theSettlement Agreementshall be deemed to create or acknowledge the existence or validity of anyClaimof theBarred Personsor limit any defense to any suchClaim.
11. Upon entry of theApproval Orderby theCourt,theSettling Defendantswill absolutely and unconditionally release and discharge any and all past, present, or futureClaimsor causes of action (including bad faithClaims),whether known or unknown, under or relating to theInsurance Policiesand against theUnderwriters.Subject to Section 9.4, theUnderwritersshall release any and all past, present, or futureClaimsor causes of action (including without limitation any subrogation or fraudClaimsagainst anyPerson),whether known or unknown, under or relating to theInsurance Policiesand against theSettling Defendants.Nothing in thisSettlement AgreementorBar Orderin any way bars or enjoins theSettling Defendantsor theUnderwritersfrom asserting any rights they may have under any insurance policies other than theInsurance Policies,or from bringing or maintaining against anyPersonanyClaims,whether direct or indirect, to the extent that suchClaimsare not based on theInsurance Policiesand are based upon, arise from, in consequence of or relate to litigation other than theERISA Action,including, but not limited to, theSecurities Actionsand theDerivative Actions,notwithstanding that such rights andClaimsmay be related to theReleased Claims.
12. TheSettlement Class Representativesand theSettling Defendantsagree to jointly petition theCourtfor certification, pursuant to Rule 23(b)(l) and/or 23(b)(2), of a non-opt-out class for settlement purposes only consisting of: (a) allPersonswho held anyCompanystock in theirPlanaccounts at any time during theClass Period,and (b) all beneficiaries, successors-in-interest, and any other payees of anyPlanparticipant with respect to thePlanparticipant’sClaimin theERISA Action,except specifically excluding from theSettlement ClassBrandon Hale, Philip Watkins, James P. Bennett, P. Daryl Brown, John S. Chamberlin, Larry D. Striplin, Jr., Charles W. Newhall, III, George H. Strong, C. Sage Givens, Joel C. Gordon, Larry R. House, Anthony J. Tanner, Raymond J. Dunn, III, Allan R. Goldstein, Robert P. May, Jan L. Jones, Jon F. Hanson, Lee S. Hillman, Richard M. Scrushy,
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Aaron Beam, Jr., Michael D. Martin, and William T. Owens. For purposes of thisSettlement Agreement,the term“Settlement Class”shall refer both to eachPersondescribed in (a) and (b), and all of them collectively. This petition will be included in the joint motion(s) for Preliminary and Final Approval of theSettlement.A non-opt-out class is an essential condition of theSettlement.
13. Prior to theFairness Hearing, Settlement Class Representativesshall propose aPlan of Allocationwith respect to theNet Settlement Amount,which shall be submitted to theCourtfor approval. The costs (but not includingLead Counsel’sattorneys’ fees) of allocating theSettlement Amountpursuant to thePlan of Allocationshall be split evenly by theCompanyand theSettlement Class,with theSettlement Class’s50% portion paid by thePlan. Lead Counselshall administer the allocation and distribution of theSettlement Amount. Settling Defendantsshall in good faith facilitate the allocation process by providingPlanand participant and beneficiary information that is necessary for the allocation process. To the extent that thePlanrecord keeper or other agents of thePlanare required under existing contracts to perform services pertaining to the allocation of theSettlement Amount,any additional charges for such services shall not be included in the costs of allocating theSettlement Amount,and shall be paid by theCompany.Neither theSettling Defendantsnor theUnderwritersshall have responsibility for the allocation and distribution of theSettlement Amount,and neither theSettling Defendantsnor theUnderwritersshall have liability to theSettlement Class RepresentativesorSettlement Classfor such allocation and distribution. Neither theSettling Defendantsnor theUnderwritersshall take any position with respect to thePlan of Allocation,and, instead, will leave the matter to the sound discretion of theCourt. Lead Counselshall furnish thePlan of Allocationto theIndependent Fiduciaryprior to submission thereof to theCourt,and shall consider in good faith any comments of theIndependent Fiduciaryon the proposedPlan of Allocation.IfLead Counseland theIndependent Fiduciaryare unable to reach agreement with respect to the proposedPlan of Allocation,theIndependent Fiduciaryshall have the right to comment on or object to the proposedPlan of Allocationsubmitted to theCourtbyLead Counsel.ThePlan of Allocationis a matter separate and apart from theSettlementbetween theSettling Parties,and no decision by theCourtconcerning thePlan of Allocationshall affect the validity of theSettlement Agreementor finality of theSettlementin any manner.
