Exhibit 10.1

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION

In re HEALTHSOUTH CORPORATION ) Consolidated Case No.
SECURITIES LITIGATION ) CV-03-BE-1500-S
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) CLASS ACTION
This Document Relates To: ) ------------
)
) STIPULATION OF PARTIAL
ALL ACTIONS. ) SETTLEMENT
)
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This Stipulation of Partial Settlement, dated as of __________, 2006
(the "Stipulation"), is made and entered into by and among the following
Settling Parties (as defined further in Section IV hereof) to the above-entitled
Litigation: (i) the Stockholder Lead Plaintiffs (on behalf of themselves and
each of the Stockholder Class Members) and the Bondholder Lead Plaintiff (on
behalf of itself and each of the Bondholder Class Members), by and through their
respective counsel of record in the Litigation; and (ii) HealthSouth
Corporation, by and through its counsel of record in the Litigation; and (iii)
the Individual Settling Defendants, by and through their counsel of record in
the Litigation (collectively with HealthSouth Corporation, "Settling
Defendants"). The Stipulation is intended by the Settling Parties to fully,
finally and forever resolve, discharge and settle the Released Claims, upon and
subject to the terms and conditions hereof. This Stipulation does not release
any claims of the Stockholder Class or the Bondholder Class against the
Non-Settling Defendants.

I. THE LITIGATION

Currently pending before the Court is a consolidated action on behalf
of all Persons who, between April 24, 1997 and March 18, 2003, purchased or
otherwise acquired the stock or options of HealthSouth Corporation ("HRC" or
"HealthSouth" or the "Company"), including HealthSouth securities received in
exchange for the stock or options of certain other companies acquired by
HealthSouth (the "Stockholder Class"); and a separate consolidated action on
behalf of all Persons who purchased or otherwise acquired bonds, notes or other
debt instruments issued by

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HealthSouth during the period between March 31, 1998 and March 18, 2003 (the
"Bondholder Class").

The Stockholder Lead Plaintiffs are New Mexico State Investment Council
and the Educational Retirement Board of New Mexico ("New Mexico") and Central
States SE and SW Areas Pension, with other funds ("Central States"), and the
Michigan Retirement Systems ("Michigan").

Lead Counsel for the Stockholder Class are Lerach Coughlin Stoia Geller
Rudman & Robbins LLP ("Lerach Coughlin"), counsel for Central States, and
Labaton Sucharow & Rudoff LLP ("Labaton Sucharow"), counsel for New Mexico
("Stockholder Plaintiffs' Lead Counsel").

The Bondholder Lead Plaintiff is Retirement Systems of Alabama ("RSA").

Lead Counsel for the Bondholder Class are Bernstein Litowitz Berger &
Grossmann LLP and Cunningham, Bounds, Crowder, Brown & Breedlove, LLC
("Bondholder Plaintiff's Lead Counsel").

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the Consolidated Amended Class Action Complaint for Violations of the Federal
Securities Laws, Bondholder Plaintiffs' Legal Theories and Claims, filed August
2, 2004 (together, the "Complaint"). The Complaint alleges violations of
ss.ss.11, 12(a)(2) and 15 of the Securities Act of 1933 and ss.ss.10(b), 14(a),
20(a) and 20A of the Securities Exchange Act of 1934, and Rules 10b-5 and 14a-9
promulgated thereunder by the SEC. The Complaint names as Defendants
HealthSouth, founder and former Chief Executive Officer Richard M. Scrushy,
other former high-ranking officers and directors of HealthSouth, HealthSouth's
former outside accountants, Ernst & Young LLP, and the Company's investment
banks and bankers.

The Complaint alleges that during the relevant period, at the direction
of senior HealthSouth management, Defendants implemented a scheme to falsify
HealthSouth's financial statements in order to meet or exceed Wall Street
expectations.

On September 15, 2004, all non-stayed Defendants moved to dismiss the
Complaint in its entirety. The Stockholder Plaintiffs and Bondholder Plaintiffs
filed oppositions to the motions to dismiss in November 2004. Defendants filed
reply briefs in support of their motions to dismiss on September 16, 2005.
Hearings on certain of the motions were held on January 18, 2006, February 9,
2006 and June 28, 2006.

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Bondholder Lead Plaintiffs entered into an Amended and Restated Memorandum of
Understanding, setting forth the agreement in principle to settle the Litigation
against HealthSouth. On or about March 14, 2006, the Stockholder and Bondholder
Lead Plaintiffs entered into a Memorandum of Understanding setting forth the
agreement in principle to settle the Litigation against the Individual Settling
Defendants.

II. SETTLING DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY

Settling Defendants expressly have denied and continue to deny all
charges of wrongdoing or liability against them arising out of any of the
conduct, statements, acts or omissions alleged, or that could have been alleged,
in the Litigation. Settling Defendants also continue to believe the claims
asserted against them in the Complaint are without merit. Nonetheless, Settling
Defendants have agreed to enter into the settlement solely to avoid the expense,
distraction, time, and uncertainty associated with continuing the Litigation.

The Settling Defendants have concluded that further conduct of the
Litigation would be protracted and expensive and that it is desirable that the
Litigation be fully and finally settled in the manner and upon the terms and
conditions set forth in this Stipulation. The Settling Defendants also have
taken into account the uncertainty and risks inherent in any litigation,
especially in complex cases such as this Litigation. The Settling Defendants
have, therefore, determined that it is desirable and beneficial to them and in
the best interests of all of HealthSouth's shareholders that the

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Litigation be settled in the manner and upon the terms and conditions set forth
in this Stipulation.

III. CLAIMS OF THE STOCKHOLDER LEAD PLAINTIFFS AND BONDHOLDER LEAD PLAINTIFF
AND BENEFITS OF SETTLEMENT

The Stockholder Lead Plaintiffs and Bondholder Lead Plaintiff believe
that the claims asserted in the Litigation have merit and that the evidence
developed to date supports those claims. However, the Stockholder Lead
Plaintiffs and the Bondholder Lead Plaintiff recognize and acknowledge the
expense and length of continued proceedings necessary to prosecute the
Litigation against Settling Defendants through trial and through appeals. The
Stockholder Lead Plaintiffs and the Bondholder Lead Plaintiff also have taken
into account the uncertain outcome and the risk of any litigation, especially in
complex actions such as this Litigation, as well as the difficulties and delays
inherent in such litigation. The Stockholder Lead Plaintiffs and Bondholder Lead
Plaintiff also are mindful of the inherent difficulties of proof under and
possible defenses to the securities law violations asserted in the Litigation.
The Stockholder Lead Plaintiffs and Bondholder Lead Plaintiff believe that the
settlement set forth in the Stipulation confers substantial benefits upon the
Stockholder Class and the Bondholder Class. Based on their evaluation, the
Stockholder Lead Plaintiffs, the Bondholder Lead Plaintiff and the respective
Lead Counsel for the two Classes have determined that the settlement set forth
in this Stipulation is in the best interests of the Stockholder Lead Plaintiffs,
the Bondholder Lead Plaintiff and the two Classes.

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IV. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT

NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the
Stockholder Lead Plaintiffs and the Bondholder Lead Plaintiff (for themselves
and their respective Class Members) and Settling Defendants, by and through
their respective counsel or attorneys of record, that, subject to the approval
of the Court, the Litigation and the Released Claims shall be finally and fully
compromised, settled and released, and the Litigation shall be dismissed with
prejudice, as to all Settling Parties, upon and subject to the terms and
conditions of the Stipulation, as follows.

1. Definitions

As used in the Stipulation the following terms have the meanings
specified below:

1.1 "Additional Counsel for the Merger Subclasses" means Schatz &
Nobel, P.C. and Ragsdale LLC.

1.2 "Authorized Claimant" means any Stockholder Class Member or
Bondholder Class Member whose claim for recovery has been allowed pursuant to
the terms of the Stipulation.

1.3 "Bondholder Action" means the actions consolidated under the
caption In re HealthSouth Corporation Bondholder Litigation, No. 03-BE-1502-S.

1.4 "Bondholder Class" means all Persons who purchased or otherwise
acquired HealthSouth bonds, notes or other debt instruments during the period

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between March 31, 1998 and March 18, 2003, inclusive, including all Persons who
purchased or otherwise acquired debt securities of HealthSouth pursuant or
traceable to the Integrated Public Offerings or in the secondary market.
Excluded from the Bondholder Class are the Defendants, members of the immediate
family of the Defendants, the directors, officers, subsidiaries and affiliates
of HealthSouth, any person, firm, trust, corporation, officer, director or other
individual or entity in which any Defendant has a controlling interest, and the
legal representatives, affiliates, heirs, successors-in-interest, or assigns of
any such excluded party. Also excluded from the Bondholder Class are those
Persons who timely and validly request exclusion from the Bondholder Class
pursuant to the Notice of Pendency and Proposed Settlement of Class Action.

1.5 "Bondholder Class Member" or "Member of the Bondholder Class" means
a Person who falls within the definition of the Bondholder Class as set forth in
P. 1.4 of this Stipulation.

1.6 "Bondholder Class Period" means the period March 31, 1998 through
March 18, 2003, inclusive.

1.7 "Bondholder Named Plaintiffs" means Houston Firefighters' Relief
and Retirement Fund and State Universities Retirement System of Illinois.

1.8 "Bondholder Lead Plaintiff" means Retirement Systems of Alabama
("RSA").

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1.9 "Bondholder Plaintiff's Lead Counsel" means Bernstein Litowitz
Berger & Grossmann LLP, 1285 Avenue of the Americas, 38th Floor, New York, NY
10019 and Cunningham, Bounds, Crowder, Brown & Breedlove, LLC, 1601 Dauphin
Street, Mobile, AL 36604.

1.10 "Claims Administrator" means the firm of Rust Consulting, Inc.

1.11 "Class Member" or "Class Members" means any or all of the
Bondholder Class Members and the Stockholder Class Members.

1.12 "Coverage Litigation" shall have the meaning given to that term in
the Settlement Agreement and Policy Release between the Settling Defendants and
the Settling Insurers.

1.13 "Defendants" means the Settling Defendants and the Non-Settling
Defendants.

1.14 "Effective Date" means the first date by which all of the events
and conditions specified in P. 7.1 of the Stipulation have been met and have
occurred.

1.15 "Escrow Agent" means Lerach Coughlin Stoia Geller Rudman & Robbins
LLP and Bernstein Litowitz Berger & Grossmann LLP or their respective
successors.

1.16 "Federal Actions" means the Stockholder Action and the Bondholder
Action.

1.17 "Federal Plaintiffs" means the Bondholder Class and the
Stockholder Class.

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1.18 "Final" means when the last of the following with respect to the
Judgment approving the Stipulation, substantially in the form of Exhibit B
hereto, shall occur: (i) the expiration of three (3) business days after the
time to file a motion to alter or amend the Judgment under Federal Rule of Civil
Procedure 59(e) has passed without any such motion having been filed; (ii) the
expiration of three (3) business days after the time in which to appeal the
Judgment has passed without any appeal having been taken (which date shall be
deemed to be thirty-three (33) days following the entry of the Judgment, unless
the date to take such an appeal shall have been extended by Court order or
otherwise, or unless the 33rd day falls on a weekend or a Court holiday, in
which case the date for purposes of this Stipulation shall be deemed to be the
next business day after such 33rd day); and (iii) if such motion to alter or
amend is filed or if an appeal is taken, three (3) business days after the
determination of that motion or appeal in such a manner as to permit the
consummation of the settlement substantially in accordance with the terms and
conditions of this Stipulation. For purposes of this paragraph, an "appeal"
shall not include any appeal that concerns only the issue of attorneys' fees and
reimbursement of expenses or the Plan of Allocation of the Settlement Fund. Any
proceeding or order, or any appeal or petition for a writ of certiorari
pertaining solely to any plan of distribution and/or application for attorneys'
fees, costs or expenses, shall not in any way delay or preclude the Judgment
from becoming Final.

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1.19 "HealthSouth" means HealthSouth Corporation and its subsidiaries,
divisions, affiliates, predecessors, and successors.

1.20 "Individual Settling Defendants" means Anthony J. Tanner, James P.
Bennett, Robert E. Thomson, Thomas W. Carman, P. Daryl Brown, Patrick A. Foster,
Brandon O. Hale, Larry D. Taylor, Susan M. Jones, William W. Horton, Larry R.
House, Richard F. Celeste, C. Sage Givens, George H. Strong, Larry D. Striplin,
Jr., Joel C. Gordon, John S. Chamberlin, Charles W. Newhall, III, Edwin M.
Crawford, Jan L. Jones, Russell Maddox and Phillip C. Watkins.

1.21 "Insurance Policies" are the insurance policies issued by the
Settling Insurers to HealthSouth that are identified in Exhibit A to the
Settlement Agreement and Policy Release executed on or about this date between
HealthSouth, the Individual Settling Defendants and the Settling Insurers
("Insurance Settlement Agreement").

1.22 "Judgment" means the judgment to be rendered by the Court,
substantially in the form attached hereto as Exhibit B.

1.23 "Lead Plaintiffs" means, collectively, the Bondholder Lead
Plaintiff and the Stockholder Lead Plaintiffs.

1.24 "Lead Plaintiffs' Counsel" means Bondholder Plaintiff's Lead
Counsel and Stockholder Lead Plaintiffs' Counsel.

1.25 "Non-Settling Defendant" means a Defendant in the Federal Actions
that is not a party to this Settlement, including but not limited to Ernst &
Young, LLP,

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UBS AG, UBS Warburg LLC, PaineWebber, Inc., now d/b/a UBS Financial Services,
Inc. (subsidiary of UBS AG), Citigroup, Inc., Smith Barney, Inc. (subsidiary of
Citigroup), Salomon Smith Barney now d/b/a Citigroup Global Markets (subsidiary
of Citigroup), J.P. Morgan Securities, Inc. (subsidiary of J.P. Morgan Chase &
Co.), Chase Securities, Inc., now d/b/a J.P. Morgan Securities, Inc. (subsidiary
of J.P. Morgan Chase & Co.), Bear Stearns & Co., Cowen & Company now d/b/a Cowen
Securities Corporation, Credit Suisse First Boston Corporation, Morgan Stanley &
Co., Inc., Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith, Inc. (a
subsidiary of Merrill Lynch & Co., Inc.), Deutsche Bank Securities, Inc.
(subsidiary of Deutsche Bank AG), Deutsche Bank Alex, Brown, Inc. (division of
Deutsche Bank Securities, Inc. (subsidiary of Deutsche Bank AG)), First Union
Securities now d/b/a Wachovia Securities, Inc. Scotia Capital Markets (USA),
Inc. (division of Scotia Capital Inc.), Jeffries & Company, Inc., Lehman
Brothers, Inc., BNY Capital Markets Inc., Fleet Securities, Inc. (wholly owned
subsidiary of Fleet Boston Financial Corp.), NatCity Investments, Inc., Bank of
America Securities, LLC (subsidiary of Bank of America Corp.), Nationsbanc
Montgomery Securities, LLC now d/b/a Bank of America Securities, LLC (subsidiary
of Bank of America Corp.), Benjamin D. Lorello, William C. McGahan, Howard
Capek, Richard Scrushy, William T. Owens, Weston L. Smith, Michael D. Martin,
Aaron Beam, Jr., Malcolm E. McVay, Emery W. Harris, Angela Ayers, Kenneth
Livesay, Cathy C. Edwards, Rebecca Kay Morgan,

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Virginia B. Valentine, Richard E. Botts, Will Hicks, Jason M. Brown and
Catherine Fowler.

1.26 "Notice Order" means the Order described in P. 3.1 hereof.

1.27 "Person" means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal representative,
trust, unincorporated association, government or any political subdivision or
agency thereof, and any business or legal entity and their spouses, heirs,
predecessors, successors, representatives, or assignees.

1.28 "Plaintiffs' Counsel" means any counsel who have appeared in the
Litigation.

1.29 "Plan of Allocation" means a plan or formula of allocation of the
Settlement Fund whereby the Settlement Fund shall be distributed to Authorized
Claimants after payment of expenses of notice and administration of the
settlement, Taxes and Tax Expenses, and such attorneys' fees, costs, expenses
and interest as may be awarded by the Court. Any Plan of Allocation is not part
of the Stipulation, and Settling Defendants and their Related Parties shall have
no responsibility therefor or liability with respect thereto.

1.30 "Related Parties" means, with respect to each Settling Defendant,
the immediate family members, heirs, executors, administrators, successors,
assigns, present and former employees, officers, directors, attorneys, legal
representatives, and agents of each of them, and any person or entity which is
or was related to or affiliated

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with any Settling Defendant or in which any Settling Defendant has or had a
controlling interest and the present and former parents, subsidiaries,
divisions, affiliates, predecessors, successors, employees, officers, directors,
attorneys, assigns, and agents of each of them. The Related Parties shall also
include the Settling Insurers. Notwithstanding anything in this paragraph,
Related Parties shall not include any Non-Settling Defendant or any Non-Settling
Insurer.

1.31 "Released Claims" means all claims (including "Unknown Claims" as
defined in P. 1.43) and causes of action of every nature and description,
whether known or unknown, whether arising under federal, state, common or
foreign law, whether brought directly or derivatively, that Lead Plaintiffs or
any member of the Bondholder Class or Stockholder Class in the Federal Actions
asserted in the Complaint, or could have asserted as a result of purchases,
acquisitions, sales, or exercises made during the Bondholder Class Period or the
Stockholder Class Period in securities issued by HealthSouth (including, without
limitation, all claims arising out of or relating to any disclosures, public
filings, registration statements or other statements by HealthSouth or any
Defendant in the Litigation), based upon or arising out of any facts,
allegations or claims set forth in the Complaint. In addition, with respect to
the Settling Insurers and the present and former parents, subsidiaries,
divisions, affiliates, predecessors, successors, employees, officers, directors,
attorneys, assigns, and agents of each of them, Released Claims means all claims
and causes of action of every nature and description, whether known or unknown,
whether arising under federal, state,

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common or foreign law, whether brought directly or derivatively, that are based
upon, in consequence of, arise out of or relate in any way, whether in whole or
in part, to (i) the Insurance Policies, (ii) the Coverage Litigation, (iii) the
Federal Actions, (iv) the litigation, defense, and settlement of the Coverage
Litigation and the Federal Actions, and/or (v) any of the facts, circumstances,
and situations underlying or alleged in the Coverage Litigation and the Federal
Actions.

1.32 "Released Persons" means each and all of the Settling Defendants
and each and all of their Related Parties. Released Persons also includes the
Settling Insurers who issued the Insurance Policies and are contributing to the
Settlement Fund. Released Persons shall not include any Non-Settling Defendant.

1.33 "Settlement Fund" means the principal amount of Four Hundred Forty
Five Million Dollars ($445,000,000.00) in cash, HealthSouth common stock and
warrants, to be paid pursuant to P. 2.1 of this Stipulation, plus all interest
earned thereon pursuant to P. P. 2.1, 2.2 and 2.6 and net of any expenses, fees,
or taxes.

1.34 "Settling Defendants" means HealthSouth and the Individual
Settling Defendants.

1.35 "Settling Insurers" means Federal Insurance Company, Executive
Risk Indemnity Inc., St. Paul Mercury Insurance Company, Zurich American
Insurance Co., Certain Underwriters at Lloyd's who subscribed severally and not
jointly to Policy No. 823/FD9805714, Certain Underwriters at Lloyd's who
subscribed severally and not jointly to Policy No. 823/FD9900985, Certain
Underwriters at

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Lloyd's who subscribed severally and not jointly to Policy No. 823/FD010065,
Certain Underwriters at Lloyd's who subscribed severally and not jointly to
Policy No. 823/FD0100668, Royal Indemnity Company as successor in interest to
Royal Insurance Company of America, Greenwich Insurance Company, XL Specialty
Insurance Company, Travelers Indemnity Company, successor in interest to Gulf
Insurance Company, Great Lakes Reinsurance (UK) PLC, Twin City Fire Insurance
Company, Continental Casualty Company, Royal Indemnity Company, ACE American
Insurance Company, Starr Excess Liability, AIG Europe (UK) Limited as agents for
New Hampshire Insurance Company, Arch Insurance Company, Clarendon America
Insurance Co. and Lumbermen's Mutual Casualty Company, and the present and
former parents, subsidiaries, divisions, affiliates, predecessors, successors,
employees, officers, directors, attorneys, assigns, and agents of each of them,
but does not include Houston Casualty Insurance or Axis Specialty Insurance (and
any other person or entity in their capacity as a successor in interest to
Houston Casualty Insurance or Axis Specialty Insurance with respect to an
insurance policy or policies they issued to HealthSouth and/or the Individual
Settling Defendants) ("Non-Settling Insurers").

1.36 "Settling Parties" means, collectively, each of the Settling
Defendants and the Stockholder Lead Plaintiffs and the Bondholder Lead Plaintiff
on behalf of themselves and their respective Class Members.