14. TheSettling Partiesagree that theCourtshall retain exclusive jurisdiction to resolve any disputes or challenges that may arise as to the performance of theSettlement Agreementor any challenges as to the performance, validity, interpretation, administration, enforcement or enforceability of theClass
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Notice, theBar Orderor thisSettlement Agreementor the termination of thisSettlement Agreement;except as otherwise directed by theCourtor by separate agreement of theSettling Parties.
15. TheSettling Partiesagree that theSettlement Agreementis a compromise of disputedClaims,and that nothing in thisSettlement Agreementshall be an admission of, or constitute a finding of: (i) fiduciary status underERISAor wrongdoing by or liability of any of theSettling Defendantsin theERISA Actionor any other proceeding; or (ii) coverage under theInsurance Policiesor wrongdoing or liability of theUnderwriters.ThisSettlement Agreementshall not be offered or received in evidence in theERISA Actionor any other action for any purpose other than enforcement of theSettlement Agreement.
16. EachSettling Partyshall have the right, in his, her or its sole discretion, to terminate thisSettlement Agreementat any time up until theCourtissues itsApproval Orderif: (a) thePlan,acting through anIndependent Fiduciary,does not approve theSettlement Agreementand does not grant a release, effective upon theCourt’sentry of theApproval Order,containing the same terms and conditions of theSettlement Agreement,or if different, terms mutually agreeable to theSettling Parties,and that meets the requirements of theClass Exemption,or (b) theDOLfiles any objection to theSettlement Agreementin theCourt,brings aClaimagainst anySettling Defendantrelating to theReleased Claims,or notifies anySettling Defendantthat it intends to file such aClaim;and, with respect to subsections (a) and/or (b), theSettling Partieshave been unable in good faith to negotiate a resolution, despite their best efforts. In the event of such termination, thisSettlement Agreementshall be null and void in toto. The costs of retaining anIndependent Fiduciaryshall be borne by theCompanyand theUnderwriters,in whatever proportion they so desire. Under no circumstances shall thePlan,theSettlement Class, Settlement Class Representatives,orLead Counselhave any obligation to pay in any manner the costs of retaining anIndependent Fiduciary.
17. Except for attorney notes, pleadings, other court submissions and transcripts of depositions and exhibits thereto,Settlement Class Representativesagree to return to theSettling Defendants,at theSettling Defendants’option, all discovery obtained from theSettling Defendantswithin thirty (30) days after all theClaimsin theERISA Actionagainst allNon-Settling Defendantshave been settled, tried toFinaljudgment or otherwise resolved by aFinaljudgment; provided that theSettling Defendantsrequesting the return of such materials shall reimburseSettlement Class Representativesfor the costs of shipping such materials.
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18.Lead Counsel shall be responsible for filing tax returns for theSettlement Fundand for paying any taxes owed with respect to theSettlement Fund.All taxes on the income of theSettlement Fundand all expenses incurred in connection with the taxation of theSettlement Fund(including, but not limited to, the expenses of tax attorneys and accountants) shall be paid out of theSettlement Fund.
19. TheSettling Parties,and each of them, represent and warrant:
19.1 That they are voluntarily entering into thisSettlement Agreementas a result of arm’s-length negotiations among their counsel, with the assistance and recommendation of theMediator,that in executing thisSettlement Agreementthey are relying solely upon their own judgment, belief and knowledge, and the advice and recommendations of their own independently selected counsel, concerning the nature, extent and duration of their rights andClaimshereunder and regarding all matters which relate in any way to the subject matter hereof, and that, except as provided herein, they have not been influenced to any extent whatsoever in executing thisSettlement Agreementby any representations, statements or omissions pertaining to any of the foregoing matters by any party or by anyPersonrepresenting any party to thisSettlement Agreement.EachSettling Partyassumes the risk of mistake as to facts or law; and
19.2 That they have carefully read the contents of thisSettlement Agreement,and thisSettlement Agreementis signed freely by eachPersonexecuting thisSettlement Agreementon behalf of each of theSettling Parties.TheSettling Parties,and each of them, further represent and warrant to each other that he, she or it has made such investigation of the facts pertaining to theSettlement,thisSettlement Agreementand all of the matters pertaining thereto, as he, she or it deems necessary.