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1.37 "Stockholder Action" means the actions consolidated under the
caption In re HealthSouth Corporation Stockholder Litigation, No. 03-BE-1501-S.

1.38 "Stockholder Class" means all Persons who purchased or otherwise
acquired the stock or options of HealthSouth, including HealthSouth securities
received in exchange for the stock or options of certain other companies
acquired by HealthSouth between April 24, 1997 and March 18, 2003, inclusive.
Excluded from the Class are the Defendants, members of the immediate family of
the Defendants, the directors, officers, subsidiaries and affiliates of
HealthSouth, any person, firm, trust, corporation, officer, director or other
individual or entity in which any Defendant has a controlling interest, and the
legal representatives, affiliates, heirs, successors-in-interest, or assigns of
any such excluded party. Also excluded from the Stockholder Class are those
Persons who timely and validly request exclusion from the Stockholder Class
pursuant to the Notice of Pendency and Settlement of Class Action.

1.39 "Stockholder Class Member" or "Member of the Stockholder Class"
means a Person who falls within the definition of the Stockholder Class as set
forth in P. 1.38 of this Stipulation.

1.40 "Stockholder Lead Plaintiffs" means New Mexico State Investment
Council and the Educational Retirement Board of New Mexico and Central States SE
and SW Areas Pension, with other funds, and Michigan Retirement Systems.

1.41 "Stockholder Named Plaintiffs" means International Union of
Operating Engineers, Local 132 Pension Plan, Steven Kouba, David Dubrow, Donald
Angle,

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Jack Kennedy, David Willetts, Franklin and Rosalyn Ross, Trustee of the Franklin
A. Ross and Rosalyn J. Ross Revocable Living Trust and Kenneth Pittman.

1.42 "Stockholder Plaintiffs' Lead Counsel" means Lerach Coughlin Stoia
Geller Rudman & Robbins LLP, Patrick J. Coughlin, Keith F. Park, Edward P.
Dietrich, 655 West Broadway, Suite 1900, San Diego, CA 92101; and Labaton
Sucharow & Rudoff LLP, Thomas A. Dubbs, Lawrence A. Sucharow, James W. Johnson,
Christopher J. Keller, 100 Park Avenue, 12th Floor, New York, NY 10017.

1.43 "Unknown Claims" means all claims, demands, rights, liabilities,
and causes of action of every nature and description which the Lead Plaintiffs
or any Class Member do not know or suspect to exist in his, her or its favor at
the time of the release of the Released Persons which, if known by him, her or
it, might have affected his, her or its settlement with and release of the
Released Persons, or might have affected his, her or its decision not to object
to this settlement. With respect to any and all Released Claims, the Settling
Parties stipulate and agree that, upon the Effective Date, the Lead Plaintiffs
shall expressly waive, and each of the Class Members shall be deemed to have
waived, and by operation of the Judgment shall have waived, the provisions,
rights and benefits of California Civil Code ss.1542, which provides:

A general release does not extend to claims which the
creditor does not know or suspect to exist in his or her favor
at the time of executing the release, which if known by him or
her must have materially affected his or her settlement with
the debtor.

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The Lead Plaintiffs shall expressly waive and each of the Class Members shall be
deemed to have waived, and by operation of the Judgment shall have expressly
waived, any and all provisions, rights and benefits conferred by any law of any
state or territory of the United States, or principle of common law, which is
similar, comparable or equivalent to California Civil Code ss.1542. The Lead
Plaintiffs and Class Members may hereafter discover facts in addition to or
different from those which he, she or it now knows or believes to be true with
respect to the subject matter of the Released Claims, but the Lead Plaintiffs
shall expressly fully, finally and forever settle and release, and each Class
Member, upon the Effective Date, shall be deemed to have, and by operation of
the Judgment shall have, fully, finally, and forever settled and released, any
and all Released Claims, known or unknown, suspected or unsuspected, contingent
or non-contingent, whether or not concealed or hidden, which now exist, or
heretofore have existed, upon any theory of law or equity now existing or coming
into existence in the future, including, but not limited to, conduct which is
negligent, intentional, with or without malice, or a breach of any duty, law or
rule, without regard to the subsequent discovery or existence of such different
or additional facts. The Lead Plaintiffs acknowledge, and the Class Members
shall be deemed by operation of the Judgment to have acknowledged, that the
foregoing waiver was separately bargained for and a key element of the
settlement of which this release is a part.

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2. The Settlement

a. The Settlement Fund

2.1 The principal amount of $445,000,000.00 shall consist of and be
transferred as follows:

(a) HealthSouth shall pay to the Federal Plaintiffs consideration
of (i) $200,000,000, which shall be comprised of 22,088,353 shares of common
stock and 40,756,326 warrants valued as of the close of business on January 18,
2006, and (ii) consideration of $15,000,000, which shall be comprised of
3,030,303 shares of common stock valued as of the close of business on February
17, 2006. The warrants shall have a strike price of $8.28 and an 11-year term.
From January 18, 2006 until the date or dates HealthSouth issues the common
stock or warrants, the number of shares of HealthSouth common stock and the
number and terms of the warrants shall be appropriately adjusted to account for
any stock splits, reverse stock splits, stock consolidations, stock dividends,
return of capital, extraordinary distribution, recapitalization or sale of all
or substantially all of HealthSouth's assets, or any conversion or exchange of
HealthSouth's outstanding shares of common stock into other shares, securities
or property resulting from an amalgamation or merger. In the event that
HealthSouth effects its previously announced one-for-five reverse stock split
prior to the issuance of the shares and warrants described above, then the
consideration to be paid by HealthSouth shall be composed of 5,023,732 shares of
common stock and 8,151,265 warrants at a strike price of $41.40. Subject to the

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availability of an exemption under Section 3(a)(10) under the Securities Act of
1933, the common stock and warrants shall be freely tradable, except as to Class
Members who are affiliates of HealthSouth as defined in the federal securities
laws. The Company shall use its best efforts to list the warrants for trading on
the same exchange as HealthSouth stock. The Federal Plaintiffs shall receive
100% of the benefit of any upside movement in the stock price, i.e., there shall
be no reduction in the number of shares or warrants to be issued if there is an
increase in the stock price. Should HealthSouth's stock price decrease,
HealthSouth shall have no obligation to issue additional shares or warrants. The
common stock underlying the warrants shall become freely tradable after a
registration statement for the common stock underlying the warrants has been
declared effective by the Securities and Exchange Commission ("SEC").
HealthSouth shall make its best efforts to register the common stock underlying
the warrants as soon as practicable after HealthSouth becomes eligible to file a
registration statement on Form S-3. HealthSouth shall be responsible for the
costs of registering that common stock. The common stock and warrants shall be
delivered to Authorized Claimants promptly upon completion of claims
administration and as awarded to Lead Plaintiffs' Counsel pursuant to P. P. 6.1
and 6.2 hereof, subject to the oversight of the United States District Court for
the Northern District of Alabama (the "Court").

(b) The Settling Defendants shall cause the Settling Insurers to
pay the Federal Plaintiffs $230,000,000 in cash on behalf of the Settling
Defendants in

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accordance with the provisions of the Settlement Agreement and Policy Release
between the Settling Insurers, HealthSouth and the Individual Settling
Defendants. The Settling Insurers shall transfer the $230,000,000 plus all
earned or accrued interest, less fees, taxes, and penalties to the Escrow Agent,
on or before five (5) business days after the entry of the Notice Order. If any
part of the $230,000,000 is not timely paid to the Escrow Agent, it shall accrue
interest at the prevailing legal rate, which interest shall be paid by the
Settling Insurers.

b. Other Settlement Consideration

2.2 (a) HealthSouth shall pay the Federal Plaintiffs 25% of any net
recoveries obtained by or on behalf of HealthSouth against the Non-Settling
Defendants in any action asserting claims arising from or relating to the facts
alleged in the Complaint, including but not limited to Tucker v. Scrushy, et
al., CV-02-5212 (Circuit Court of Jefferson County, Alabama) (the "Derivative
Action"), but excluding judgments entered or collected prior to February 22,
2006. This amount shall be net of all fees and expenses awarded to derivative
plaintiffs' counsel by the Jefferson County, Alabama court or in arbitration,
and the reasonable fees and expenses incurred by HealthSouth's counsel in any
particular action against any Non-Settling Defendant in which a recovery is
obtained.

(b) In addition to the consideration set forth in P. 2.1 above,
HealthSouth has entered and the Individual Settling Defendants shall enter into
a mutually agreeable joint prosecution agreement with the Federal Plaintiffs
with

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respect to the prosecution of claims against the Non-Settling Defendants. The
Individual Settling Defendants shall, subject to applicable attorney-client
privileges and other applicable privileges, cooperate in good faith with all
reasonable requests by the Federal Plaintiffs and HealthSouth in connection with
their joint prosecution of claims against the Non-Settling Defendants, which
shall include, solely by way of example, (i) production of relevant,
non-privileged documents in the possession, custody or control of the Individual
Settling Defendants or any of their counsel; (ii) meeting and speaking
informally with, and cooperating with, counsel for HealthSouth and the Federal
Plaintiffs. In connection with the cooperation obligations set forth in this P.
2.2 HealthSouth and the Federal Plaintiffs shall take due account of the
Individual Settling Defendants' regular employment and other business
obligations, and health limitations, in requesting the Individual Settling
Defendants to make personal appearances or travel; and HealthSouth shall advance
to the Individual Settling Defendants all reasonable costs, including reasonable
attorneys' fees and out-of-pocket travel and similar expenses, incurred by the
Individual Settling Defendants in response to the requests of HealthSouth and/or
the Federal Plaintiffs.

c. The Escrow Agent

2.3 The Escrow Agent may invest the cash portion of the Settlement Fund
deposited pursuant to P.P. 2.1 and 2.2(a) hereof in instruments backed by the
full faith and credit of the United States Government or fully insured by the
United States Government or an agency thereof and shall reinvest the proceeds of
these instruments

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as they mature in similar instruments at their then-current market rates. The
Settlement Fund shall bear all risks related to investment of the Settlement
Fund.

2.4 The Escrow Agent shall not disburse the Settlement Fund except as
provided in the Stipulation, by an order of the Court, or with the written
agreement of counsel for Settling Defendants and the Settling Insurers.

2.5 Subject to further order and/or direction as may be made by the
Court, the Escrow Agent is authorized to execute such transactions on behalf of
the Bondholder and Stockholder Class Members as are consistent with the terms of
the Stipulation.

2.6 All funds held by the Escrow Agent and the stock and warrants shall
be deemed and considered to be in custodia legis of the Court, and shall remain
subject to the jurisdiction of the Court, until such time as such funds shall be
distributed pursuant to the Stipulation and/or further order(s) of the Court.

2.7 Within five (5) days after payment of the cash portion of the
Settlement Fund to the Escrow Agent pursuant to P. 2.1 hereof, the Escrow Agent
may establish a "Notice and Administration Fund," and may deposit up to
$1,000,000 from the Settlement Fund in it. The Notice and Administration Fund
may be used by Lead Plaintiffs' Counsel without further consent of the Settling
Defendants or the Settling Insurers or Order of the Court to pay costs and
expenses reasonably and actually incurred in connection with providing notice to
the Bondholder Class and the Stockholder Class, locating Class Members,
soliciting claims, assisting with the filing

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of claims, administering and distributing the Settlement Fund to Authorized
Claimants, processing Proof of Claim and Release forms, and paying escrow fees
and costs, if any. The Notice and Administration Fund may also be invested and
earn interest as provided for in P. 2.3 of this Stipulation.

d. Taxes

2.8 (a) Settling Parties and the Escrow Agent agree to treat the
Settlement Fund as being at all times a "qualified settlement fund" within the
meaning of Treas. Reg. ss.1.468B-1. In addition, Lead Plaintiffs' Counsel shall
timely make such elections as necessary or advisable to carry out the provisions
of this P. 2.8, including, if necessary, the "relation-back election" (as
defined in Treas. Reg. ss.1.468B-1(j)(2)) back to the earliest permitted date.
Such elections shall be made in compliance with the procedures and requirements
contained in such Treasury regulations promulgated under ss.1.468B of the
Internal Revenue Code of 1986, as amended (the "Code"). It shall be the
responsibility of Lead Plaintiffs' Counsel to timely and properly prepare and
deliver the necessary documentation for signature by all necessary parties, and
thereafter to cause the appropriate filing to occur.

(b) For the purpose of ss.1.468B of the Code and the Treasury
regulations thereunder, Lead Plaintiffs' Counsel shall be designated as the
"administrator" of the Settlement Fund. Lead Plaintiffs' Counsel shall timely
and properly file all informational and other tax returns necessary or advisable
with respect to the Settlement Fund (including, without limitation, the returns
described in Treas. Reg. ss.1.468B-2(k)). Such returns (as well as the election
described in

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P. 2.8(a) hereof) shall be consistent with this P. 2.8 and in all events shall
reflect that all Taxes (including any estimated Taxes, interest or penalties) on
the income earned by the Settlement Fund shall be paid out of the Settlement
Fund as provided in P. 2.8(c) hereof.

(c) All: (a) Taxes (including any estimated Taxes, interest or
penalties) arising with respect to the income earned by the Settlement Fund,
including any Taxes or tax detriments that may be imposed upon Settling
Defendants or their Related Parties with respect to any income earned by the
Settlement Fund for any period during which the Settlement Fund does not qualify
as a "qualified settlement fund" for federal or state income tax purposes
("Taxes"); and (b) expenses and costs incurred in connection with the operation
and implementation of this P. 2.8 (including, without limitation, expenses of
tax attorneys and/or accountants and mailing and distribution costs and expenses
relating to filing (or failing to file) the returns described in this P. 2.8)
("Tax Expenses"), shall be paid out of the Settlement Fund. In no event shall
Settling Defendants or their Related Parties have any responsibility for or
liability with respect to the Taxes or the Tax Expenses. The Settlement Fund
shall indemnify and hold each of the Settling Defendants and their Related
Parties harmless for Taxes and Tax Expenses (including, without limitation,
Taxes payable by reason of any such indemnification). Further, Taxes and Tax
Expenses shall be treated as, and considered to be, a cost of administration of
the Settlement Fund and shall be timely paid by the

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Lead Plaintiffs' Counsel out of the Settlement Fund without further consent of
the Settling Defendants, the Settling Insurers, or prior order from the Court,
and the Escrow Agent shall be obligated (notwithstanding anything herein to the
contrary) to withhold from distribution to Authorized Claimants any funds
necessary to pay such amount, including the establishment of adequate reserves
for any Taxes and Tax Expenses (as well as any amounts that may be required to
be withheld under Treas. Reg. ss.1.468B-2(1)(2)); neither Settling Defendants
nor their Related Parties are responsible therefor nor shall they have any
liability with respect thereto. The parties hereto agree to cooperate with the
Escrow Agent, each other, and their tax attorneys and accountants to the extent
reasonably necessary to carry out the provisions of this P. 2.8.

(d) For the purpose of this P. 2.8, references to the Settlement
Fund shall include both the Settlement Fund and the Notice and Administration
Fund and shall also include any earnings thereon.

e. Termination of Settlement

2.9 In the event that the Stipulation is not approved, or is
terminated, canceled, or fails to become effective for any reason, the
Settlement Fund (including accrued interest), plus any amount then remaining in
the Notice and Administration Fund (including accrued interest), less expenses
and Taxes and Tax Expenses incurred or due and owing in connection with the
settlement provided for herein shall be refunded to the contributors as provided
in P. 7.3 below.

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3. Notice Order and Settlement Hearing

3.1 As soon as practicable after execution of the Stipulation, the
Settling Parties shall submit the Stipulation together with its exhibits to the
Court and shall apply for entry of the Notice Order, substantially in the form
of Exhibit A hereto, requesting, inter alia, the preliminary approval of the
settlement set forth in the Stipulation and approval for mailing the Notice of
Pendency and Proposed Settlement of Class Action (the "Notice") substantially in
the form of Exhibit A-1 hereto and publication of a Summary Notice substantially
in the form of Exhibit A-2 hereto. The Notice shall include the general terms of
the settlement set forth in the Stipulation and the date of the Settlement
Hearing.

3.2 Lead Plaintiffs' Counsel shall request that after notice is given,
the Court hold a hearing (the "Settlement Hearing") and finally approve the
settlement of the Federal Actions as set forth herein.

4. Releases, Judgment Credit and Covenant Not to Sue

4.1 Upon the Effective Date, as defined in P. 1.14 hereof, the Federal
Plaintiffs shall be deemed to have, and by operation of the Judgment shall have,
fully, finally, and forever released, relinquished and discharged all Released
Claims against the Released Persons, whether or not such Class Member executes
and delivers a Proof of Claim and Release form.

4.2 The Proof of Claim and Release to be executed by Class Members
shall release all Released Claims against the Released Persons.

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4.3 Upon the Effective Date, as defined in P. 1.14 hereof, each of the
Released Persons shall be deemed to have, and by operation of the Judgment shall
have, fully, finally, and forever released, relinquished, and discharged each
and all of the Federal Plaintiffs and Plaintiffs' Counsel from all claims
(including Unknown Claims) arising out of, relating to, or in connection with
the institution, prosecution, assertion, settlement or resolution of the Federal
Actions or the Released Claims.

4.4 In the event that (i) a judgment (net of any judgment credit
required under the PSLRA) is entered in the Federal Actions against any
Non-Settling Defendant, and (ii) a court of competent jurisdiction determines
that such Non-Settling Defendant is entitled to coverage under the Insurance
Policies, then such Non-Settling Defendant shall have the overall judgment
reduced by the amount of coverage, if any, such court determines (based on jury
findings as and if required by law) is payable on behalf of such Non-Settling
Defendant. In connection with the judicial determination of insurance coverage
referred to in the preceding sentence, the Federal Plaintiffs shall have the
right to defend all claims of coverage asserted by any Non-Settling Defendant,
and to assert all defenses to coverage that may have been available to the
Settling Insurers, the Settling Defendants shall cooperate as set out in P.
2.2(b) and the Settling Insurers shall provide reasonable cooperation in the
defense of all such claims.

4.5 The Federal Plaintiffs agree and covenant not to file or pursue any
claim against the Settling Defendants between the date of this Stipulation and
the Effective

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Date. The parties agree that, if the Settlement does not become Final, the
period of time between the date of this Stipulation and the Effective Date shall
not be counted for purposes of any defense based on passage of time.

4.6 Lead Plaintiffs and Lead Plaintiffs' Counsel agree that, as a
condition of any settlement of the Federal Action with a Non-Settling Defendant,
they will obtain a release and/or waiver of any rights under the Insurance
Policies that might otherwise have been available to such Non-Settling Defendant
in connection with the claims asserted against such Non-Settling Defendant in
the Federal Actions as well as any rights that may exist as to indemnification
as against HealthSouth and the Individual Settling Defendants that might
otherwise be available to such Non-Settling Defendant at the time of such
settlement and in connection with the claims asserted against such Non-Settling
Defendant in the Federal Actions.

5. Administration and Calculation of Claims, Final Awards and
Supervision and Distribution of Settlement Fund

5.1 The Claims Administrator shall administer and calculate the claims
submitted by Class Members.

5.2 The Settlement Fund shall be applied as follows:

(a) to pay Plaintiffs' Counsel's attorneys' fees and expenses with
interest thereon (the "Fee and Expense Award"), when, if and to the extent
allowed by the Court;

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(b) to pay all the costs and expenses reasonably and actually
incurred in connection with providing notice, locating Class Members, soliciting
Class claims, assisting with the filing of claims, administering and
distributing the Net Settlement Fund to Authorized Claimants, processing Proof
of Claim and Release forms, and paying escrow fees and costs, if any;

(d) to distribute the balance of the Settlement Fund (the "Net
Settlement Fund") to Authorized Claimants as allowed by the Stipulation, the
Plan of Allocation, or the Court.

5.3 Upon the Effective Date and thereafter, and in accordance with the
terms of the Stipulation, the Plan of Allocation, or such further approval and
further order(s) of the Court as may be necessary or as circumstances may
require, the Net Settlement Fund shall be distributed to Authorized Claimants,
subject to and in accordance with the terms of this Stipulation.

5.4 Within one hundred-twenty (120) days after such time as set by the
Court, each Person claiming to be an Authorized Claimant shall be required to
submit to the Claims Administrator a completed Proof of Claim and Release,
substantially in a form approved by the Court, signed under penalty of perjury
and supported by such documents as are specified in the Proof of Claim and
Release and as are reasonably available to the Authorized Claimant.

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5.5 Except as otherwise ordered by the Court, all Class Members who
fail to timely submit a Proof of Claim and Release within such period, or such
other period as may be ordered by the Court, or otherwise allowed, shall be
forever barred from receiving any payments pursuant to the Stipulation and the
settlement set forth herein, but will in all other respects be subject to and
bound by the provisions of the Stipulation, the releases contained herein, and
the Judgment. Notwithstanding the foregoing, Lead Plaintiffs' Counsel may, in
their discretion, accept for processing late submitted claims so long as the
distribution of the Net Settlement Fund to Authorized Claimants is not
materially delayed.

5.6 The Net Settlement Fund shall be distributed to the Authorized
Claimants substantially in accordance with a Plan of Allocation to be described
in a subsequent notice and approved by the Court. If there is any balance
remaining in the Net Settlement Fund after six (6) months from the date of
distribution of the Net Settlement Fund (whether by reason of tax refunds,
uncashed checks or otherwise), Lead Plaintiffs' Counsel shall, if feasible,
reallocate such balance among Authorized Claimants who deposited the checks sent
in the initial distribution in an equitable and economic fashion. Thereafter,
any balance which still remains in the Net Settlement Fund shall be donated to
an appropriate non-profit organization.

5.7 This is not a claims-made settlement. Accordingly, once all
conditions of the Stipulation are satisfied and the settlement becomes Final, no
portion of the Settlement Fund will be returned to HealthSouth or the Settling
Insurers. Settling

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Defendants and their Related Parties shall have no responsibility for, interest
in, or liability whatsoever with respect to the distribution of the Net
Settlement Fund, the Plan of Allocation, the determination, administration, or
calculation of claims, the payment or withholding of Taxes or Tax Expenses, or
any losses incurred in connection therewith.

5.8 No Person shall have any claim against Lead Plaintiffs, the Escrow
Agent, Plaintiffs' Counsel, the Claims Administrator or other entity designated
by Lead Plaintiffs' Counsel based on distributions made substantially in
accordance with the Stipulation and the settlement contained herein, a
Court-approved Plan of Allocation, or further order(s) of the Court.

5.9 It is understood and agreed by the Settling Parties that any
proposed Plan of Allocation of the Net Settlement Fund including, but not
limited to, any adjustments to an Authorized Claimant's claim set forth therein,
is not a part of the Stipulation and is to be considered by the Court separately
from the Court's consideration of the fairness, reasonableness and adequacy of
the settlement set forth in the Stipulation, and any order or proceeding
relating to the Plan of Allocation shall not operate to terminate or cancel the
Stipulation or affect the finality of the Court's Judgment approving the
Stipulation and the settlement set forth therein, or any other orders entered
pursuant to the Stipulation.

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6. Plaintiffs' Counsel's Attorneys' Fees and Reimbursement of Expenses

6.1 Stockholder Plaintiffs' Lead Counsel, Bondholder Plaintiffs' Lead
Counsel and Additional Counsel for the Merger Subclasses may, upon further
notice to Class Members as approved by the Court, on behalf of Plaintiffs'
Counsel in the respective Stockholder and Bondholder Actions, submit separate
applications (the "Fee and Expense Applications") for distributions to them from
the Settlement Fund for: (a) an award of reasonable attorneys' fees from the
Settlement Fund; plus (b) reimbursement of actual expenses, including the fees
of any experts or consultants, incurred in connection with prosecuting the
Federal Actions, plus any interest on such attorneys' fees and expenses at the
same rate and for the same periods as earned by the Settlement Fund (until
paid). Stockholder Lead Plaintiffs' Counsel, Bondholder Lead Plaintiffs' Counsel
and Additional Counsel for the Merger Subclasses reserve the right to make
additional applications for fees and expenses incurred.

6.2 The attorneys' fees and expenses, as awarded by the Court, shall be
paid to Stockholder Lead Plaintiffs' Counsel, Bondholder Lead Plaintiffs'
Counsel and Additional Counsel for the Merger Subclasses from the Settlement
Fund, as ordered, immediately after the Court executes an order awarding such
fees and expenses. Stockholder Lead Plaintiffs' Counsel and Bondholder Lead
Plaintiffs' Counsel shall thereafter allocate the attorneys' fees in a manner in
which they in good faith believe reflects the contributions of Plaintiffs'
Counsel to the prosecution and settlement of

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the Federal Actions. In the event that the Effective Date does not occur, or the
Judgment or the order making the Fee and Expense Award is reversed or modified,
or the Stipulation is canceled or terminated for any other reason, and in the
event that the Fee and Expense Award has been paid to any extent, then
Plaintiffs' Counsel shall within five (5) business days from receiving notice
from Settling Defendants' counsel or from a court of appropriate jurisdiction,
refund to the Settlement Fund the fees and expenses previously paid to them from
the Settlement Fund plus interest thereon at the same rate as earned on the
Settlement Fund in an amount consistent with such reversal or modification. Each
such Plaintiffs' Counsel's law firm, as a condition of receiving such fees and
expenses, on behalf of itself and each partner and/or shareholder of it, agrees
that the law firm and its partners and/or shareholders are subject to the
jurisdiction of the Court for the purpose of enforcing the provisions of this
paragraph.

6.3 The procedure for and the allowance or disallowance by the Court of
any applications by Stockholder Lead Plaintiffs' Counsel, Bondholder Lead
Plaintiffs' Counsel or Additional Counsel for the Merger Subclasses for
attorneys' fees and expenses, including the fees of experts and consultants, to
be paid out of the Settlement Fund, are not part of the settlement set forth in
the Stipulation, and are to be considered by the Court separately from the
Court's consideration of the fairness, reasonableness, and adequacy of the
settlement set forth in the Stipulation, and any order or proceeding relating to
the Fee and Expense Application, or any appeal from any order relating thereto
or reversal or modification thereof, shall not operate to

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terminate or cancel the Stipulation, or affect or delay the finality of the
Judgment approving the Stipulation and the settlement of the Federal Actions set
forth therein.

6.4 Settling Defendants and their Related Parties shall have no
responsibility for or liability with respect to any payment of attorneys' fees
and expenses to Plaintiffs' Counsel over and above payment from the Settlement
Fund.

6.5 Settling Defendants and their Related Parties shall have no
responsibility for or liability with respect to the allocation among Plaintiffs'
Counsel, and/or any other Person who may assert some claim thereto, of any Fee
and Expense Award that the Court may make in the Federal Actions, and Settling
Defendants and their respective Related Parties take no position with respect to
such matters.

7. Conditions of Settlement, Effect of Disapproval, Cancellation or
Termination

7.1 The Effective Date of the Stipulation shall be conditioned on the
occurrence of all of the following events:

(a) HealthSouth and the Settling Insurers have timely made their
contribution to the Settlement Fund as required by P. 2.1 hereof;

(b) HealthSouth has not exercised its option to terminate the
Stipulation pursuant to P. 7.6 hereof;

(d) the Court has entered the Judgment, or a judgment substantially
in the form of Exhibit B hereto;

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(e) The Court has entered the Bar Order as set forth in Exhibit B
hereto, or a substantial equivalent acceptable to the Settling Defendants and
the Settling Insurers;

(f) dismissal with prejudice of all claims against the Individual
Settling Defendants in Tucker v. Scrushy, et al., CV-02-5212 (Circuit Court of
Jefferson County, Alabama);

(g) dismissal with prejudice of all claims against the Individual
Settling Defendants in all other derivative suits involving HealthSouth and
filed on or before the date of this Stipulation, including without limitation
(i) other derivative cases pending in Circuit Court of Jefferson County,
Alabama, including, but not limited to, Dennis Family Trust v. HealthSouth
Corp., CV-98-6592 (Ala. Cir. Ct.); and (ii) federal consolidated derivative
cases, including but not limited to In re HealthSouth Corp. Derivative Litig.,
CV-02-BE-2565 (N.D. Ala.); and (iv) In re HealthSouth Corp. Shareholder Litig.,
Consol. CA No. 19869 (Del. Ch.);

(h) the filing of a motion for dismissal with prejudice of all
claims filed against the Individual Settling Defendants in Teachers' Retirement
System of Louisiana v. Scrushy, et al., C.A. No. 20529 (Del. Ch.) which claims
have been previously dismissed without prejudice;

(i) dismissal with prejudice of claims between the Settling
Defendants and the Settling Insurers in the Coverage Litigation; and

(j) the Judgment has become Final, as defined in P. 1.15 hereof.

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7.2 Upon the occurrence of all of the events referenced in P. 7.1
hereof, any and all remaining interest or right of Settling Defendants in or to
the Settlement Fund, if any, shall be absolutely and forever extinguished. If
all of the conditions specified in P. 7.1 hereof are not met, then the
Stipulation shall be canceled and terminated subject to P. 7.4 hereof unless
Lead Plaintiffs' Counsel and counsel for Settling Defendants mutually agree in
writing to proceed with the Stipulation.

7.3 Unless otherwise ordered by the Court, in the event the Stipulation
shall terminate, or be canceled, or shall not become effective for any reason,
within five (5) business days after written notification of such event is sent
by counsel for Settling Defendants or Lead Plaintiffs' Counsel to the Escrow
Agent, subject to the terms of P. 2.8 hereof, the Settlement Fund (including
accrued interest), plus any amount then remaining in the Notice and
Administration Fund (including accrued interest), less expenses and any costs
which have either been disbursed pursuant to P. 2.6 hereof or are determined to
be chargeable to the Notice and Administration Fund including Taxes and Tax
Expenses, shall be refunded by the Escrow Agent to HealthSouth and/or the
Settling Insurers in proportion to their contribution thereto. At the request of
counsel for Settling Defendants, the Escrow Agent or its designee shall apply
for any tax refund owed on the Settlement Fund and pay the proceeds, after
deduction of any fees or expenses incurred in connection with such
application(s) for refund, to HealthSouth or the Settling Insurers.

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7.4 In the event that the Stipulation is not approved by the Court or
the settlement set forth in the Stipulation is terminated or fails to become
effective in accordance with its terms, the Settling Parties shall be restored
to their respective positions in the Federal Actions as of January 27, 2006. In
such event, the terms and provisions of the Stipulation, with the exception of
P. P. 2.8, 2.9, 7.3-7.5 hereof, shall have no further force and effect with
respect to the Settling Parties and shall not be used in the Federal Actions or
in any other proceeding for any purpose, and any judgment or order entered by
the Court in accordance with the terms of the Stipulation shall be treated as
vacated, nunc pro tunc. No order of the Court or modification or reversal on
appeal of any order of the Court concerning the Plan of Allocation or the amount
of any attorneys' fees, costs, expenses and interest awarded by the Court to
Stockholder Lead Plaintiffs' Counsel and Bondholder Lead Plaintiffs' Counsel
shall constitute grounds for cancellation or termination of the Stipulation.

7.5 If the Effective Date does not occur, or if the Stipulation is
terminated pursuant to its terms, neither the Federal Plaintiffs nor Plaintiffs'
Counsel shall have any obligation to repay any amounts actually and properly
disbursed from the Notice and Administration Fund. In addition, any expenses
already incurred and properly chargeable to the Notice and Administration Fund
pursuant to P. 2.7 hereof at the time of such termination or cancellation, but
which have not been paid, shall be paid by the Escrow Agent in accordance with
the terms of the Stipulation prior to the balance being refunded in accordance
with P.P. 2.9 and 7.3 hereof.

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7.6 If prior to the Settlement Hearing, the aggregate number of
HealthSouth debt or equity securities purchased or acquired by Persons who would
otherwise be Members of the applicable Class, but who request exclusion from
that Class, exceeds the sum specified in a separate supplemental agreement
between the Lead Plaintiffs and HealthSouth (the "Supplemental Agreement"),
HealthSouth shall have, in its sole and absolute discretion, the option to
terminate this Stipulation in accordance with the procedures set forth in the
Supplemental Agreement. The Supplemental Agreement will not be filed with the
Court unless required by court rule or unless and until a dispute as between the
Lead Plaintiffs and HealthSouth concerning its interpretation or application
arises.

8. Class Certification

8.1 For purposes of this Stipulation only, the Settling Parties will
stipulate to certification of the Bondholder Class and the Stockholder Class, as
defined herein and the appointment of the Stockholder Lead Plaintiffs' and the
Bondholder Lead Plaintiff as class representatives of the Stockholder Class and
the Bondholder Class, respectively. Settling Defendants expressly reserve the
right to contest class certification in the event this Settlement does not
become effective for any reason.

9. No Admission of Wrongdoing

9.1 This Stipulation, whether or not consummated, and any negotiations,
discussions or proceedings in connection herewith shall not be:

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(a) offered or received against any Settling Defendant as evidence
of or construed as or deemed to be evidence of any presumption, concession, or
admission by any Settling Defendant of the truth of any fact alleged by the
Class Members or the validity of any claim that has been or could have been
asserted in the Federal Actions or in any litigation, or the deficiency of any
defense that has been or could have been asserted in the Federal Actions or in
any litigation, or of any liability, negligence, fault, or wrongdoing of
Settling Defendants;

(b) offered or received against any Settling Defendant as evidence
of a presumption, concession, admission of any fault, misrepresentation or
omission with respect to any statement or written document approved or made by
any Defendant, or against the Federal Plaintiffs as evidence of any infirmity in
the claims of the Federal Plaintiffs and the Classes;

(c) offered or received against any Settling Defendant as evidence
of a presumption, concession, or admission of any liability, negligence, fault
or wrongdoing, or in any way referred to for any other reason as against any of
the parties to this Stipulation, in any other civil, criminal or administrative
action or proceeding, other than such proceedings as may be necessary to
effectuate the provisions of this Stipulation; provided, however, that if this
Stipulation is approved by the Court, Settling Defendants and their Related
Parties may refer to it to effectuate the release granted them hereunder;

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(d) construed against Settling Defendants, Lead Plaintiffs or the
Classes as an admission or concession that the consideration to be given
hereunder represents the amount which could be or would have been recovered
after trial.

10. Miscellaneous Provisions

10.1 The Settling Parties (a) acknowledge that it is their intent to
consummate this agreement; and (b) agree to cooperate to the extent reasonably
necessary to effectuate and implement all terms and conditions of the
Stipulation and to exercise their reasonable best efforts to accomplish the
foregoing terms and conditions of the Stipulation.

10.2 This Stipulation, the exhibits attached hereto and the
Supplemental Agreement constitutes the entire agreement between the Settling
Parties as to the subject matter hereof and supersedes any prior or
contemporaneous written or oral agreements or understandings between the
Settling Parties as to the subject matter hereof, including (i) the Amended and
Restated Memorandum of Understanding between the Stockholder and Bondholder Lead
Plaintiffs and HealthSouth and (ii) the Memorandum of Understanding between the
Stockholder and Bondholder Lead Plaintiffs and the Individual Settling
Defendants; provided, however, that nothing contained herein shall release,
alter, change, limit, affect, dilute, eliminate, or in any way, impair or
undermine existing or future indemnification and advancement rights, and/or
existing or future indemnification and advancement claims, if any, of the
Individual Settling Defendants against HealthSouth, whether arising out of any

-41-

corporate governance provisions, Certificate of Incorporation, By-laws, as in
effect at any time, other corporate documents, indemnity agreements, letter
agreements, severance agreements, contract, law, or otherwise. No modification
or amendment of this Agreement shall be valid unless made in writing and signed
by or on behalf of each Party hereto. No representations, warranties or
inducements have been made to any party concerning the Stipulation, its exhibits
or the Supplemental Agreement other than the representations, warranties and
covenants contained and memorialized in such documents. Except as otherwise
provided for herein, each party shall bear his, her or its own costs. The
settlement compromises claims that are contested and shall not be deemed an
admission by any Settling Party as to the merits of any claim or defense. The
Judgment will contain a statement that during the course of the Federal Actions,
the parties and their respective counsel at all times complied with the
requirements of Federal Rule of Civil Procedure 11. The Settling Parties agree
that the amount paid to the Settlement Fund and the other terms of the
settlement were negotiated in good faith by the Settling Parties and reflect a
settlement that was reached voluntarily after consultation with competent legal
counsel. The Settling Parties reserve their right to rebut, in a manner that
such party determines to be appropriate, any contention made in any public forum
that the Federal Action was brought or defended in bad faith or without a
reasonable basis.

10.3 Settling Defendants and/or their Related Parties may file the
Stipulation and/or the Judgment in any action that may be brought against them
in order to

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support a defense, claim or counterclaim based on principles of res judicata,
collateral estoppel, release, good faith settlement, judgment bar or reduction
or any other theory of claim preclusion or issue preclusion or similar defense
or counterclaim.

10.4 All agreements made and orders entered during the course of the
Federal Actions relating to the confidentiality of information shall survive
this Stipulation.

10.5 All of the exhibits to the Stipulation are material and integral
parts hereof and are fully incorporated herein by this reference.

10.6 The Stipulation may be amended or modified only by a written
instrument signed by or on behalf of all Settling Parties or their respective
successors-in-interest.

10.7 Lead Plaintiffs' Counsel, on behalf of the Classes, are expressly
authorized by the Lead Plaintiffs to take all appropriate action required or
permitted to be taken by the Classes pursuant to the Stipulation to effectuate
its terms and also are expressly authorized to enter into any modifications or
amendments to the Stipulation on behalf of the Classes which they deem
appropriate.

10.8 Each counsel or other Person executing the Stipulation or any of
its exhibits on behalf of any party hereto hereby warrants that such Person has
the full authority to do so.

10.9 The Stipulation may be executed in one or more counterparts. All
executed counterparts and each of them shall be deemed to be one and the same

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instrument. A complete set of original executed counterparts shall be filed with
the Court.

10.10 The Stipulation shall be binding upon, and inure to the benefit
of, the successors and assigns of the parties hereto.

10.11 The Court shall retain jurisdiction with respect to
implementation and enforcement of the terms of the Stipulation, and all parties
hereto submit to the jurisdiction of the Court for purposes of implementing and
enforcing the settlement embodied in the Stipulation.

10.12 The waiver by one party of any breach of this Stipulation by any
other party shall not be deemed a waiver by any other party or a waiver of any
other prior or subsequent breach of this Stipulation.

10.13 HealthSouth warrants as to itself and, to the best of its
knowledge, as to the Settling Insurers that, as to the payments made by or on
behalf of Settling Defendants, at the time of such payments that HealthSouth
and/or the Settling Insurers made or caused to be made pursuant to P. 2.1 above,
as the case may be, they were not insolvent nor did nor will the payments
required to be made by or on behalf of Defendants render HealthSouth or the
Settling Insurers, as the case may be, insolvent within the meaning of and/or
for the purposes of United States Bankruptcy Code, including ss.ss.101 and 547
thereof. This warranty is made by HealthSouth and not by counsel for
HealthSouth.

-44-

10.14 If a case is commenced in respect of the Settling Defendants or
any of the Settling Insurers under Title 11 of the United States Code
(Bankruptcy), or a trustee, receiver or conservator is appointed under any
similar law, and in the event of the entry of a final order of a court of
competent jurisdiction determining the transfer of money to the Settlement Fund
or any portion thereof by or on behalf of the Settling Defendants to be a
preference, voidable transfer, fraudulent transfer or similar transaction, and
any portion thereof is required to be returned, and such amount is not promptly
deposited to the Settlement Fund by others, then, at the election of Lead
Plaintiffs' Counsel, the parties shall jointly move the Court to vacate and set
aside the releases given and the Judgment entered in favor of such Settling
Defendant pursuant to this Stipulation, which releases and Judgments shall be
null and void, and the parties so affected shall be restored to their respective
positions in the Federal Actions as of January 27, 2006, and any other cash
amounts in the Settlement Fund paid by or on behalf of such affected Settling
Defendant shall be returned as provided herein.

10.15 The Stipulation and the exhibits hereto shall be considered to
have been negotiated, executed and delivered, and to be wholly performed, in the
State of Alabama, and the rights and obligations of the parties to the
Stipulation shall be construed and enforced in accordance with, and governed by,
the internal, substantive laws of the State of Alabama without giving effect to
that state's choice-of-law principles.

-45-

IN WITNESS WHEREOF, the parties hereto have caused the Stipulation to
be executed, by their duly authorized attorneys dated as of ________, 2006.