19.3 Each individual executing thisSettlement Agreementon behalf of any otherPersondoes hereby personally represent and warrant to the otherSettling Partiesthat he or she has the authority to execute thisSettlement Agreementon behalf of, and fully bind, each principal which such individual represents or purports to represent.
20.Miscellaneous Provisions.
20.1 ThisSettlement Agreementshall be governed by the laws of the United States, including federal common law, except to
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the extent that, as a matter of federal law, State law controls, in which case Alabama law shall apply.
20.2 TheSettling Partiesintend and agree that the releases provided or granted in theSettlement Agreementshall be effective as a bar to any and all currently unsuspected, unknown or partially known claims within the scope of their express terms and provisions. Accordingly, subject to paragraphs 7 and 8 above, theSettlement Class Representativeshereby expressly waive, on their own behalf, on behalf of all members of theSettlement Class,and theSettling DefendantsandUnderwritershereby expressly waive on their own behalf, any and all rights and benefits (if any) respectively conferred upon them by the provisions of Section 1542 of the California Civil Code and all similar provisions of the statutory or common laws of any other State, Territory or other jurisdiction. Section 1542 reads in pertinent part:
“A general release does not extend to claims that the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”
20.3 The provisions of thisSettlement Agreementare not severable.
20.4 Before entry of theApproval Order,theSettlement Agreementmay be modified or amended only by written agreement signed by or on behalf of allSettling Parties.Following entry of theApproval Order,theSettlement Agreementmay be modified or amended only by written agreement signed on behalf of allSettling Parties,and approved by theCourt.
20.5 The provisions of thisSettlement Agreementmay be waived only by an instrument in writing executed by the waiving party. The waiver by any party of any breach of thisSettlement Agreementshall not be deemed to be or construed as a waiver of any other breach, whether prior, subsequent, or contemporaneous, of thisSettlement Agreement.
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20.6 The following principles of interpretation apply to thisSettlement Agreement:
20.6.1 The headings of thisSettlement Agreementare for reference purposes only and do not affect in any way the meaning or interpretation of thisSettlement Agreement.
20.6.2 Definitions apply to the singular and plural forms of each term defined.
20.6.3 Definitions apply to the masculine, feminine, and neuter genders of each term defined.
20.6.4 Whenever the words “include,” “includes” or “including” are used in thisSettlement Agreement,they shall not be limiting but rather shall be deemed to be followed by the words “without limitation.”
20.6.5 None of theSettling Partieshereto shall be considered to be the drafter of thisSettlement Agreementor any provision hereof for the purpose of any statute, case law or rule of interpretation or construction that would or might cause any provision to be construed against the drafter hereof.
20.7 Each of theSettling Partiesagrees, without further consideration, and as part of finalizing theSettlementhereunder, that they will in good faith execute and deliver such other documents and take such other actions as may be necessary to consummate and effectuate the subject matter and purpose of thisSettlement Agreement.
20.8 All representations, warranties and covenants set forth in thisSettlement Agreementshall be deemed continuing and shall survive the expiration of thisSettlement Agreement,except in the event theSettlement Agreementis terminated pursuant to Sections 6 or 16, in which case those provisions shall govern.
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20.9 Any notice, demand or other communication under thisSettlement Agreement(other than theClass Notice,theBar Order Notice,or other notices given at the direction of theCourt)shall be in writing and shall be deemed duly given upon mailing if it is addressed to each of the intended recipients as set forth below and personally delivered, sent by registered or certified mail (postage prepaid), sent by confirmed facsimile, or delivered by reputable express overnight courier:
IF TO PLAINTIFFS:
Lynn Lincoln Sarko, Esq.
Derek W. Loeser, Esq.
Gary A. Gotto, Esq.
KELLER ROHRBACK, LLP
1201 Third Avenue, Suite 3200
Seattle, WA 98101-3052
Phone (206) 623-1900
Fax: (206) 623-3384
Email: Isarko@kellerrohrback.com
Richard R. Rosenthal, Esq.
Law Offices of Richard R. Rosenthal, PC
200 Title Building
300 North Richard Arrington Jr. Blvd.
Birmingham, Alabama 35203
Phone: 205-252-4907
Fax: 205.252-1146
Email: rosenthallaw@bellsouth.net
IF TOSETTLING DEFENDANTS:
Edward P. Welch, Esq.
Robert S. Saunders, Esq.
Stephen D. Dargitz, Esq.
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19801
Fax: (302) 651-3001
Counsel for HEALTHSOUTH Corporation
Michael K.K. Choy, Esq.
Peyton D. Bibb, Esq.
Robert E. Lee Garner, Esq.
HASKELL SLAUGHTER YOUNG & REDIKER, LLC
1400 Park Place Tower
2001 Park Place North
Birmingham, Alabama 35203
Fax: (205) 324-1133
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Counsel for HEALTHSOUTH Corporation
N. Lee Cooper, Esq.
Patrick C. Cooper, Esq.
James L. Goyer, III, Esq.
MAYNARD COOPER & GALE PC
2400 AmSouth/Harbert Plaza
190 16th Avenue North
Birmingham, Alabama 35203
Fax: (205) 254-1999
Counsel to P. Daryl Brown, Richard F. Celeste, Raymond J. Dunn, III, Allan R. Goldstein, Brandon O. Hale, Larry House, Jan L. Jones, Kimberly S. McCracken, Marca Pearson, Barbara Roper, Dennis Wade and Phillip C. Watkins
Gregory C. Braden, Esq.
ALSTON & BIRD LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Fax: (404) 881-7777
Counsel to P. Daryl Brown, Richard F. Celeste, Allan R. Goldstein, Brandon O. Hale, Jan L. Jones, Kimberly S. McCracken, Marca Pearson, Barbara Roper, Dennis Wade and Phillip C. Watkins
Martin L. Seidel, Esq.
Kathryn Fleury Shreeves, Esq.
CADWALADER, WICKERSHAM & TAFT LLP
100 Maiden Lane
New York, New York 10038
Fax: (212) 504-6666
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Counsel to Jon F. Hanson, Lee S. Hillman and Robert P. May
Michael J. Chepiga, Esq.
Paul C. Gluckow, Esq.
SIMPSON THACHER & BARTLETT LLP
425 Lexington Avenue
New York, New York 10017
Fax: (212) 455-2502
Counsel to John S. Chamberlin, C. Sage Givens, Joel C. Gordon, Charles W. Newhall, III, Larry D. Striplin, Jr., and George H. Strong
Don B. Long, Jr., Esq.
James F. Henry, Esq.
JOHNSTON BARTON PROCTOR & POWELL LLP
2900 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203-2618
Fax: (205) 458-9500
Counsel to James P. Bennett
Jackson R. Sharman III, Esq.
James F. Hughey, III, Esq.
LIGHTFOOT, FRANKLIN & WHITE LLC
The Clark Building
400 North 20th Street
Birmingham, Alabama 35203
Fax: (205) 581-0799
Counsel to Anthony J. Tanner
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IF TOUNDERWRITERS
Thomas A. Doyle, Esq.
Matthew G. Allison, Esq.
BAKER & MCKENZIE
One Prudential Plaza
130 East Randolph Drive, Suite 3500
Chicago, Illinois 60601
Fax: (312) 861-2899
Counsel to Travelers Casualty & Surety Company of America
Peter R. Bisio, Esq.
Christopher R. Zaetta, Esq.
HOGAN & HARTSON LLP
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004-1109
Fax: (202) 637-5910
Counsel to Federal Insurance Company
AnySettling Partymay change the address at which it is to receive notice by written notice delivered to the otherSettling Partiesin the manner described above.
20.10 ThisSettlement Agreementcontains the entire agreement among theSettling Partiesrelating to thisSettlement.It specifically supersedes any settlement terms or settlement agreements relating to theSettling Defendantsthat were previously agreed upon orally or in writing by any of theSettling Parties.
20.11 ThisSettlement Agreementmay be executed by exchange of faxed executed signature pages, and any signature transmitted by facsimile for the purpose of executing thisSettlement Agreementshall be deemed an original signature for purposes of thisSettlement Agreement.ThisSettlement Agreementmay be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same instrument.
20.12 ThisSettlement Agreementbinds and inures to the benefit of the parties hereto, their assigns, heirs, administrators, executors and successors.
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20.13 The date on which the final signature is affixed below shall be theAgreement Execution Date.