WHATLEY DRAKE, LLC
JOE R. WHATLEY, JR.
RUSSELL JACKSON DRAKE
G. DOUGLAS JONES
OTHNI J. LATHRAM

s/ G. Douglas Jones
---------------------------------------
G. DOUGLAS JONES

2323 Second Avenue North
Birmingham, AL 35203
Telephone: 205/328-9576
205/328-9669 (fax)

RILEY & JACKSON, P.C.
ROBERT R. RILEY, JR.
1744 Oxmoor Road
Birmingham, AL 35209
Telephone: 205/879-5000
205/879-5901 (fax)

Co-Liaison Counsel for Stockholder Lead
Plaintiffs

LERACH COUGHLIN STOIA GELLER
RUDMAN & ROBBINS LLP
WILLIAM S. LERACH
KEITH F. PARK
EDWARD P. DIETRICH
ELLEN GUSIKOFF STEWART
JAMES A. CAPUTO
DEBRA J. WYMAN
JONAH H. GOLDSTEIN
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)

LERACH COUGHLIN STOIA GELLER
RUDMAN & ROBBINS LLP
PATRICK J. COUGHLIN

s/ Patrick J. Coughlin
---------------------------------------
PATRICK J. COUGHLIN

-46-

100 Pine Street, Suite 2600
San Francisco, CA 94111
Telephone: 415/288-4545
415/288-4534 (fax)

LABATON SUCHAROW & RUDOFF LLP
THOMAS A. DUBBS
LAWRENCE A. SUCHAROW
JAMES W. JOHNSON
CHRISTOPHER J. KELLER

s/ Thomas A. Dubbs
---------------------------------------
THOMAS A. DUBBS

100 Park Avenue, 12th Floor
New York, NY 10017-5563
Telephone: 212/907-0700
212/818-0477 (fax)

Lead Counsel for Stockholder Lead
Plaintiffs

DONALDSON & GUIN, LLC
DAVID J. GUIN
DAVID R. DONALDSON
TAMMY MCCLENDON STORES

s/ David J. Guin
---------------------------------------
DAVID J. GUIN

505 Twentieth Street North, Suite 1000
Birmingham, AL 35203
Telephone: 205/226-2282
205/226-2257 (fax)

Liaison Counsel for Bondholder Lead
Plaintiff

BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP
MAX W. BERGER
JOHN P. COFFEY
JEFFREY N. LEIBELL

s/ John P. Coffey
---------------------------------------
JOHN P. COFFEY

1285 Avenue of the Americas, 38th Floor
New York, NY 10019
Telephone: 212/554-1400
212/554-1444 (fax)

-47-

CUNNINGHAM, BOUNDS, CROWDER
BROWN & BREEDLOVE, LLC
ROBERT T. CUNNINGHAM, JR.
JOHN T. CROWDER, JR.

s/ Robert T. Cunningham, Jr.
---------------------------------------
ROBERT T. CUNNINGHAM, JR.

1601 Dauphin Street
P.O. Box 66705
Mobile, AL 36660

Lead Counsel for Bondholder Lead
Plaintiff

BRADLEY ARANT ROSE & WHITE LLP
JULIA BOAZ COOPER

s/ Julia Boaz Cooper
---------------------------------------
JULIA BOAZ COOPER

One Federal Place
1819 Fifth Avenue North
Birmingham, AL 35203-2104

Counsel for HealthSouth Corporation

HEALTHSOUTH CORPORATION
JOHN WHITTINGTON, INTERIM GENERAL
COUNSEL AND CORPORATE SECRETARY

One HealthSouth Parkway
Birmingham, AL 35243

-48-

INDIVIDUAL SETTLING DEFENDANTS

MAYNARD COOPER & GALE PC
N. LEE COOPER
PATRICK C. COOPER
JAMES L. GOYER, III

s/ James L. Goyer, III
---------------------------------------
JAMES L. GOYER, III

2400 AmSouth/Harbert Plaza
1901 6th Avenue North
Birmingham, AL 35203
Telephone: 205/254-1000
205/254-1999 (fax)

Counsel to P. Daryl Brown, Richard F.
Celeste, Patrick A. Foster, Brandon O.
Hale, Larry R. House, William W.
Horton, Jan L. Jones, Russell H.
Maddox, Larry D. Taylor, and Phillip
C. Watkins

ALSTON & BIRD LLP
PETER Q. BASSETT
BETSY P. COLLINS

s/ Betsy P. Collins
---------------------------------------
BETSY P. COLLINS

One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
Telephone: 404/881-7000
404/881-7777 (fax)

Counsel to P. Daryl Brown, Richard F.
Celeste, Patrick A. Foster, Brandon O.
Hale, William W. Horton, Jan L. Jones,
Russell H. Maddox, Larry D. Taylor, and
Phillip C. Watkins

J. MARK HART, P.C.
J. MARK HART

s/ J. Mark Hart
---------------------------------------
J. MARK HART

-49-

1400 Park Place Tower
2001 Park Place Tower
Birmingham, AL 34203
Telephone: 205/254-1464
205/324-1133 (fax)

SIMPSON THACHER & BARTLETT LLP
MICHAEL CHEPIGA
PAUL C. GLUCKOW
425 Lexington Avenue
New York, NY 10017
Telephone: 212/455-2000
212/455-2502 (fax)

Counsel to John S. Chamberlin, C. Sage
Givens, Joel C. Gordon, Charles W.
Newhall, III, Larry D. Striplin, Jr.,
and George H. Strong

CHRISTIAN & SMALL LLP
KENNETH O. SIMON
MAXWELL H. PULLIAM

s/ Kenneth O. Simon
---------------------------------------
KENNETH O. SIMON

Financial Center
505 North Twentieth Street, Suite 1800
Birmingham, AL 35203
Telephone: 205/795-6588
205/328-7234 (fax)

Counsel to Robert E. Thompson

STARNES & ATCHISON LLP
ANTHONY C. HARLOW

s/ Anthony C. Harlow
---------------------------------------
ANTHONY C. HARLOW

100 Brookwood Place, 7th Floor
P.O. Box 598512
Birmingham, AL 35259-8512

Counsel to Edwin M. Crawford

-50-

BAXLEY, DILLARD, DAUPHIN,
MCKNIGHT & BARCLIFT
CHARLES DAUPHIN
s/ Charles Dauphin
---------------------------------------
CHARLES DAUPHIN

2008 Third Avenue South
Birmingham, AL 35233

Counsel to Susan M. Jones Smith

JOHNSTON BARTON PROCTOR
& POWELL LLP
DON B. LONG, JR.
JAMES F. HENRY

s/ Don B. Long, Jr.
---------------------------------------
DON B. LONG, JR.

2900 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, AL 35203-2618
205/458-9500 (fax)

Counsel to James P. Bennett

LIGHTFOOT, FRANKLIN & WHITE LLC
JACKSON R. SHARMAN III
JAMES F. HUGHEY, III

s/ Jackson R. Sharman III
---------------------------------------
JACKSON R. SHARMAN III

The Clark Building
400 North 20th Street
Birmingham, AL 35203
205/581-0799 (fax)

Counsel to Anthony J. Tanner

-51-

CERTIFICATE OF SERVICE
----------------------

I hereby certify that on September 26, 2006, I electronically filed the
foregoing with the Clerk of the Court using the CM/ECF system which will send
notification of such filing to the e-mail addresses denoted on the attached
Electronic Mail Notice List, and I hereby certify that I have mailed the
foregoing document or paper via the United States Postal Service to the
non-CM/ECF participants indicated on the attached Manual Notice List.

s/ Patrick J. Coughlin
---------------------------------------
PATRICK J. COUGHLIN

LERACH COUGHLIN STOIA GELLER
RUDMAN & ROBBINS LLP
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
E-mail: PatC@lerachlaw.com

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

In re HEALTHSOUTH CORPORATION ) Consolidated Case No.
SECURITIES LITIGATION ) CV-03-BE-1500-S
)
)
- -------------------------------------------- ) CLASS ACTION
------------

[PROPOSED] ORDER
PRELIMINARILY APPROVING
SETTLEMENT AND PROVIDING
FOR NOTICE

EXHIBIT A

WHEREAS, class actions are pending before the Court entitled In re
HealthSouth Stockholder Litigation, No. CV-03-BE-1501-S and In re HealthSouth
Bondholder Litigation, No. 03-BE-1502-S (together, the "Federal Actions");

WHEREAS, the Court has received the Stipulation of Settlement dated as
of _________, 2006 (the "Stipulation"), that has been entered into by the Lead
Plaintiffs and Settling Defendants, and the Court has reviewed the Stipulation
and its attached Exhibits; and

WHEREAS, the parties having made application, pursuant to Federal Rule
of Civil Procedure 23(e), for an order preliminarily approving the settlement of
the Federal Actions, in accordance with the Stipulation which, together with the
Exhibits annexed thereto sets forth the terms and conditions for a proposed
settlement of the Federal Actions and for dismissal of the Federal Actions with
prejudice upon the terms and conditions set forth therein; and the Court having
read and considered the Stipulation and the Exhibits annexed thereto; and

WHEREAS, all defined terms contained herein shall have the same
meanings as set forth in the Stipulation;

NOW, THEREFORE, IT IS HEREBY ORDERED:

1. The Court hereby certifies the following classes for settlement
purposes only:

(a) "Stockholder Class" means all Persons who purchased or
otherwise acquired the stock or options of HealthSouth, including HealthSouth

-1-

securities received in exchange for the stock or options of certain other
companies acquired by HealthSouth between April 24, 1997 and March 18, 2003,
inclusive. Excluded from the Class are the Defendants, members of the immediate
family of the Defendants, the directors, officers, subsidiaries and affiliates
of HealthSouth, any person, firm, trust, corporation, officer, director or other
individual or entity in which any Defendant has a controlling interest, and the
legal representatives, affiliates, heirs, successors-in-interest, or assigns of
any such excluded party. Also excluded from the Stockholder Class are those
Persons who timely and validly request exclusion from the Stockholder Class
pursuant to the Notice of Pendency and Settlement of Class Action.

(b) "Bondholder Class" means all Persons who purchased or otherwise
acquired HealthSouth bonds, notes or other debt instruments during the period
between March 31, 1998 and March 18, 2003, inclusive, including all Persons who
purchased or otherwise acquired debt securities of HealthSouth pursuant or
traceable to the Integrated Public Offerings or in the secondary market.
Excluded from the Bondholder Class are the Defendants, members of the immediate
family of the Defendants, the directors, officers, subsidiaries and affiliates
of HealthSouth, any person, firm, trust, corporation, officer, director or other
individual or entity in which any Defendant has a controlling interest, and the
legal representatives, affiliates, heirs, successors-in-interest, or assigns of
any such excluded party. Also excluded from the Bondholder Class are those
Persons who timely and validly request exclusion from the

-2-

Bondholder Class pursuant to the Notice of Pendency and Proposed Settlement of
Class Action.

2. With respect to each class, this Court finds that: (a) the members
of each class are so numerous that joinder of all class members in the class
action is impracticable; (b) there are questions of law and fact common to each
class which predominate over any individual question; (c) the claims of the
Bondholder Lead Plaintiff are typical of the claims of the Bondholder Class and
the claims of the Stockholder Lead Plaintiffs are typical of the claims of the
Stockholder Class; (d) the Lead Plaintiffs and their counsel have fairly and
adequately represented and protected the interests of the respective members of
each class; and (e) a class action is superior to other available methods for
the fair and efficient adjudication of the controversy considering: (i) the
interests of the members of each class in individually controlling the
prosecution of the separate actions, (ii) the extent and nature of any
litigation concerning the controversy already commenced by members of each
class; (iii) the desirability or undesirability of concentrating the litigation
of these claims in this particular forum, and (iv) the difficulties likely to be
encountered in the management of the class action.

3. Pursuant to Rule 23 of the Federal Rules of Civil Procedure, and
for the purposes of settlement only, the Court certifies New Mexico, Central
States and Michigan as Class Representatives for the Stockholder Class, and
certifies Retirement Systems of Alabama as the Class Representative for the
Bondholder Class.

-3-

4. The Court does hereby preliminarily approve the Stipulation and the
settlement set forth therein, subject to further consideration at the Settlement
Hearing described below. The Court also preliminarily approves the Insurance
Settlement Agreement and Policy Release (see Exhibit A-3), subject to further
consideration at the Settlement Hearing.

5. A hearing (the "Settlement Hearing") shall be held before this
Court on _______________, 20__, at _________ __.m., at the United States
Courthouse, Courtroom 3, Robert Vance Federal Building, 140 Hugo L. Black United
States Courthouse, 1729 Fifth Avenue North, Birmingham, Alabama to determine
whether the proposed settlement of the Federal Actions on the terms and
conditions provided for in the Stipulation is fair, reasonable and adequate to
the Stockholder Class and the Bondholder Class and should be approved by the
Court; and whether a Judgment as provided in P. 1.22 of the Stipulation should
be entered herein. The Court may adjourn the Settlement Hearing without further
notice to Members of the Classes.

6. The Court recognizes and acknowledges that one consequence of a
determination of fairness at the Settlement Hearing is that, pursuant to
ss.3(a)(10) of the Securities Act of 1933, as amended, 15 U.S.C. ss.77c(a)(10),
the shares of HealthSouth common stock to be issued as part of the settlement
consideration may be distributed to Class Members and to Plaintiffs' Counsel
without registration and compliance with the prospectus delivery requirements of
the securities laws. If the Settlement is

-4-

approved, such shares will be exempt from registration under the Securities Act
of 1933, 15 U.S.C. ss.77c(a)(1), as amended, pursuant to ss.3(a)(10) thereunder.

7. The Court approves, as to form and content, the Notice of Pendency
and Proposed Settlement of Class Action (the "Notice"), and Summary Notice for
publication annexed as Exhibits A-1 and A-2 hereto and finds that the mailing
and distribution of the Notice and publishing of the Summary Notice
substantially in the manner and form set forth in P. 8 of this Order meet the
requirements of Federal Rule of Civil Procedure 23, ss.21D(a)(7) of the
Securities Exchange Act of 1934, 15 U.S.C. ss.78u-4(a)(7), as amended including
by the Private Securities Litigation Reform Act of 1995, and due process, and is
the best notice practicable under the circumstances and shall constitute due and
sufficient notice to all Persons entitled thereto.

8. The firm of Rust Consulting, Inc. ("Claims Administrator") is
hereby appointed to supervise and administer the notice procedure as well as the
processing of claims as more fully set forth below:

(a) HealthSouth shall cooperate in making its transfer records and
shareholder and bondholder information available to the Claims Administrator no
later than seven (7) days following entry of this Order for the purpose of
identifying and giving notice to the Classes.

(b) Lead Plaintiffs' Counsel shall make reasonable efforts to
identify all Persons who are Members of the Class, and not later than 14 days
after entry of this Order (the "Notice Date"), Lead Plaintiffs' Counsel shall
cause a copy of the

-5-

Notice substantially in the form annexed as Exhibits A-1 hereto, to be mailed by
first class mail to all Class Members who can be identified with reasonable
effort;

(c) Not later than 14 days after the Notice Date, Lead Plaintiffs'
Counsel shall cause the Summary Notice to be published once in the national
edition of The Wall Street Journal and in Investor's Business Daily and once
over the PR Newswire; and

(d) At least seven (7) calendar days prior to the Settlement
Hearing, Lead Plaintiffs' Counsel shall cause to be served on Settling
Defendants' counsel and filed with the Court proof, by affidavit or declaration,
of such mailing and publishing.

9. Nominees who purchased the common stock, options, bonds, notes or
other debt instruments of HealthSouth for the beneficial ownership of
Stockholder Class Members during the Class Period or Bondholder Class Members
during the Bondholder Class Period shall send the Notice to all beneficial
owners of such HealthSouth securities within ten (10) days after receipt
thereof, or send a list of the names and addresses of such beneficial owners to
the Claims Administrator within ten (10) days of receipt thereof, in which event
the Claims Administrator shall promptly mail the Notice to such beneficial
owners. Lead Plaintiffs' Counsel shall, if requested, reimburse banks, brokerage
houses or other nominees solely for their reasonable out-of-pocket expenses
incurred in providing notice to beneficial owners who are class members out of
the Settlement Fund, which expenses would not have been incurred

-6-

except for the sending of such Notice, subject to further order of this Court
with respect to any dispute concerning such compensation.

10. All members of each class shall be bound by all determinations and
judgments in the Federal Actions concerning the settlement, whether favorable or
unfavorable to each class.

11. Pending final determination of whether the Stipulation should be
approved, Plaintiffs' Counsel, Lead Plaintiffs, HealthSouth, any Class Member
and any Barred Person are barred and enjoined from commencing or prosecuting any
action asserting any Released Claims against any Released Parties.

12. Stockholder Class or Bondholder Class members who do not timely and
validly effect their exclusion from their respective Classes may complete and
submit Proof of Claim forms in accordance with the instructions contained
therein. Unless the Court orders otherwise, all Proof of Claim forms must be
postmarked no later than one hundred-twenty (120) days from a date to be
established by the Court. Any class member who does not submit a Proof of Claim
within the time provided for shall be barred from sharing in the distribution of
the proceeds of the Settlement Fund, unless otherwise ordered by the Court.
Notwithstanding the foregoing, Lead Plaintiffs' Counsel shall have discretion to
accept late-submitted claims for processing by the Claims Administrator so long
as the distribution of the Settlement Fund is not materially delayed thereby.

-7-

13. Any member of their respective class may enter an appearance in the
Federal Actions, at their own expense, individually or through counsel of their
own choice, in which case such counsel must file with the Clerk of the Court and
deliver to Lead Plaintiffs' Counsel and Settling Defendants' counsel a notice of
such appearance. If they do not enter an appearance, they will be represented by
Lead Plaintiffs' Counsel.

14. All papers in support of the settlement shall be filed and served
no later than ____ days before the Settlement Hearing.

15. Any Person falling within the definition of either class may, upon
request, be excluded from such class. Any such Person must submit to the Claims
Administrator a request for exclusion ("Request for Exclusion"), received no
later than ____ days prior to the Settlement Hearing. A Request for Exclusion
must state: (a) the name, address, and telephone number of the Person requesting
exclusion; (b) each of the Person's purchases and sales of HealthSouth
securities made during the Stockholder Class Period or the Bondholder Class
Period, including the dates of purchase or sale, the number and type of
securities purchased and/or sold, and the price paid or received for each such
purchase or sale; and (c) that the Person wishes to be excluded from their
respective class. All Persons who submit valid and timely Requests for Exclusion
in the manner set forth in this paragraph shall have no rights under the
Stipulation, shall not share in the distribution of the Net Settlement Fund,

-8-

and shall not be bound by the Stipulation or the Judgment entered in the Federal
Actions.

16. Any Person, including any member of the Bondholder Class or the
Stockholder Class may appear and show cause, if he, she or it has any, why the
proposed settlement of the Federal Actions should or should not be approved as
fair, reasonable and adequate, or why a judgment should or should not be entered
thereon; provided, however, that no class member or any other Person shall be
heard or entitled to contest such matters, unless that class member or other
Person has delivered by hand or sent by first class mail written objections and
copies of any papers and briefs such that they are received on or before ___
days before the Settlement Hearing (same as opt-outs) by Lerach Coughlin Stoia
Geller Rudman & Robbins LLP, Keith F. Park, Edward P. Dietrich, 655 W. Broadway,
Suite 1900, San Diego, CA, 92101; Labaton Sucharow & Rudoff LLP, Thomas Dubbs,
Lawrence A. Sucharow, James W. Johnson, Christopher J. Keller, 100 Park Avenue,
12th Floor, New York, NY 10017-5563; Bernstein Litowitz Berger & Grossmann LLP,
Max W. Berger, John P. Coffey, Jeffrey N. Leibell, 1285 Avenue of the Americas,
38th Floor, New York, NY 10019; Cunningham, Bounds, Crowder, Brown & Breedlove,
LLC, Robert T. Cunningham, Jr., 1601 Dauphin Street, P.O. Box 66705, Mobile, AL
36660; HealthSouth Corporation, John Whittington, One HealthSouth Parkway,
Birmingham, AL 35243; Bradley, Arant, Rose & White LLP, Julia Boaz Cooper, One
Federal Plaza, 1819 Fifth Avenue North, Birmingham, AL 35203; Maynard Cooper &
Gale PC, N. Lee Cooper,

-9-

Patrick C. Cooper, James L. Goyer, III, 2400 AmSouth/Harbert Plaza, 1901 6th
Avenue North, Birmingham, AL 35203; Alston & Bird LLP, Peter Q. Bassett, Betsy
P. Collins, One Atlantic Center, 1201 West Peachtree Street, Atlanta, GA
30309-3424; Christian & Small LLP, Kenneth O. Simon, Maxwell H. Pulliam,
Financial Center, 505 North Twentieth Street, Suite 1800, Birmingham, AL 34203;
J. Mark Hart, P.C., J. Mark Hart, 1400 Park Place Tower, 2001 Park Place Tower,
Birmingham, AL 35203; Simpson Thacher & Bartlett LLP, Michael Chepiga, Paul C.
Gluckow, 425 Lexington Avenue, New York, NY 10017; Starnes & Atchison LLP,
Anthony C. Harlow, 100 Brookwood Place, P.O. Box 598512, Birmingham, AL
35259-8512; Baxley, Dillard, Dauphin, McKnight & Barclift, Charles Dauphin, 2008
Third Avenue South, Birmingham, AL 35233; Johnston Barton Proctor & Powell LLP,
Don B. Long, Jr., James F. Henry, 2900 AmSouth/Harbert Plaza, 1901 Sixth Avenue
North, Birmingham, AL 35203-2618; Lightfoot, Franklin & White LLC, Jackson R.
Sharman III, James F. Hughey, III, The Clark Building, 400 North 20th Street,
Birmingham, AL 35203, and filed said objections, papers and briefs with the
Clerk of the United States District Court for the Northern District of Alabama,
Southern Division, on or before ___ days before the Settlement Hearing [same as
opt-out]. Any Person who does not make his, her or its objection in the manner
provided shall be deemed to have waived such objection and shall forever be
foreclosed from making any objection to the fairness or adequacy of the proposed
settlement as set forth in the Stipulation, unless otherwise ordered by the
Court.