IN WITNESS WHEREOF, theSettling Partieshave executed thisSettlement Agreementon the dates set forth below.
| SETTLEMENT CLASS REPRESENTATIVES: |
| /s/ LYNN LINCOLN SARKO |
Lynn Lincoln Sarko Derek W. Loeser Gary A. Gotto |
KELLER, ROHRBACK, LLP 1201 Third Avenue, Suite 3200 Seattle, WA 98101-3052 Phone (206) 623-1900 Fax: (206) 623-3384 |
| Lead Counsel for ERISA Plaintiffs |
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THE SETTLING DEFENDANTS: | ||
| /s/ N. LEE COOPER | July 25, 2005 | |
N. Lee Cooper Patrick C. Cooper James L. Goyer, III | ||
MAYNARD COOPER & GALE PC 2400 AmSouth/Harbert Plaza 190 16th Avenue North Birmingham, Alabama 35203 | ||
| Counsel to P. Daryl Brown, Richard F. Celeste, Raymond J. Dunn, III, Allan R. Goldstein, Brandon O. Hale, Larry House, Jan L. Jones, Kimberly S. McCracken, Marca Pearson, Barbara Roper, Dennis Wade and Phillip C. Watkins | ||
| /s/ GREGORY C. BRADEN | ||
| Gregory C. Braden | ||
ALSTON & BIRD LLP One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 | ||
| Counsel to P. Daryl Brown, Richard F. Celeste, Allan R. Goldstein, Brandon O. Hale, Jan L. Jones, Kimberly S. McCracken, Marca Pearson, Barbara Roper, Dennis Wade and Phillip C. Watkins | ||
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| /s/ MARTIN L. SEIDEL | ||
Martin L. Seidel Kathryn Fleury Shreeves | ||
CADWALADER, WICKERSHAM & TAFT LLP 100 Maiden Lane New York, New York 10038 | ||
| Counsel to Jon F. Hanson, Lee S. Hillman and Robert P. May | ||
| /s/ PAUL C. GLUCKOW | ||
Michael J. Chepiga Paul C. Gluckow | ||
SIMPSON THACHER & BARTLETT LLP 425 Lexington Avenue New York, New York 10017 | ||
| Counsel to John S. Chamberlin, C. Sage Givens, Joel C. Gordon, Charles W. Newhall, III, Larry D. Striplin, Jr., and George H. Strong | ||
| /s/ DON B. LONG, JR. | 7/1/2005 | |
Don B. Long, Jr. James F. Henry | ||
JOHNSTON BARTON PROCTOR & POWELL LLP 2900 AmSouth/Harbert Plaza 1901 Sixth Avenue North Birmingham, Alabama 35203-2618 | ||
| Counsel to James P. Bennett | ||
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| /s/ JAMES F. HUGHEY, III | 7/6/05 | |
Jackson R. Sharman III James F. Hughey, III | ||
LIGHTFOOT, FRANKLIN & WHITE LLC The Clark Building 400 North 20th Street Birmingham, Alabama 35203 | ||
| Counsel to Anthony J. Tanner | ||
| /s/ EDWARD P. WELCH | ||
Edward P. Welch Robert S. Saunders Stephen D. Dargitz | ||
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP One Rodney Square P.O. Box 636 Wilmington, Delaware 19801 | ||
| Counsel to HEALTHSOUTH Corporation | ||
| /s/ ROBERT E. LEE GARNER | ||
Michael K.K. Choy Peyton D. Bibb Robert E. Lee Garner | ||
HASKELL SLAUGHTER YOUNG & REDIKER, LLC 1400 Park Place Tower 2001 Park Place North Birmingham, Alabama 35203 | ||
| Counsel to HEALTHSOUTH Corporation | ||
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THEUNDERWRITERS |
| /s/ MATTHEW G. ALLISON |
Thomas A. Doyle Matthew G. Allison |
BAKER & MCKENZIE One Prudential Plaza 130 East Randolph Drive, Suite 3500 Chicago, Illinois 60601 |
| Counsel to Travelers Casualty & Surety Company of America |
| /s/ CHRISTOPHER R. ZAETTA |
Peter R. Bisio Christopher R. Zaetta |
HOGAN & HARTSON LLP Columbia Square 555 Thirteenth Street, NW Washington, DC 20004-1109 |
| Counsel to Federal Insurance Company |
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