-10-

17. All funds held by the Escrow Agent shall be deemed and considered
to be in custodia legis of the Court, and shall remain subject to the
jurisdiction of the Court, until such time as such funds shall be distributed
pursuant to the Stipulation and/or further order(s) of the Court.

18. All reply papers in support of the settlement shall be filed and
served seven (7) calendar days prior to the Settlement Hearing.

19. Neither the Settling Defendants and their Related Parties nor
Defendants' counsel shall have any responsibility for any Plan of Allocation or
any application for attorneys' fees or reimbursement of expenses submitted by
Plaintiffs' Counsel or the Lead Plaintiffs, and such matters will be considered
separately from the fairness, reasonableness and adequacy of the settlement.

20. After the Settlement Hearing and upon such further notice to Class
Members as ordered by the Court, the Court shall determine whether the Plan of
Allocation proposed by Lead Plaintiffs' Counsel, and any application for
attorneys' fees or reimbursement of expenses shall be approved.

21. All reasonable expenses incurred in identifying and notifying class
members, as well as administering the Settlement Fund, shall be paid as set
forth in the Stipulation. In the event the settlement is not approved by the
Court, or otherwise fails to become effective, neither the Lead Plaintiffs nor
any of their counsel shall have any obligation to repay any amounts incurred or
properly disbursed pursuant to P.P. 2.7 or 2.8 of the Stipulation.

-11-

22. Neither the Stipulation, nor any of its terms or provisions, nor
any of the negotiations or proceedings connected with it, shall be construed as
an admission or concession by the Settling Defendants of the truth of any of the
allegations in the Federal Actions, or of any liability, fault, or wrongdoing of
any kind.

23. The Court reserves the right to adjourn the date of the Settlement
Hearing without further notice to the members of the classes, and retains
jurisdiction to consider all further applications arising out of or connected
with the proposed settlement. The Court may approve the settlement, with such
modifications as may be agreed to by the Settling Parties, if appropriate,
without further notice to the affected class or classes.

IT IS SO ORDERED.

DATED:

- -------------------------- --------------------------------------------------
THE HONORABLE KARON OWEN BOWDRE
UNITED STATES DISTRICT JUDGE

-12-

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION

In re HEALTHSOUTH CORPORATION ) Master File No. CV-03-BE-1500-S
SECURITIES LITIGATION )
)
- ------------------------------------------ )
This Document Relates To: )
)
ALL ACTIONS. )
)
- ------------------------------------------ )
In re HEALTHSOUTH CORPORATION ) Consolidated Case No.
STOCKHOLDER LITIGATION ) CV-03-BE-1501-S
)
- ------------------------------------------ )
This Document Relates To: )
)
ALL ACTIONS. )
)
- ------------------------------------------ )
In re HEALTHSOUTH ) Consolidated Case No.
CORPORATION BONDHOLDER ) CV-03-BE-1502-S
LITIGATION )
) CLASS ACTION
- ------------------------------------------ ) ------------
This Document Relates To: )
)
ALL ACTIONS. )
)
- ------------------------------------------ )

NOTICE OF PENDENCY AND PROPOSED PARTIAL SETTLEMENT OF CLASS ACTION

EXHIBIT A-1

TO: ALL PERSONS ("STOCKHOLDER CLASS") WHO PURCHASED OR OTHERWISE
ACQUIRED THE STOCK OR OPTIONS OF HEALTHSOUTH CORPORATION
("HEALTHSOUTH"), INCLUDING HEALTHSOUTH SECURITIES RECEIVED IN
EXCHANGE FOR THE STOCK OR OPTIONS OF CERTAIN OTHER COMPANIES
ACQUIRED BY HEALTHSOUTH BETWEEN APRIL 24, 1997 AND MARCH 18,
2003 ("STOCKHOLDER CLASS PERIOD") AND TO ALL PERSONS
("BONDHOLDER CLASS") WHO PURCHASED OR OTHERWISE ACQUIRED
HEALTHSOUTH BONDS, NOTES OR OTHER DEBT INSTRUMENTS DURING THE
PERIOD BETWEEN MARCH 31, 1998 AND MARCH 18, 2003 ("BONDHOLDER
CLASS PERIOD")

PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS MAY
BE AFFECTED BY PROCEEDINGS IN IN RE HEALTHSOUTH STOCKHOLDER LITIGATION, NO.
CV-03-BE-1501-S ("STOCKHOLDER ACTION") AND IN RE HEALTHSOUTH BONDHOLDER
LITIGATION, NO. 03-BE-1502-S ("BONDHOLDER CLASS ACTION") (TOGETHER, THE "FEDERAL
ACTIONS"). PLEASE NOTE THAT IF YOU ARE A MEMBER OF EITHER OR BOTH CLASSES, YOU
MAY BE ENTITLED TO SHARE IN THE PROCEEDS OF THE SETTLEMENT DESCRIBED IN THIS
NOTICE. TO CLAIM YOUR SHARE OF THIS FUND YOU WILL BE REQUIRED, AT A TIME TO BE
SET IN THE FUTURE BY THE COURT, TO SUBMIT A VALID PROOF OF CLAIM AND RELEASE
("PROOF OF CLAIM"). THE PROOF OF CLAIM WILL BE SENT TO YOU IN THE FUTURE. IT
DOES NOT ACCOMPANY THIS NOTICE.

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IF YOU DO NOT WISH TO BE INCLUDED IN THE CLASSES AND YOU DO NOT WISH TO
PARTICIPATE IN THE PROPOSED SETTLEMENT DESCRIBED IN THIS NOTICE, YOU MAY REQUEST
TO BE EXCLUDED. TO DO SO, YOU MUST SUBMIT A WRITTEN REQUEST FOR EXCLUSION THAT
MUST BE RECEIVED ON OR BEFORE __________, 2006.

This Notice has been sent to you pursuant to Rule 23 of the Federal
Rules of Civil Procedure and an Order of the United States District Court for
the Northern District of Alabama, Southern Division (the "Court"). The purpose
of this Notice is to inform you of the pendency and proposed partial settlement
of these two class actions and of the hearing to be held by the Court to
consider the fairness, reasonableness, and adequacy of the settlement. This
Notice is not intended to be, and should not be construed as, an expression of
any opinion by the Court with respect to the truth of the allegations in the
Federal Actions or the merits of the claims or defenses asserted. This Notice
describes the rights you may have in connection with the settlement and what
steps you may take in relation to the settlement and these class action
litigations.

The proposed settlement creates a fund in the amount of $445,000,000 in
cash, HealthSouth common stock and warrants ( the "Settlement Fund") and will
include interest that accrues on the cash portion of the fund prior to
distribution. Your recovery from this fund will depend on a number of variables,
including the number of shares of HealthSouth common stock or options you
purchased during the Stockholder Class Period or the number of HealthSouth
bonds, notes or other debt

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instruments ("Notes") you purchased during the Bondholder Class Period and the
timing of your purchases and any sales. As described more fully below, the
amount of any distribution to Class Members on a per security basis will depend
on future Court proceedings and it is therefore not possible to accurately
estimate the amount of any such distribution at the present time. See Section
VII. Moreover, available information concerning the trading of Notes does not
permit a useful estimate to be provided concerning the number of affected Notes
or the recovery per Note on these transactions. With respect to the average
distribution per share of HealthSouth common stock, if it is assumed that the
Bondholder Class damages are 30% or less of the total damages and depending on
the number of claims submitted against the Settlement Fund, the average
distribution per share of common stock of HealthSouth would be approximately
$0.82. The actual average per share distribution of HealthSouth common stock
will vary based upon, among other things, the amount of the valid claims
submitted by members of the Classes. Finally, this is a partial settlement and,
although no assurances can be given, the claims asserted in the Federal Actions
against the Non-Settling Defendants (defined below) will continue to be
prosecuted and may result in substantial additional recoveries.

Lead Plaintiffs and Defendants do not agree on the average amount of
damages per share that would be recoverable if the Lead Plaintiffs were to have
prevailed on each claim alleged. The issues on which the parties disagree
include: (1) the amount by which HealthSouth securities were allegedly
artificially inflated (if at all) during

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the respective class periods; (2) the effect of various market forces
influencing the trading price of HealthSouth securities at various times during
the respective class periods; (3) the extent to which external factors, such as
general market and industry conditions, influenced the trading price of
HealthSouth securities at various times during the respective class periods; (4)
the extent to which the various matters that Lead Plaintiffs alleged were
materially false or misleading influenced (if at all) the trading price of
HealthSouth securities at various times during the respective class periods; (5)
the extent to which the various allegedly adverse material facts that Lead
Plaintiffs alleged were omitted influenced (if at all) the trading price of
HealthSouth securities at various times during the respective class periods; (6)
whether the statements made or facts allegedly omitted were material, false,
misleading or otherwise actionable under the securities laws; (7) whether any
Individual Defendants traded on insider information; and (8) whether, even if
liability could be proven, total damages would still be $0.

Lead Plaintiffs believe that the proposed partial settlement is a good
recovery and is in the best interests of the Stockholder Class and the
Bondholder Class. Because of the risks associated with continuing to litigate
and proceeding to trial, there was a danger that the respective classes would
not have prevailed on any of their claims, in which case the classes would
receive nothing. The amount of damages recoverable by the classes was and is
challenged by Defendants. Recoverable damages in this case are limited to losses
caused by conduct actionable under

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applicable law and, had the Federal Actions gone to trial, Defendants would have
asserted that all or most of the losses of class members were caused by
non-actionable market, industry or general economic factors. Defendants would
also assert that throughout the respective class periods the uncertainties and
risks associated with the purchase of HealthSouth securities were fully and
adequately disclosed. In addition, Lead Plaintiffs considered the further
considerable risk that, even if they successfully obtained a judgment (after
years of additional litigation and appeals), Defendants might not have been able
to pay an amount significantly greater than the value of the Settlement. Lead
Plaintiffs and their counsel, in consultation with their investment banking and
damages experts, considered HealthSouth's current and anticipated financial
condition and also considered the extent of Defendants' applicable insurance and
the likely depletion of that insurance as a result of continued litigation, and
also considered the possibility that no insurance coverage may ultimately be
available as a result of recission of the policies, all of which, in their view,
limited the amount that might have been recovered for the classes after trial.

At a future date, upon further notice to Class Members, Plaintiffs'
Counsel will apply to the Court for an award of attorneys' fees and litigation
expenses from the Settlement Fund. No attorneys' fees or litigation expenses are
being sought at this time.

For further information regarding this settlement you may contact a
representative of Stockholder Plaintiffs' Lead Counsel: Rick Nelson, Lerach
Coughlin

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Stoia Geller Rudman & Robbins LLP, 655 W. Broadway, Suite 1900, San Diego, CA
92101, Telephone: 800/449-4900 or Bondholder Plaintiff's Lead Counsel: Jeffrey
N. Leibell, Bernstein, Litowitz, Berger & Grossmann LLP, 1285 Avenue of the
Americas, New York, NY 10019, Telephone: 212/554-1400.

I. NOTICE OF HEARING ON PROPOSED SETTLEMENT

A settlement hearing will be held on ______________, 2006, at _____
__.m., before the Honorable Karon Owen Bowdre, United States District Judge, at
the United States Courthouse, Northern District of Alabama, Southern Division,
140 Hugo L. Black United States Courthouse, 1729 Fifth Avenue North, Birmingham,
Alabama (the "Settlement Hearing"). The purpose of the Settlement Hearing will
be to determine: whether the settlement consisting of $445,000,000 in cash and
securities should be approved as fair, reasonable and adequate to the
Stockholder and Bondholder Classes. The Court may adjourn or continue the
Settlement Hearing without further notice to the Stockholder or Bondholder
Class.

II. DEFINITIONS USED IN THIS NOTICE

1. "Additional Counsel for the Merger Subclasses" means Schatz & Nobel,
P.C. and Ragsdale LLC.

2. "Authorized Claimant" means any Stockholder Class Member or
Bondholder Class Member whose claim for recovery has been allowed pursuant to
the terms of the Stipulation.

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3. "Bondholder Action" means the actions consolidated under the caption
In re HealthSouth Corporation Bondholder Litigation, No. 03-BD-1502-S.

4. "Bondholder Class" means all Persons who purchased or otherwise
acquired HealthSouth bonds, notes or other debt instruments during the period
between March 31, 1998 and March 18, 2003, inclusive, including all Persons who
purchased or otherwise acquired debt securities of HealthSouth pursuant or
traceable to the Integrated Public Offerings or in the secondary market.
Excluded from the Bondholder Class are the Defendants, members of the immediate
family of the Defendants, the directors, officers, subsidiaries and affiliates
of HealthSouth, any person, firm, trust, corporation, officer, director or other
individual or entity in which any Defendant has a controlling interest, and the
legal representatives, affiliates, heirs, successors-in-interest, or assigns of
any such excluded party. Also excluded from the Bondholder Class are those
Persons who timely and validly request exclusion from the Bondholder Class
pursuant to the Notice of Pendency and Proposed Settlement of Class Action.

5. "Bondholder Plaintiff's Lead Counsel" means Bernstein Litowitz
Berger & Grossmann LLP, Max W. Berger, John P. Coffey, Jeffrey N. Leibell, 1285
Avenue of the Americas, 38th Floor, New York, NY 10019, and Cunningham, Bounds,
Crowder, Brown & Breedlove, LLC, Robert T. Cunningham, Jr., John T., Crowder,
Jr., 1601 Dauphin Street, Mobile, AL 36604.

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6. "Class Member" or "Class Members" means any or all of the Bondholder
Class Members and the Stockholder Class Members.

7. "Defendants" means the Settling Defendants and the Non-Settling
Defendants.

8. "Federal Actions" means the Stockholder Action and the Bondholder
Action.

9. "Federal Plaintiffs" means the Bondholder Class and the Stockholder
Class.

10. "HealthSouth" means HealthSouth Corporation and its subsidiaries,
divisions, affiliates, predecessors, and successors.

11. "Individual Settling Defendants" means Anthony J. Tanner, James P.
Bennett, Robert E. Thomson, Thomas W. Carman, P. Daryl Brown, Patrick A. Foster,
Brandon O. Hale, Larry D. Taylor, Susan M. Jones, William W. Horton, Larry R.
House, Richard F. Celeste, C. Sage Givens, George H. Strong, Larry D. Striplin,
Jr., Joel C. Gordon, John S. Chamberlin, Charles W. Newhall, III, Edwin M.
Crawford, Jan L. Jones, Russell Maddox and Phillip C. Watkins.

12. "Lead Plaintiffs" means, collectively, the Bondholder Lead
Plaintiff and the Stockholder Lead Plaintiffs.

13. "Lead Plaintiffs' Counsel" means Bondholder Plaintiff's Lead
Counsel and Stockholder Lead Plaintiffs' Counsel.

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14. "Person" means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal representative,
trust, unincorporated association, government or any political subdivision or
agency thereof, and any business or legal entity and their spouses, heirs,
predecessors, successors, representatives, or assignees.

15. "Plan of Allocation" means a plan or formula of allocation of the
Settlement Fund whereby the Settlement Fund shall be distributed to Authorized
Claimants after payment of expenses of notice and administration of the
settlement, Taxes and Tax Expenses, and such attorneys' fees, costs, expenses
and interest as may be awarded by the Court. Any Plan of Allocation is not part
of the Stipulation, and Settling Defendants and their Related Parties shall have
no responsibility therefor or liability with respect thereto.

16. "Related Parties" means, with respect to each Settling Defendant,
the immediate family members, heirs, executors, administrators, successors,
assigns, present and former employees, officers, directors, attorneys, legal
representatives, and agents of each of them, and any person or entity which is
or was related to or affiliated with any Settling Defendant or in which any
Settling Defendant has or had a controlling interest and the present and former
parents, subsidiaries, divisions, affiliates, predecessors, successors,
employees, officers, directors, attorneys, assigns, and agents of each of them.
The Related Parties shall also include the Settling

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Insurers. Notwithstanding anything in this paragraph, Related Parties shall not
include any Non-Settling Defendant.

17. "Released Claims" means all claims (including "Unknown Claims" as
defined below) and causes of action of every nature and description, whether
known or unknown, whether arising under federal, state, common or foreign law,
whether brought directly or derivatively, that Lead Plaintiffs or any member of
the Bondholder Class or Stockholder Class in the Federal Actions asserted in the
Complaint, or could have asserted as a result of purchases, acquisitions, sales,
or exercises made during the Bondholder Class Period or the Stockholder Class
Period in securities issued by HealthSouth (including, without limitation, all
claims arising out of or relating to any disclosures, public filings,
registration statements or other statements by HealthSouth or any Defendant in
the Federal Actions), based upon or arising out of any facts, allegations or
claims set forth in the Complaint. In addition, with respect to the Settling
Insurers and the present and former parents, subsidiaries, divisions,
affiliates, predecessors, successors, employees, officers, directors, attorneys,
assigns, and agents of each of them, Released Claims means all claims and causes
of action of every nature and description, whether known or unknown, whether
arising under federal, state, common or foreign law, whether brought directly or
derivatively, that are based upon, in consequence of, arise out of or relate in
any way, whether in whole or in part, to (i) the Insurance Policies, (ii) the
Coverage Litigation, (iii) the Federal Actions, (iv) the litigation, defense,
and settlement of the Coverage Litigation and the Federal Actions, and/or (v)
any of the facts, circumstances, and situations underlying or alleged in the
Coverage Litigation and the Federal

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Actions but does not include claims against the Non-Settling Insurers.

18. "Released Persons" means each and all of the Settling Defendants
and each and all of their Related Parties. Released Persons also includes the
insurers who issued the Insurance Policies and are contributing to the
Settlement Fund. Released Persons shall not include any Non-Settling Defendant,
defined as a Defendant in the Securities Action that is not a party to this
Settlement, including but not limited to Ernst & Young, LLP, UBS AG, UBS Warburg
LLC, PaineWebber, Inc., now d/b/a UBS Financial Services, Inc. (subsidiary of
UBS AG), Citigroup, Inc., Smith Barney, Inc. (subsidiary of Citigroup), Salomon
Smith Barney now d/b/a Citigroup Global Markets (subsidiary of Citigroup), J.P.
Morgan Securities, Inc. (subsidiary of J.P. Morgan Chase & Co.), Chase
Securities, Inc. now d/b/a J.P. Morgan Securities, Inc. (subsidiary of J.P.
Morgan Chase & Co.), Bear Stearns & Co., Cowen & Company now d/b/a Cowen
Securities Corporation, Credit Suisse First Boston Corporation, Morgan Stanley &
Co., Inc., Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith, Inc. (a
subsidiary of Merrill Lynch & Co., Inc.), Deutsche Bank Securities, Inc.
(subsidiary of Deutsche Bank AG), Deutsche Bank Alex. Brown, Inc. (division of
Deutsche Bank Securities, Inc. (subsidiary of Deutsche Bank AG)), First Union
Securities now d/b/a Wachovia Securities, Inc., Scotia Capital Markets (USA),
Inc. (division of Scotia Capital Inc.), Jeffries & Company, Inc., Lehman
Brothers, Inc.,

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BNY Capital Markets Inc., Fleet Securities, Inc. (wholly owned subsidiary of
Fleet Boston Financial Corp.), NatCity Investments, Inc., Banc of America
Securities, LLC (subsidiary of Bank of America Corp.), Nationsbanc Montgomery
Securities, LLC now d/b/a Banc of America Securities, LLC (subsidiary of Bank of
America Corp.), Benjamin D. Lorello, William C. McGahan, Howard Capek, Richard
Scrushy, William T. Owens, Weston L. Smith, Michael D. Martin, Aaron Beam, Jr.,
Malcolm E. McVay, Emery W. Harris, Angela Ayers, Kenneth Livesay, Cathy C.
Edwards, Rebecca Kay Morgan, Virginia B. Valentine, Richard E. Botts, Will
Hicks, Jason M. Brown and Catherine Fowler.

19. "Settling Defendants" means HealthSouth and the Individual Settling
Defendants.

20. "Settling Insurers" means Federal Insurance Company, Executive Risk
Indemnity Inc., St. Paul Mercury Insurance Company, Zurich American Insurance
Co., Certain Underwriters at Lloyd's who subscribed severally and not jointly to
Policy No. 823/FD9805714, Certain Underwriters at Lloyd's who subscribed
severally and not jointly to Policy No. 823/FD9900985, Certain Underwriters at
Lloyd's who subscribed severally and not jointly to Policy No. 823/FD010065,
Certain Underwriters at Lloyd's who subscribed severally and not jointly to
Policy No. 823/FD0100668, Royal Indemnity Company as successor in interest to
Royal Insurance Company of America, Greenwich Insurance Company, XL Specialty
Insurance Company, Travelers Indemnity Company, successor in interest to Gulf

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Insurance Company, Great Lakes Reinsurance (UK) PLC, Twin City Fire Insurance
Company, Continental Casualty Company, Royal Indemnity Company, ACE American
Insurance Company, Starr Excess Liability, AIG Europe (UK) Limited as agents for
New Hampshire Insurance Company, Arch Insurance Company, Clarendon America
Insurance Co. and Lumbermen's Mutual Casualty Company, and the present and
former parents, subsidiaries, divisions, affiliates, predecessors, successors,
employees, officers, directors, attorneys, assigns and agents of each of them,
but does not include Houston Casualty Insurance or Axis Specialty Insurance (and
any other person or entity in their capacity as a successor in interest to
Houston Casualty Insurance or Axis Specialty Insurance with respect to an
insurance policy or policies they issued to HealthSouth and/or the Individual
Settling Defendants ("Non-Settling Insurers").

21. "Settling Parties" means, collectively, each of the Settling
Defendants and the Stockholder Lead Plaintiffs and the Bondholder Lead Plaintiff
on behalf of themselves and their respective Class Members.

22. "Stockholder Action" means the actions consolidated under the
caption In re HealthSouth Corporation Stockholder Litigation, No. 03-BE-1501-S.

23. "Stockholder Class" means all Persons who purchased or otherwise
acquired the stock or options of HealthSouth, including HealthSouth securities
received in exchange for the stock or options of certain other companies
acquired by HealthSouth between April 24, 1997 and March 18, 2003, inclusive.
Excluded from

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the Class are the Defendants, members of the immediate family of the Defendants,
the directors, officers, subsidiaries and affiliates of HealthSouth, any person,
firm, trust, corporation, officer, director or other individual or entity in
which any Defendant has a controlling interest, and the legal representatives,
affiliates, heirs, successors-in-interest, or assigns of any such excluded
party. Also excluded from the Stockholder Class are those Persons who timely and
validly request exclusion from the Stockholder Class pursuant to the Notice of
Pendency and Settlement of Class Action.

24. "Stockholder Lead Plaintiffs" means New Mexico State Investment
Council and the Educational Retirement Board of New Mexico and Central States SE
and SW Areas Pension, with other funds, and Michigan Retirement Systems.

25. "Stockholder Plaintiffs' Lead Counsel" means Lerach Coughlin Stoia
Geller Rudman & Robbins LLP, Patrick J. Coughlin, Keith F. Park, Edward P.
Dietrich, 655 West Broadway, Suite 1900, San Diego, CA 92101; and Labaton
Sucharow & Rudoff LLP, Thomas A. Dubbs, Lawrence A. Sucharow, James W. Johnson,
Christopher J. Keller, 100 Park Avenue, 12th Floor, New York, NY 10017.

26. "Unknown Claims" means all claims, demands, rights, liabilities,
and causes of action of every nature and description which the Lead Plaintiffs
or any Class Member do not know or suspect to exist in his, her or its favor at
the time of the release of the Released Persons which, if known by him, her or
it, might have affected his, her or its settlement with and release of the
Released Persons, or might have affected his, her or its decision not to object
to this settlement. With respect to any

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and all Released Claims, the Settling Parties stipulate and agree that, upon the
Effective Date, the Lead Plaintiffs shall expressly waive, and each of the Class
Members shall be deemed to have waived, and by operation of the Judgment shall
have waived, the provisions, rights and benefits of California Civil Code
ss.1542, which provides:

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now existing or coming into existence in the future, including, but not limited
to, conduct which is negligent, intentional, with or without malice, or a breach
of any duty, law or rule, without regard to the subsequent discovery or
existence of such different or additional facts. The Lead Plaintiffs
acknowledge, and the Class Members shall be deemed by operation of the Judgment
to have acknowledged, that the foregoing waiver was separately bargained for and
a key element of the settlement of which this release is a part.

III. THE LITIGATION

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The Bondholder Lead Plaintiff is Retirement Systems of Alabama ("RSA").

Lead Counsel for the Bondholder Class are Bernstein Litowitz Berger &
Grossmann LLP and Cunningham, Bounds, Crowder, Brown & Breedlove, LLC ("Lead
Bondholder Counsel").

The operative complaints in the Litigation are the Joint Second Amended
Consolidated Class Action Complaint for Violations of Federal Securities Laws
[Factual Basis], filed August 2, 2004, as amended by the Corrected Amendment to
Joint Second Amended Consolidated Class Action Complaint for Violations of the
Federal Securities Laws [Factual Basis], filed July 24, 2006; the Amended
Consolidated Class Action Complaint for Violations of the Federal Securities
Laws [Legal Theories and Claims], filed by the Shareholder Class on August 2,
2004; and the Consolidated Amended Class Action Complaint for Violations of the
Federal Securities Laws, Bondholder Plaintiffs' Legal Theories and Claims, filed
August 2, 2004 (together, the "Complaint"). The Complaint alleges violations of
ss.ss.11, 12(a)(2) and 15 of the Securities Act of 1933 and ss.ss.10(b), 14(a),
20(a) and 20A of the Securities Exchange Act of 1934, and Rules 10b-5 and 14a-9
promulgated thereunder by the SEC. The Complaint names as Defendants
HealthSouth, founder and former

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Chief Executive Officer Richard M. Scrushy, other former high-ranking officers
and directors of HealthSouth, HealthSouth's former outside accountants, Ernst &
Young LLP, and the Company's investment banks and bankers.

On or about February 22, 2006, with the substantial assistance of
highly experienced mediators, Eric Green and John Van Winkle, with Court
supervision and after several months of mediation sessions and communications,
the Stockholder and Bondholder Lead Plaintiffs entered into an Amended and
Restated Memorandum of Understanding, setting forth the agreement in principle
to settle the Litigation against HealthSouth. On or about March 14, 2006, the
Stockholder and Bondholder Lead Plaintiffs entered into a Memorandum of
Understanding setting forth the agreement in principle to settle the Litigation
against the Individual Settling Defendants.

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IV. CLAIMS OF THE STOCKHOLDER LEAD PLAINTIFFS AND BONDHOLDER LEAD PLAINTIFF
AND BENEFITS OF SETTLEMENT

The Stockholder Lead Plaintiffs and Bondholder Lead Plaintiff believe
that the claims asserted in the Federal Actions have merit and that the evidence
developed to date supports those claims. However, the Stockholder Lead
Plaintiffs and the Bondholder Lead Plaintiff recognize and acknowledge the
expense and length of continued proceedings necessary to prosecute the Federal
Actions against Settling Defendants through trial and through appeals. The
Stockholder Lead Plaintiffs and the Bondholder Lead Plaintiff also have taken
into account the uncertain outcome and the risk of any litigation, especially in
complex actions such as the Federal Actions, as well as the difficulties and
delays inherent in such litigation. The Stockholder Lead Plaintiffs and
Bondholder Lead Plaintiff also are mindful of the inherent difficulties of proof
under and possible defenses to the securities law violations asserted in the
Federal Actions. The Stockholder Lead Plaintiffs and Bondholder Lead Plaintiff
believe that the settlement set forth in the Stipulation confers substantial
benefits upon the Stockholder Class and the Bondholder Class, especially in view
of their evaluation of HealthSouth's ability to satisfy a judgment materially
larger than the settlement amount, and of their evaluation of the reduced amount
of insurance that may be available after trial. Based on their evaluation, the
Stockholder Lead Plaintiffs, the Bondholder Lead Plaintiff and the respective
Lead Counsel for the two Classes have

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determined that the settlement set forth in the Stipulation is in the best
interests of the Stockholder Lead Plaintiffs, the Bondholder Lead Plaintiff and
the two Classes.

V. SETTLING DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY

Settling Defendants expressly have denied and continue to deny all
charges of wrongdoing or liability against them arising out of any of the
conduct, statements, acts or omissions alleged, or that could have been alleged,
in the Federal Actions. Settling Defendants also continue to believe the claims
asserted against them in the Complaint are without merit. Nonetheless, Settling
Defendants have agreed to enter into the settlement solely to avoid the expense,
distraction, time, and uncertainty associated with continuing the Federal
Actions.

The Settling Defendants have concluded that further conduct of the
Federal Actions would be protracted and expensive and that it is desirable that
the Federal Actions be fully and finally settled in the manner and upon the
terms and conditions set forth in the Stipulation. The Settling Defendants also
have taken into account the uncertainty and risks inherent in any litigation,
especially in complex cases such as the Federal Actions. The Settling Defendants
have, therefore, determined that it is desirable and beneficial to them and in
the best interests of all of HealthSouth's shareholders that the Federal Actions
be settled in the manner and upon the terms and conditions set forth in the
Stipulation.

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VI. TERMS OF THE PROPOSED SETTLEMENT

The principal amount of the Settlement Fund shall consist of and be
transferred as follows:

1. HealthSouth shall pay to the Federal Plaintiffs consideration of (i)
$200,000,000, which shall be comprised of 22,088,353 shares of common stock and
40,756,326 warrants valued as of the close of business on January 18, 2006, and
(ii) consideration of $15,000,000, which shall be comprised of 3,030,303 shares
of common stock valued as of the close of business on February 17, 2006. The
warrants shall have a strike price of $8.28 and an 11-year term. From January
18, 2006 until the date or dates HealthSouth issues the common stock or
warrants, the number of shares of HealthSouth common stock and the number and
terms of the warrants shall be appropriately adjusted to account for any stock
splits, reverse stock splits, stock consolidations, stock dividends, return of
capital, extraordinary distribution, recapitalization or sale of all or
substantially all of HealthSouth's assets, or any conversion or exchange of
HealthSouth's outstanding shares of common stock into other shares, securities
or property resulting from an amalgamation or merger. In the event that
HealthSouth effects its previously announced one-for-five reverse stock split
prior to the issuance of the shares and warrants described above, then the
consideration to be paid by HealthSouth shall be composed of 5,023,732 shares of
common stock and 8,151,265 warrants at a strike price of $41.40. Subject to the
availability of an exemption under Section 3(a)(10) under the Securities Act of
1933,

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the common stock and warrants shall be freely tradable, except as to Class
Members who are affiliates of HealthSouth as defined in the federal securities
laws. The Company shall use its best efforts to list the warrants for trading on
the same exchange as HealthSouth stock. The Federal Plaintiffs shall receive
100% of the benefit of any upside movement in the stock price, i.e., there shall
be no reduction in the number of shares or warrants to be issued if there is an
increase in the stock price. Should HealthSouth's stock price decrease,
HealthSouth shall have no obligation to issue additional shares or warrants. The
common stock underlying the warrants shall become freely tradable after a
registration statement for the common stock underlying the warrants has been
declared effective by the Securities and Exchange Commission ("SEC").
HealthSouth shall make its best efforts to register the common stock underlying
the warrants as soon as practicable after HealthSouth becomes eligible to file a
registration statement on Form S-3. HealthSouth shall be responsible for the
costs of registering that common stock. The common stock and warrants shall be
delivered to Authorized Claimants promptly upon completion of claims
administration and as awarded to Lead Plaintiffs' Counsel pursuant to P. P. 6.1
and 6.2 of the Stipulation, subject to the oversight of the United States
District Court for the Northern District of Alabama (the "Court").

2. The Settling Defendants shall cause the Settling Insurers to pay the
Federal Plaintiffs $230,000,000 in cash on behalf of the Settling Defendants in
accordance with the provisions of the Settlement Agreement and Policy Release

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between the Settling Insurers, HealthSouth and the Individual Settling
Defendants. The Settling Insurers shall transfer the $230,000,000 plus all
earned or accrued interest, less fees, taxes, and penalties to the Escrow Agent,
on or before five (5) business days after the entry of the Notice Order. If any
part of the $230,000,000 is not timely paid to the Escrow Agent, it shall accrue
interest at the prevailing legal rate, which interest shall be paid by the
Settling Insurers.

3. HealthSouth shall pay the Federal Plaintiffs 25% of any net
recoveries obtained by or on behalf of HealthSouth against the Non-Settling
Defendants in any action asserting claims arising from or relating to the facts
alleged in the Complaint, including but not limited to Tucker v. Scrushy, et
al., CV-02-5212 (Circuit Court of Jefferson County, Alabama) (the "Derivative
Action"), but excluding judgments entered or collected prior to March 14, 2006.
This amount shall be net of all fees and expenses awarded to derivative
plaintiffs' counsel by the Jefferson County, Alabama court or in arbitration,
and the reasonable fees and expenses incurred by HealthSouth's counsel in any
action against the Non-Settling Defendants on or after February 22, 2006,
whether or not such action results in any recovery.

4. In addition to the consideration set forth above, HealthSouth has
entered and the Individual Settling Defendants shall enter into a mutually
agreeable joint prosecution agreement with the Federal Plaintiffs with respect
to the prosecution of claims against the Non-Settling Defendants. The Individual
Settling Defendants shall, subject to applicable attorney-client privileges and
other applicable privileges,

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cooperate in good faith with all reasonable requests by the Federal Plaintiffs
and HealthSouth in connection with their joint prosecution of claims against the
Non-Settling Defendants, which shall include, solely by way of example, (i)
production of relevant, non-privileged documents in the possession, custody or
control of the Individual Settling Defendants or any of their counsel; (ii)
meeting and speaking informally with, and cooperating with, counsel for
HealthSouth and the Federal Plaintiffs. In connection with the cooperation
obligations set forth in this paragraph HealthSouth and the Federal Plaintiffs
shall take due account of the Individual Settling Defendants' regular employment
and other business obligations, and health limitations, in requesting the
Individual Settling Defendants to make personal appearances or travel; and
HealthSouth shall advance to the Individual Settling Defendants all reasonable
costs, including reasonable attorneys' fees and out-of-pocket travel and similar
expenses, incurred by the Individual Settling Defendants in response to the
requests of HealthSouth and/or the Federal Plaintiffs.

5. A portion of the settlement proceeds will be used for certain
administrative expenses, including costs of printing and mailing this Notice,
the cost of publishing newspaper notices, payment of any taxes assessed against
the Settlement Fund and costs associated with the processing of claims
submitted. In addition, as explained below, in the future and upon further
notice to Class Members, Lead Plaintiffs' Counsel and Additional Counsel to the
Merger Subclasses will apply for an

-24-

award of attorneys' fees and reimbursement of expenses to be paid from the
Settlement Fund.

6. After further notice to Class Members and an opportunity to be
heard, Lead Plaintiffs' Counsel will seek approval by the Court of a Plan of
Allocation that will govern the calculation of Class Members' claims against the
Settlement Fund. In the future, Settlement Class Members will be sent a Proof of
Claim and Release form to establish their claims against the Settlement Fund.

VII. THE RIGHTS OF CLASS MEMBERS

If you are a Member of the Stockholder Class or the Bondholder Class,
you may receive the benefit of and you will be bound by the terms of the
proposed settlement described in ss.VI of this Notice, upon approval of it by
the Court.

If you are a class member, you have the following options:

1. At a future date and upon further order of the Court, you may file a
Proof of Claim. At a future date, a Court approved Proof of Claim will be sent
to you. If you choose this option, you will remain a class member, you will
share in the proceeds of the proposed settlement if your claim is timely and
valid, and if the proposed settlement is finally approved by the Court, and you
will be bound by the Judgment and release described below.

2. If you do not wish to be included in the Stockholder Class or the
Bondholder Class and you do not wish to participate in the proposed settlement
described in this Notice, you may request to be excluded. To do so, you must
submit

-25-

a written request for exclusion that must be received on or before
______________, 2006. You must set forth: (a) your name, address and telephone
number; (b) the number and type of HealthSouth securities purchased and the
number sold during the Stockholder Class Period and the Bondholder Class Period
and the dates and prices of such purchase(s), and/or sale(s); and (c) that you
wish to be excluded from the Stockholder Class or the Bondholder Class. The
exclusion request should be addressed as follows:

HealthSouth Corporation Securities Litigation
c/o Rust Consulting, Inc.
INSERT ADDRESS

NO REQUEST FOR EXCLUSION WILL BE CONSIDERED VALID UNLESS ALL OF THE INFORMATION
DESCRIBED ABOVE IS INCLUDED IN ANY SUCH REQUEST.

If you timely and validly request exclusion from the Stockholder Class
or the Bondholder Class, (a) you will be excluded from such class, (b) you will
not share in the proceeds of the settlement described herein, (c) you will not
be bound by any judgment entered in the Federal Actions, and (d) you will not be
precluded, by reason of your decision to request exclusion from the Stockholder
Class or Bondholder Class, from otherwise prosecuting an individual claim, if
timely, against the Settling Defendants based on the matters complained of in
the Federal Actions.

3. If you do not request in writing to be excluded from the Stockholder
Class or the Bondholder Class as set forth in P. 2 above, you will be bound by
any and

-26-

all determinations or judgments in the Federal Actions in connection with the
settlement entered into or approved by the Court, whether favorable or
unfavorable, and you shall be deemed to have, and by operation of the Judgment
shall have fully released all of the Released Claims against the Released
Persons, whether or not you submit a valid Proof of Claim.

4. You may object to the settlement. However, if your objection is
rejected you will be bound by the settlement and the Judgment just as if you had
not objected.

5. You may do nothing at all. If you choose this option, you will not
share in the proceeds of the settlement, but you will be bound by any Judgment
entered by the Court, and you shall be deemed to have, and by operation of the
Judgment shall have fully released all of the Released Claims against the
Released Persons.

6. If you are a Stockholder Class Member or a Bondholder Class Member,
you may, but are not required to, enter an appearance through counsel of your
own choosing at your own expense. If you do not do so, you will be represented
by Lead Plaintiffs' Counsel: Lerach Coughlin Stoia Geller Rudman & Robbins LLP,
Keith F. Park, Edward P. Dietrich, 655 W. Broadway, Suite 1900, San Diego, CA,
92101; Lerach Coughlin Stoia Geller Rudman & Robbins LLP, Patrick J. Coughlin,
100 Pine Street, Suite 2600, San Francisco, CA 94111; Labaton Sucharow & Rudoff
LLP, Thomas A. Dubbs, Lawrence A. Sucharow, James W. Johnson, Christopher J.
Keller, 100 Park Avenue, 12th Floor, New York, NY 10017; and Bernstein Litowitz
Berger & Grossmann LLP, Max W. Berger, John P. Coffey, Jeffrey N. Leibell, 1285
Avenue of

-27-

the Americas, 38th Floor, New York, NY 10019; and Cunningham, Bounds, Crowder,
Brown & Breedlove, LLC, Robert T. Cunningham, Jr., 1601 Dauphin Street, P.O. Box
66705, Mobile, AL 36660.

VIII. PLAN OF ALLOCATION

No Plan of Allocation is being presented to the Court for approval at
this time. As noted above, after further notice to the Settlement Class and an
opportunity to be heard, Plaintiffs' Counsel will seek approval by the Court of
a Plan of Allocation that will govern the calculation of Class Members' claims
against the Settlement Fund. In the future, Class Members will be sent a Proof
of Claim and Release form to establish their claims against the Settlement Fund.
However, Additional Counsel for the Merger Subclasses, Bondholder Plaintiff's
Lead Counsel and Stockholder Plaintiffs' Lead Counsel have agreed that,
regardless of the other ultimate terms of a Plan of Allocation, the portion of
the Settlement Fund allocated to the Bondholder Class shall be calculated by
multiplying the Settlement Fund by a percentage equal to: (a) the total dollar
value of all Bondholder claims divided by the total dollar value of all
Bondholder and Stockholder claims; plus (b) 500 basis points (5 percent), and
the Merger Subclasses will be allocated an additional $22.25 million from that
portion of the Settlement Fund allocated to the Stockholder Class.

IX. PARTICIPATION IN THE SETTLEMENT

TO PARTICIPATE IN THE DISTRIBUTION OF THE NET SETTLEMENT FUND, YOU MUST
TIMELY COMPLETE AND RETURN

-28-

THE PROOF OF CLAIM AND RELEASE FORM THAT WILL BE SENT TO YOU AT A LATER DATE.
The Proof of Claim and Release must be postmarked on or before a date to be set
by the Court, and delivered to the Claims Administrator at the address below.
Unless the Court orders otherwise, if you do not timely submit a valid Proof of
Claim, you will be barred from receiving any payments from the Net Settlement
Fund, but will in all other respects be bound by the provisions of the
Stipulation and the Judgment.

X. DISMISSAL AND RELEASES

If the proposed settlement is approved, the Court will enter a Partial
Final Judgment and Order of Dismissal with Prejudice ("Judgment"). The Judgment
will dismiss the Released Claims with prejudice as to all Settling Defendants.
The Judgment will provide that all class members shall be deemed to have
released and forever discharged all Released Claims against all Released Persons
and that the Released Persons shall be deemed to have released and discharged
all class members and Plaintiffs' Counsel from all claims arising out of the
prosecution and settlement of the Federal Actions or the Released Claims.

XI. APPLICATION FOR FEES AND EXPENSES

Plaintiffs' Counsel do not intend to apply for an award of attorneys'
fees or expenses at this time. Any application for attorneys' fees and
reimbursement of expenses will only occur after notice of that application has
been given to the Class

-29-

Members and an opportunity to be heard. Any such sums as awarded by the Court
will be paid from the Settlement Fund.

XII. CONDITIONS FOR SETTLEMENT

The settlement is conditioned upon the occurrence of certain events
described in the Stipulation. Those events include, among other things: (1)
entry of the Judgment by the Court, as provided for in the Stipulation; and (2)
expiration of the time to appeal from or alter or amend the Judgment. If, for
any reason, any one of the conditions described in the Stipulation is not met,
the Stipulation might be terminated and, if terminated, will become null and
void, and the parties to the Stipulation will be restored to their respective
positions as of January 27, 2006.

XIII. THE RIGHT TO BE HEARD AT THE HEARING

Any Stockholder Class Member or Bondholder Class Member who timely and
validly files a written objection to any aspect of the settlement, and who
includes with his, her or its objection a statement stating an intent to appear,
may appear and be heard at the Settlement Hearing. Any such Person must submit a
written notice of objection, received on or before _______________, 20__, to
each of the following:

CLERK OF THE COURT
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
140 Hugo L. Black United States Courthouse
1729 Fifth Avenue North
Birmingham, AL 34203-2000

-30-

LERACH COUGHLIN STOIA GELLER
RUDMAN & ROBBINS LLP
KEITH F. PARK
EDWARD P. DIETRICH
655 West Broadway, Suite 1900
San Diego, CA 92101

LABATON SUCHAROW & RUDOFF LLP
THOMAS A. DUBBS
LAWRENCE A. SUCHAROW
JAMES W. JOHNSON
CHRISTOPHER J. KELLER
100 Park Avenue, 12th Floor
New York, NY 10017-5563

Lead Counsel for Stockholder Lead Plaintiffs and
Stockholder Class

BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP
MAX W. BERGER
JOHN P. COFFEY
JEFFREY N. LEIBELL
1285 Avenue of the Americas, 38th Floor
New York, NY 10019

CUNNINGHAM, BOUNDS, CROWDER
BROWN & BREEDLOVE, LLC
ROBERT T. CUNNINGHAM, JR.
JOHN T. CROWDER, JR.
1601 Dauphin Street
P.O. Box 66705
Mobile, AL 36660

Lead Counsel for Bondholder Lead Plaintiff and
Bondholder Class

-31-

HEALTHSOUTH CORPORATION
One HealthSouth Parkway
Birmingham, AL 35243
Attn: John Whittington
- and -
BRADLEY, ARANT, ROSE & WHITE LLP
JULIA BOAZ COOPER
One Federal Plaza
1819 Fifth Avenue North
Birmingham, AL 35203
Counsel to HealthSouth Corporation

MAYNARD COOPER & GALE PC
N. LEE COOPER
PATRICK C. COOPER
JAMES L. GOYER, III
2400 AmSouth/Harbert Plaza
1901 6th Avenue North
Birmingham, AL 35203

Counsel to P. Daryl Brown, Richard F. Celeste,
Patrick A. Foster, Brandon O. Hale, Larry R. House,
William W. Horton, Jan L. Jones, Russell H. Maddox,
Larry D. Taylor, and Phillip C. Watkins

ALSTON & BIRD LLP
PETER Q. BASSETT
BETSY P. COLLINS
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424

Counsel to P. Daryl Brown, Richard F. Celeste,
Patrick A. Foster, Brandon O. Hale, William W.
Horton, Jan L. Jones, Russell H. Maddox, Larry D.
Taylor, and Phillip C. Watkins

-32-

CHRISTIAN & SMALL LLP
KENNETH O. SIMON
MAXWELL H. PULLIAM
Financial Center
505 North Twentieth Street, Suite 1800
Birmingham, AL 35203

Counsel to Robert E. Thompson

J. MARK HART, P.C.
J. MARK HART
1400 Park Place Tower
2001 Park Place Tower
Birmingham, AL 35203

SIMPSON THACHER & BARTLETT LLP
MICHAEL CHEPIGA
PAUL C. GLUCKOW
425 Lexington Avenue
New York, NY 10017

Counsel to John S. Chamberlin, C. Sage Givens,
Joel C. Gordon, Charles W. Newhall, III, Larry D.
Striplin, Jr., and George H. Strong

STARNES & ATCHISON LLP
ANTHONY C. HARLOW
100 Brookwood Place
P.O. Box 598512
Birmingham, AL 35259-8512

Counsel to Edwin M. Crawford

BAXLEY, DILLARD, DAUPHIN, MCKNIGHT
& BARCLIFT
CHARLES DAUPHIN
2008 Third Avenue South
Birmingham, AL 35233

Counsel to Susan M. Jones Smith

-33-

JOHNSTON BARTON PROCTOR
& POWELL LLP
DON B. LONG, JR.
JAMES F. HENRY
2900 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, AL 35203-2618

Counsel to James P. Bennett

LIGHTFOOT, FRANKLIN & WHITE LLC
JACKSON R. SHARMAN III
JAMES F. HUGHEY, III
The Clark Building
400 North 20th Street
Birmingham, AL 35203

Counsel to Anthony J. Tanner

The notice of objection must demonstrate the objecting Person's membership in
the Stockholder or Bondholder Class, including the amount of HealthSouth
securities purchased and sold during the respective class period and held at the
end of the respective class period, and contain a statement of the reasons for
objection. Only Members of the Stockholder or Bondholder Class who have
submitted written notices of objection in this manner will be entitled to be
heard at the Settlement Hearing, unless the Court orders otherwise. Persons who
intend to object to the settlement and desire to present evidence at the
Settlement Hearing must include in their written objections the identity of any
witnesses they may call to testify and any exhibits they intend to introduce
into evidence at the Settlement Hearing.

-34-

XIV. SPECIAL NOTICE TO NOMINEES

If you hold any HealthSouth securities purchased during the Stockholder
Class Period or the Bondholder Class Period as nominee for a beneficial owner,
then, within ten (10) days after you receive this Notice, you must either: (1)
send a copy of this Notice by first class mail to all such Persons; or (2)
provide a list of the names and addresses of such Persons to the Claims
Administrator:

HealthSouth Corporation Securities Litigation
c/o Rust Consulting, Inc.
INSERT ADDRESS

If you choose to mail the Notice yourself, you may obtain from the
Claims Administrator (without cost to you) as many additional copies of these
documents as you will need to complete the mailing.

Regardless of whether you choose to complete the mailing yourself or
elect to have the mailing performed for you, you may obtain reimbursement for or
advancement of reasonable administrative costs actually incurred or expected to
be incurred in connection with forwarding the Notice and which would not have
been incurred but for the obligation to forward the Notice, upon submission of
appropriate documentation to the Claims Administrator.

XV. EXAMINATION OF PAPERS

This Notice is a summary and does not describe all of the details of
the Stipulation. For full details of the matters discussed in this Notice, you
may review the Stipulation filed with the Court, which may be inspected during
business hours, at

-35-

the office of the Clerk of the Court, United States Courthouse, Northern
District of Alabama, 140 Hugo L. Black United States Courthouse, 1729 Fifth
Avenue North, Birmingham, Alabama or at www._______.com.

If you have any questions about the settlement of the Federal Actions,
you may contact Lead Plaintiffs' Counsel by writing:

LERACH COUGHLIN STOIA GELLER
RUDMAN & ROBBINS LLP
KEITH F. PARK
655 W. Broadway, Suite 1900
San Diego, CA 92101

LABATON SUCHAROW & RUDOFF LLP
THOMAS A. DUBBS
LAWRENCE A. SUCHAROW
JAMES W. JOHNSON
CHRISTOPHER J. KELLER
100 Park Avenue, 12th Floor
New York, NY 10017-5563

BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP
MAX W. BERGER
JOHN P. COFFEY
JEFFREY N. LEIBELL
1285 Avenue of the Americas, 38th Floor
New York, NY 10019

CUNNINGHAM, BOUNDS, CROWDER
BROWN & BREEDLOVE, LLC
ROBERT T. CUNNINGHAM, JR.
JOHN T. CROWDER, JR.
1601 Dauphin Street
P.O. Box 66705
Mobile, AL 36660

-36-

DO NOT TELEPHONE THE COURT REGARDING THIS NOTICE.

DATED: _____________, 2006 BY ORDER OF THE COURT
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF
ALABAMA, SOUTHERN DIVISION

-37-

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

In re HEALTHSOUTH ) Consolidated Case No.
CORPORATION SECURITIES ) CV-03-BE-1500-S
LITIGATION )
) CLASS ACTION
- ---------------------------------------- ) ------------

SUMMARY NOTICE

EXHIBIT A-2

TO: ALL PERSONS WHO PURCHASED OR OTHERWISE ACQUIRED THE STOCK OR
OPTIONS OF HEALTHSOUTH CORPORATION ("HEALTHSOUTH"), INCLUDING
HEALTHSOUTH SECURITIES RECEIVED IN EXCHANGE FOR THE STOCK OR
OPTIONS OF CERTAIN OTHER COMPANIES ACQUIRED BY HEALTHSOUTH
BETWEEN APRIL 24, 1997 AND MARCH 18, 2003 ("STOCKHOLDER CLASS
PERIOD") AND ALL PERSONS WHO PURCHASED OR OTHERWISE ACQUIRED
HEALTHSOUTH BONDS, NOTES OR OTHER DEBT INSTRUMENTS DURING THE
PERIOD BETWEEN MARCH 31, 1998 AND MARCH 18, 2003 ("BONDHOLDER
CLASS PERIOD")

YOU ARE HEREBY NOTIFIED, pursuant to an Order of the United States
District Court for the Northern District of Alabama, Southern Division, that a
hearing will be held on _______________, 20__, at _______ __.m., before the
Honorable Karon Owen Bowdre, at the United States Courthouse, 140 Hugo L. Black
United States Courthouse, 1729 Fifth Avenue, North, Birmingham, Alabama, for the
purpose of determining (1) whether the proposed partial settlement of the claims
as against the Settling Defendants in In re HealthSouth Stockholder Litigation,
No. CV-03-BE-1501-S and In re HealthSouth Bondholder Litigation, No.
03-BE-1502-S (together, the "Federal Actions") for the principal amount of
$445,000,000 in cash and HealthSouth common stock and warrants, plus accrued
interest on the cash portion of the settlement, should be approved by the Court
as fair, reasonable and adequate; and (2) whether a Partial Final Judgment and
Order of Dismissal with Prejudice should be entered by the Court dismissing the
Federal Actions as against the Settling Defendants with prejudice.

-1-

If you purchased or acquired HealthSouth common stock or options during
the period beginning April 24, 1997 through March 18, 2003 or HealthSouth bonds,
notes or other debt instruments during the period beginning March 31, 1998
through March 18, 2003, your rights may be affected by the settlement of the
Federal Actions. If you have not received a detailed Notice of Pendency and
Proposed Settlement of Class Action ("Notice"), you may obtain copies by writing
to HealthSouth Corporation Securities Litigation, c/o Rust Consulting, Inc.,
INSERT ADDRESS, or on the internet at www._______.com. If you are a class
member, in order to share in the distribution of the Net Settlement Fund, at a
time to be set in the future by the Court, you must submit a Proof of Claim and
Release, establishing that you are entitled to recovery.

If you desire to be excluded from the Stockholder or Bondholder Class,
you must submit a Request for Exclusion to be received by ___________, 2006, in
the manner and form explained in the detailed Notice referred to above. All
Members of the Stockholder Class or Bondholder Class who have not timely and
validly requested exclusion will be bound by any Judgment entered in the Federal
Actions pursuant to the Stipulation of Settlement.

Any objection to the settlement must be received by the following no
later than ____________, 20__:

-2-

CLERK OF THE COURT
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
140 Hugo L. Black United States Courthouse
1729 Fifth Avenue North
Birmingham, AL 34203-2000

LERACH COUGHLIN STOIA GELLER
RUDMAN & ROBBINS LLP
KEITH F. PARK
EDWARD P. DIETRICH
655 West Broadway, Suite 1900
San Diego, CA 92101

LABATON SUCHAROW & RUDOFF LLP
THOMAS A. DUBBS
LAWRENCE A. SUCHAROW
JAMES W. JOHNSON
CHRISTOPHER J. KELLER
100 Park Avenue, 12th Floor
New York, NY 10017-5563

Lead Counsel for Stockholder Lead Plaintiffs and
Stockholder Class

BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP
MAX W. BERGER
JOHN P. COFFEY
JEFFREY N. LEIBELL
1285 Avenue of the Americas, 38th Floor
New York, NY 10019

CUNNINGHAM, BOUNDS, CROWDER
BROWN & BREEDLOVE, LLC
ROBERT T. CUNNINGHAM, JR.
JOHN T. CROWDER, JR.
1601 Dauphin Street
P.O. Box 66705
Mobile, AL 36660

-3-

Lead Counsel for Bondholder Lead Plaintiff and
Bondholder Class

MAYNARD COOPER & GALE PC
N. LEE COOPER
PATRICK C. COOPER
JAMES L. GOYER, III
2400 AmSouth/Harbert Plaza
1901 6th Avenue North
Birmingham, AL 35203

Counsel to P. Daryl Brown, Richard F. Celeste,
Patrick A. Foster, Brandon O. Hale, Larry R. House,
William W. Horton, Jan L. Jones, Russell H. Maddox,
Larry D. Taylor, and Phillip C. Watkins

ALSTON & BIRD LLP
PETER Q. BASSETT
BETSY P. COLLINS
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424

Counsel to P. Daryl Brown, Richard F. Celeste,
Patrick A. Foster, Brandon O. Hale, William W.
Horton, Jan L. Jones, Russell H. Maddox, Larry D.
Taylor, and Phillip C. Watkins

-4-

CHRISTIAN & SMALL LLP
KENNETH O. SIMON
MAXWELL H. PULLIAM
Financial Center
505 North Twentieth Street, Suite 1800
Birmingham, AL 35203

Counsel to Robert E. Thompson

J. MARK HART, P.C.
J. MARK HART
1400 Park Place Tower
2001 Park Place Tower
Birmingham, AL 35203

SIMPSON THACHER & BARTLETT LLP
MICHAEL CHEPIGA
PAUL C. GLUCKOW
425 Lexington Avenue
New York, NY 10017

Counsel to John S. Chamberlin, C. Sage Givens,
Joel C. Gordon, Charles W. Newhall, III, Larry D.
Striplin, Jr., and George H. Strong

STARNES & ATCHISON LLP
ANTHONY C. HARLOW
100 Brookwood Place
P.O. Box 598512
Birmingham, AL 35259-8512

Counsel to Edwin M. Crawford

BAXLEY, DILLARD, DAUPHIN, MCKNIGHT & BARCLIFT
CHARLES DAUPHIN
2008 Third Avenue South
Birmingham, AL 35233

Counsel to Susan M. Jones Smith

-5-

JOHNSTON BARTON PROCTOR\
& POWELL LLP
DON B. LONG, JR.
JAMES F. HENRY
2900 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, AL 35203-2618

Counsel to James P. Bennett

LIGHTFOOT, FRANKLIN & WHITE LLC
JACKSON R. SHARMAN III
JAMES F. HUGHEY, III
The Clark Building
400 North 20th Street
Birmingham, AL 35203

Counsel to Anthony J. Tanner

PLEASE DO NOT CONTACT THE COURT OR THE CLERK'S OFFICE REGARDING THIS NOTICE. If
you have any questions about the settlement, you may contact plaintiffs' counsel
at the address listed above.

DATED: _____________, 2006 BY ORDER OF THE COURT
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF
ALABAMA, SOUTHERN DIVISION

-6-

EXHIBIT A-3

SETTLEMENT AGREEMENT AND POLICY RELEASE
---------------------------------------

This Settlement Agreement and Policy Release (the "Agreement") is
entered into by and between (i) HealthSouth Corporation ("HealthSouth"), (ii)
Betsy S. Atkins, James P. Bennett, P. Daryl Brown, Thomas W. Carman, Richard F.
Celeste, John S. Chamberlin, Edwin M. Crawford, Raymond Dunn III, Patrick A.
Foster, C. Sage Givens, Joel C. Gordon, Brandon O. Hale, Jon F. Hanson, Lee C.
Hillman, William W. Horton, Larry R. House, Jan L. Jones, Susan M. Jones,
Russell H. Maddox, Robert P. May, Kimberly McCracken, Randall Mink, Charles W.
Newhall III, Marca Pearson, Daniel J. Riviere, Barbara Roper, Gerald P. Scrushy,
Larry D. Striplin, Jr., George H. Strong, Anthony J. Tanner, Larry D. Taylor,
Robert E. Thomson, Dennis Wade and Phillip C. Watkins (the "Settling Individual
Defendants"), and (iii) Federal Insurance Company, Executive Risk Indemnity
Inc., St. Paul Mercury Insurance Company, Zurich American Insurance Co., Certain
Underwriters at Lloyd's who subscribed severally and not jointly to Policy No.
823/FD9805714, Certain Underwriters at Lloyd's who subscribed severally and not
jointly to Policy No. 823/FD9900985, Certain Underwriters at Lloyd's who
subscribed severally and not jointly to Policy No. 823/FD010065, Certain
Underwriters at Lloyd's who subscribed severally and not jointly to Policy No.
823/FD0100668, Royal Indemnity Company as successor in interest to Royal
Insurance Company of America, Greenwich Insurance Company, XL Specialty
Insurance Company, Travelers Indemnity Company, successor in interest to Gulf
Insurance Company, Great Lakes Reinsurance (UK) PLC, Twin City Fire Insurance
Company, Continental Casualty Company, Royal Indemnity Company, ACE American
Insurance Company, Starr Excess Liability, AIG Europe (UK) Limited as agents for
New Hampshire Insurance Company, Arch Insurance Company, Clarendon America
Insurance Co. and Lumbermens Mutual Casualty Company (the "Settling Carriers").
HealthSouth, the Settling Individual Defendants, and the Settling Carriers are
referred to collectively as the "Parties."

W I T N E S S E T H

WHEREAS, the Settling Carriers issued to HealthSouth the insurance
policies identified in Exhibit A (the "Policies"), in addition to other
insurance policies that are not identified in Exhibit A; and

WHEREAS, Houston Casualty Insurance, and Axis Specialty Insurance
("Non-Settling Carriers") also issued insurance policies to HealthSouth but are
not parties to this Agreement; and

WHEREAS, HealthSouth and certain of its present and former officers and
directors are named as defendants in a shareholder and bondholder class action
pending in the United States District Court for the Northern District of Alabama
under the caption In re

HealthSouth Securities Litigation, Master File No. CV-03-1500-S, Consolidated
Case Nos. CV-03-BE-1501-S and CV-03-BE-1502-S (N.D. Al.) (the "Federal
Securities Action"); and

WHEREAS, certain of HealthSouth's present and former officers and
directors are named as defendants in shareholder derivative suits pending in
federal and state courts in Alabama and Delaware under the captions Tucker v.
Scrushy, et al., CV-02-5212 (Circuit Court of Jefferson County, Alabama), Dennis
Family Trust v. HealthSouth Corp., CV-98-6592 (Circuit Court of Jefferson
County, Alabama), Teachers' Retirement System of Louisiana v. Scrushy, et al.,
C.A. No. 20529 (Del. Ch.), and In re HealthSouth Corp. Derivative Litigation, CV
02-BE-2565 (N.D. Al.) (collectively, the "Derivative Action"); and

WHEREAS, HealthSouth and certain of its present and former officers and
directors are named as defendants or otherwise involved in the matters
identified in Exhibit B ("Other Matters"); and

WHEREAS, the Federal Securities Action, the Derivative Action, and the
Other Matters are referred to collectively as the "Underlying Litigation"; and

WHEREAS, Richard Scrushy, Angela Ayers, Aaron Beam, Richard Botts,
Jason Brown, Cathy Edwards, Catherine Fowler, Emery Harris, Will Hicks, Kenneth
Livesay, Michael Martin, Malcolm McVay, Rebecca Morgan, William Owens, Weston
Smith, and Virginia Valentine are named as defendants in one or more of the
lawsuits that comprise the Underlying Litigation but are not parties to this
Agreement (the "Non-Settling Defendants"); and

WHEREAS, HealthSouth and certain of its present and former officers and
directors have asserted requests for coverage under the Policies for attorneys'
fees and costs, expenses and settlements purportedly incurred or to be incurred
by HealthSouth and certain of its present and former officers and directors in
connection with the Underlying Litigation; and

WHEREAS, the Settling Carriers have contested coverage for the
Underlying Litigation and/or have provided HealthSouth, the Settling Individual
Defendants, and the Non-Settling Defendants with notices of rescission relating
to, among other things, the Policies; and

WHEREAS, the rescission of, among other things, the Policies and the
existence and extent of any coverage for the Underlying Litigation are at issue
in litigation pending in state and federal court under the captions In re
HealthSouth Corporation Insurance Litigation, Consolidated Case No.
CV-03-BE-1139-S (United States District Court for the Northern District of
Alabama, Southern Division); HealthSouth Corporation v. Starr Excess Liability
Insurance Co., Ltd., CV-05-3443 (Circuit Court of Jefferson County, Alabama),
removed to federal court under CV-05-1620 (United States District Court for the
Northern District of Alabama, Southern Division); Federal Insurance Company, et
al. v. HealthSouth Corporation, et al., CV-03-2420 AEH (Circuit Court of
Jefferson County, Alabama), Greenwich Insurance Company v. HealthSouth
Corporation, et al., CV-03-3522 AEH (Circuit Court of Jefferson County,
Alabama),

Clarendon American Insurance Company, et al. v. HealthSouth Corporation, et al.,
CV-03-6975 AEH (Circuit Court of Jefferson County, Alabama), and Certain
Underwriters at Lloyd's v. HealthSouth Corporation, et al., CV-04-5791 AEH
(Circuit Court of Jefferson County, Alabama) (collectively, the "Coverage
Litigation"); and

WHEREAS, HealthSouth, the Settling Individual Defendants and the
Settling Carriers have entered into a Memorandum of Understanding (the
"Insurance MOU"), which concerns the proposed settlement of the claims asserted
against HealthSouth and the Settling Individual Defendants in the Federal
Securities Action and the Derivative Action as reflected in (i) a Memorandum of
Understanding among the Derivative Plaintiffs, HealthSouth Corporation, and the
Settling Individual Defendants (the "Derivative MOU"), (ii) a Memorandum of
Understanding among the Stockholder and Bondholder Lead Plaintiffs and the
Individual Settling Defendants ("Securities MOU"), and (iii) an Amended and
Restated Memorandum of Understanding among the Stockholder and Bondholder Lead
Plaintiffs and HealthSouth Corporation (the "Amended and Restated Securities
MOU"). The Derivative MOU, the Securities MOU, and the Amended and Restated
Securities MOU are referred to collectively as the "Preliminary Settlement
Agreements"; and

WHEREAS, pursuant to the Insurance MOU, the Settling Carriers have
paid, subject to the fulfillment of certain terms and conditions, a total of
$230,000,000 (the "Settlement Amount") into an interest-bearing escrow account
under the direction and control of the Settling Carriers (the "First Escrow");
and

WHEREAS, pursuant to the Insurance MOU, the Settling Carriers have
agreed, subject to certain terms and conditions, that the Settlement Amount may
be transferred into an interest-bearing escrow account controlled by lead
counsel for the lead plaintiffs in the Federal Securities Action and subject to
the oversight of the United States District Court for the Northern District of
Alabama ("Second Escrow"); and

WHEREAS, pursuant to the Insurance MOU, the Settling Carriers have
agreed, subject to certain terms and conditions, that the funds in the First
Escrow may be used in connection with the settlements of the Federal Securities
Action and the Derivative Action as reflected in the Preliminary Settlement
Agreements; and

WHEREAS, HealthSouth, the Settling Individual Defendants, and the
Settling Carriers enter into this Agreement pursuant to and in furtherance of
the Insurance MOU;

NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants, considerations, releases, indemnities and representations set
forth below, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, HealthSouth, the Settling Individual Defendants and the Settling
Carriers mutually agree as follows:

1. Payment by Settling Carriers.

Within five (5) business days after the last to occur of (i) the entry
of an order by the United States District Court for the Northern District of
Alabama (the "Federal Court") preliminarily approving a stipulation of
settlement of the Federal Securities Action (the "Federal Securities Action
Stipulation of Settlement") that is satisfactory to the Settling Carriers, (ii)
the entry of an order by the Circuit Court of Jefferson County, Alabama (the
"State Court") preliminarily approving a stipulation of settlement of the
Derivative Action (the "Derivative Action Stipulation of Settlement") that is
satisfactory to the Settling Carriers, and (iii) the entry of orders by the
Federal Court and the State Court preliminarily approving this Agreement, the
Settling Carriers shall direct that the funds in the First Escrow, which
includes the $100 million referenced in paragraph 1 of the Derivative Action
Stipulation of Settlement, together with any accrued interest and/or investment
proceeds and net of any fees imposed by the escrow agent, any penalties or other
charges relating to the funds in the first escrow being disinvested from
ninety-day T-bills or their reasonable equivalent, and any applicable taxes, be
deposited into the Second Escrow.

2. Release by HealthSouth and the Settling Individual Defendants.

In exchange for the consideration set forth in this Agreement and
effective upon this Agreement becoming Final pursuant to Section 9, HealthSouth,
on its own behalf and, to the fullest extent permitted by law, on behalf of its
present, former and future directors, officers, employees, shareholders,
parents, divisions, subsidiaries, affiliates, associates, representatives,
predecessors, successors, owners, assigns, administrators, agents, partners,
principals, trustees, insurers and reinsurers in their capacity as such, and
attorneys, and their present, former and future directors, officers, employees,
shareholders, parents, divisions, subsidiaries, affiliates, associates,
representatives, predecessors, successors, owners, assigns, administrators,
agents, partners, principals, trustees, insurers and reinsurers in their
capacity as such, and attorneys, and all persons acting by, through, under or in
concert with them or any of them (collectively, the "HealthSouth Releasors") and
the Settling Individual Defendants, on their own behalf and, to the fullest
extent permitted by law, on behalf of their present, former and future agents,
associates, representatives, predecessors, successors, heirs, assigns,
executors, spouses, administrators, insurers and reinsurers in their capacity as
such, and attorneys, and all persons acting by, through, under or in concert
with them or any of them, (collectively, the "Settling Individual Defendant
Releasors"), but not including the Non-Settling Defendants, do hereby release
and forever discharge the Settling Carriers and their present, former or future
directors, officers, employees, shareholders, parents, divisions, subsidiaries,
affiliates, associates, representatives, predecessors, successors, owners,
assigns, administrators, agents, partners, principals, trustees, insurers and
reinsurers in their capacity as such, and attorneys, and their present, former
and future directors, officers, employees, shareholders, parents, divisions,
subsidiaries, affiliates, associates, representatives, predecessors, successors,
owners, assigns, administrators, agents, partners, principals, trustees,
insurers and reinsurers in their capacity as such, and attorneys, and all

persons acting by, through, under or in concert with them or any of them
(collectively, the "Settling Carrier Releasees"), but not including the
Non-Settling Carriers (and any other person or entity in their capacity as a
successor in interest to the Non-Settling Carriers with respect to the insurance
policy or policies they issued to HealthSouth and/or the Individual Settling
Defendants), from any and all manner of action or actions, cause or causes of
action, suits, debts, liens, contracts, agreements, promises, liabilities,
claims, rights, demands, damages, losses, costs, charges or expenses, of any
nature whatsoever, in law or in equity, known or unknown, suspected or
unsuspected, fixed or contingent, that are based upon, in consequence of, arise
out of or relate in any way, whether in whole or in part, to (i) the Policies
(ii) the Coverage Litigation, (iii) the Underlying Litigation, (iv) the
litigation, defense, and settlement of the Coverage Litigation and the
Underlying Litigation, and/or (v) any of the facts, circumstances, situations,
and events underlying or alleged in the Coverage Litigation and the Underlying
Litigation. This includes, without limitation, claims for "bad faith" or unfair
claims handling practices; common law claims for "bad faith" insurance practices
or breach of the implied covenant of good faith and fair dealing; and all rights
and claims which HealthSouth and the Settling Individual Defendants may have
arising out of, relating to or in connection with the Policies pursuant to any
applicable statute and/or case law for any alleged failure to effectuate prompt,
fair and equitable settlement of the Underlying Litigation; provided, however,
that nothing in this paragraph shall be construed to release any of the Settling
Carrier Releasees from their respective obligations under this Agreement.

3. Release by the Settling Carriers.

In exchange for the consideration set forth in this Agreement and
effective upon this Agreement becoming Final pursuant to Section 9, the Settling
Carriers, on their own behalf and, to the fullest extent permitted by law, on
behalf of their present, former and future directors, officers, employees,
shareholders, parents, divisions, subsidiaries, affiliates, associates,
representatives, predecessors, successors, owners, assigns, administrators,
agents, partners, principals, trustees, insurers and reinsurers in their
capacity as such, and attorneys, and their present, former and future directors,
officers, employees, shareholders, parents, divisions, subsidiaries, affiliates,
associates, representatives, predecessors, successors, owners, assigns,
administrators, agents, partners, principals, trustees, insurers and reinsurers
in their capacity as such, and attorneys, and all persons acting by, through,
under or in concert with them or any of them (collectively, the "Settling
Carrier Releasors"), but not including the Non-Settling Carriers, do hereby
release and forever discharge HealthSouth and its present, former or future
directors, officers, employees, shareholders, parents, divisions, subsidiaries,
affiliates, associates, representatives, predecessors, successors, owners,
assigns, administrators, agents, partners, principals, trustees, insurers and
reinsurers in their capacity as such, and attorneys, and their present, former
and future directors, officers, employees, shareholders, parents, divisions,
subsidiaries, affiliates, associates, representatives, predecessors, successors,
owners, assigns, administrators, agents, partners, principals, trustees,
insurers and reinsurers in their capacity as such, and attorneys, and all
persons acting by, through, under or in concert with them or any of them
(collectively, the "HealthSouth Releasees") and the Settling Individual
Defendants and their present, former and future agents, associates,
representatives, predecessors, successors, heirs, assigns, executors, spouses,
administrators, insurers and reinsurers in their capacity as such, and
attorneys, and all persons acting by, through, under or in concert with them or
any of

them, (collectively, the "Settling Individual Defendant Releasees"), but not
including the Non-Settling Defendants, from any and all manner of action or
actions, cause or causes of action, suits, debts, liens, contracts, agreements,
promises, liabilities, claims, rights, demands, damages, losses, costs, charges
or expenses, of any nature whatsoever, in law or in equity, known or unknown,
suspected or unsuspected, fixed or contingent, that are based upon, in
consequence of, arise out of or relate in any way, whether in whole or in part,
to (i) the Policies (ii) the Coverage Litigation, (iii) the Underlying
Litigation, (iv) the litigation, defense, and settlement of the Coverage
Litigation and the Underlying Litigation, and/or (v) any of the facts,
circumstances, situations, and events underlying or alleged in the Coverage
Litigation and the Underlying Litigation. This includes, without limitation,
claims for breach of the implied covenant of good faith and fair dealing and any
purported failure to cooperate and any subrogation claims the Settling Carriers
may have under the Policies and state or federal law; provided, however, that
nothing in this paragraph shall be construed to release any of the HealthSouth
Releasees and the Settling Individual Defendant Releasees from their respective
obligations under this Agreement.

4. Covenant and Agreement Not to Sue.

(a) The matters described in Sections 2 and 3 are collectively referred
to as "Released Claims."

(b) In exchange for the consideration set forth in this Agreement and
effective upon the deposit of funds into the Second Escrow pursuant to Section
1, the HealthSouth Releasors and the Settling Individual Defendant Releasors
covenant and agree not to sue or to assert or to prosecute, institute or
cooperate in the institution, commencement, filing, or prosecution of any suit
or proceeding against any Settling Carrier Releasee, in any forum, that is based
upon, in consequence of, arises out of or relates in any way in whole or in part
to any Released Claims.

(c) In exchange for the consideration set forth in this Agreement and
effective upon the deposit of funds into the Second Escrow pursuant to Section
1, the Settling Carrier Releasors covenant and agree not to sue or to assert or
to prosecute, institute or cooperate in the institution, commencement, filing,
or prosecution of any suit or proceeding against any HealthSouth Releasee or
Settling Individual Defendant Releasee, in any forum, that is based upon, in
consequence of, arises out of or relates in any way in whole or in part to any
Released Claims.

(d) The Parties agree that, with respect to any claim not brought by
reason of the provisions of this Section 4, any defense based on the passage of
time including, but not limited to any applicable statute of limitations,
statutes of repose, or theory of laches, estoppel or

waiver under any federal or state statutory or common law or otherwise by virtue
of the passage of time, shall be tolled for the period beginning on September
25, 2006 and ending on the date the Settling Carriers request the return of
funds from the Second Escrow pursuant to paragraph 9(c)(i); provided, however,
that nothing in this Agreement shall apply to extend any statutes of limitations
or other time periods which may have expired prior to the beginning of such
period.

5. HealthSouth's Indemnity Obligations to the Settling Carriers.

(a) In exchange for the consideration set forth in this Agreement and
effective upon the deposit of funds into the Second Escrow pursuant to Section 1
of this Agreement, HealthSouth shall, to the fullest extent permitted by law,
indemnify and hold harmless the Settling Carrier Releasees in the manner
specified in this Section 5:

(i) for any and all amounts the Settling Carrier Releasees are
legally obligated to pay, or become legally obligated to pay to
any Barred Person with respect to any Barred Claim at any time
after this Agreement is fully-executed by the Settling Carriers,
regardless of whether such legal obligation arises as the result
of a judgment, a settlement, or otherwise;

(ii) for any and all fees and costs the Settling Carrier Releasees
reasonably incur to any third party at any time after this
Agreement is fully-executed by the Settling Carriers in
responding to any request, claim, demand, action, cause of
action, lawsuit, or arbitration brought or made by any Barred
Person with respect to any Barred Claim; provided, however, that
such fees and costs shall not include fees and costs incurred
relating to the approval of the settlements contemplated herein
or appeals therefrom;

(iii) for any and all amounts the Settling Carrier Releasees are
legally obligated to pay, or become legally obligated to pay
under the Policies at any time after this Agreement is
fully-executed by the Settling Carriers, regardless of whether
such legal obligation arises as the result of a judgment, a
settlement, or otherwise; and

(iv) for any and all fees and costs the Settling Carrier Releasees
reasonably incur to any third party at any time after this
Agreement is fully-executed by the Settling Carriers in
responding to any request, claim, demand, action, cause of
action, lawsuit, or arbitration relating to any payment under
the Policies; provided, however, that such fees and costs shall
not include fees and costs incurred relating to the approval of
the settlements contemplated herein or appeals therefrom.

(b) Without limiting the obligations of HealthSouth to indemnify and
hold the Settling Carrier Releasees harmless pursuant to this Section 5,
HealthSouth and the Settling

Carriers agree that such obligations include the
obligation to indemnify and hold harmless the Settling Carrier Releasees with
respect to the following amounts, to the fullest extent permitted by law:

(i) Attorneys' fees and costs and expert witness fees and costs
incurred by a Barred Person in the Underlying Litigation, to the
extent that the Settling Carrier Releasees are legally obligated
to pay, regardless of whether such legal obligation arises as
the result of a judgment, a settlement, or otherwise;

(ii) Settlement costs incurred by a Barred Person in the Underlying
Litigation, to the extent that the Settling Carrier Releasees
are legally obligated to pay, regardless of whether such legal
obligation arises as the result of a judgment, a settlement, or
otherwise;

(iii) Judgment costs incurred by a Barred Person in the Underlying
Litigation, to the extent that the Settling Carrier Releasees
are legally obligated to pay, regardless of whether such legal
obligation arises as the result of a judgment, a settlement, or
otherwise;

(iv) Attorneys' fees and costs and expert witness fees and costs
incurred by a Barred Person in the litigation of a Barred Claim
with a Settling Carrier, to the extent that the Settling Carrier
Releasees are legally obligated to pay, regardless of whether
such legal obligation arises as the result of a judgment, a
settlement, or otherwise;

(v) Contractual damages awarded to a Barred Person in the litigation
of a Barred Claim with a Settling Carrier;

(vi) Extra-contractual, punitive, and bad faith damages awarded to a
Barred Person in the litigation of a Barred Claim with a
Settling Carrier Releasee;

(vii) Amounts the Settling Carriers pay under the Policies, to the
extent that the Settling Carrier Releasees are legally obligated
to pay, regardless of whether such legal obligation arises as
the result of a judgment, a settlement, or otherwise;

(viii) Reasonable attorneys' fees and costs and expert witness fees and
costs the Settling Carrier Releasees incur in the litigation of
a Barred Claim with a Barred Person;

(ix) Reasonable attorneys' fees and costs and expert witness fees and
costs the Settling Carrier Releasees pay as a result of any
request, claim, demand, action, cause of action, lawsuit, or
arbitration relating to the Policies; and

(x) Reasonable costs incurred in the review of invoices in the
Underlying Litigation by third party experts and consultants.

(c) For purposes of Section 5 of this Agreement, "Barred Person" means
any person or entity who is insured by the Settling Carriers or asserts that he,
she or it is insured by the Settling Carriers under the Policies, including but
not limited to HealthSouth, the Settling Individual Defendants, and the
Non-Settling Defendants, and "Barred Claims" means any and all manner of action
or actions, cause or causes of action, suits, debts, liens, contracts,
agreements, promises, liabilities, claims, rights, demands, damages, losses,
costs, charges or expenses, of any nature whatsoever, in law or in equity, known
or unknown, suspected or unsuspected, fixed or contingent, that are based upon,
in consequence of, arise out of or relate in any way, whether in whole or in
part, to (i) the Policies (ii) the Coverage Litigation, (iii) the Underlying
Litigation, (iv) the litigation, defense, and settlement of the Coverage
Litigation and the Underlying Litigation, and/or (v) any of the facts,
circumstances, and situations underlying or alleged in the Coverage Litigation
and the Underlying Litigation.

(d) HealthSouth represents and warrants that it is not aware of any
directly applicable state or federal case law, including but not limited to case
law interpreting 8 Del. C. ss. 145, that would directly prohibit HealthSouth
from indemnifying and holding harmless the Settling Carrier Releasees pursuant
to this Section 5 in exchange for the consideration provided by the Settling
Carriers in this Agreement. Except as provided for in Section 5(e), HealthSouth
and the Settling Individual Defendants agree that they shall not initiate,
pursue, or cause to be initiated or pursued, directly or indirectly, any
judicial proceeding seeking a judgment, holding or declaration that a payment
required to be made to the Settling Carrier Releasees pursuant to this Section 5
is, was, or would be illegal; provided, however, that nothing in this Section 5
shall be construed to bar a derivative action brought without HealthSouth's
assistance or participation. Nothing in this paragraph is intended to expand the
obligation of HealthSouth as set forth in this Section 5 to indemnify the
Settling Carrier Releasees.

(e) HealthSouth agrees and covenants that if it becomes aware of a
directly applicable legal authority that comes into existence after the date of
this Agreement, and which HealthSouth believes directly prohibits HealthSouth
from indemnifying and holding harmless the Settling Carrier Releasees pursuant
to this Section 5, HealthSouth shall so inform the Settling Carrier Releasees.
If the Settling Carrier Releasees disagree that the legal authority identified
by HealthSouth is directly applicable and directly prohibits HealthSouth from
indemnifying and holding harmless the Settling Carrier Releasees pursuant to
this Section 5, HealthSouth agrees and covenants not to file a lawsuit seeking a
declaration that it is prohibited from indemnifying and holding harmless the
Settling Carrier Releasees pursuant to this Section 5 unless a neutral
arbitrator, jointly selected by HealthSouth and the Settling Carrier Releasees,
determines that

HealthSouth has a good-faith basis for interpreting the legal authority
identified by HealthSouth as directly applicable and directly prohibiting
HealthSouth from indemnifying and holding harmless the Settling Carrier
Releasees pursuant to this Section 5.

(f) HealthSouth agrees and covenants that if it becomes aware of any
lawsuit or other proceeding that seeks any declaration that the law imposes any
limitations on its ability and obligation to indemnify the Settling Carrier
Releasees pursuant to this Section 5, it will promptly provide the Settling
Carriers with written notice of the existence of such lawsuit or other
proceeding and that it will not oppose any motion by the Settling Carrier
Releasees to intervene and participate in such lawsuit or proceeding.
HealthSouth agrees and covenants that it will vigorously defend and oppose any
such lawsuit or other proceeding and provide reasonable cooperation to the
Settling Carriers to ensure that no declaration imposing any limitations on its
ability and obligation to indemnify the Settling Carrier Releasees pursuant to
this Section 5 is entered; provided, however, that if HealthSouth believes in
good faith that a directly applicable legal authority has come into existence
after the date of this Agreement and directly prohibits HealthSouth from
indemnifying and holding harmless the Settling Carrier Releasees pursuant to
this Section 5, HealthSouth shall be permitted to assert that position in
responding to the lawsuit or other proceeding, and shall be under no obligation
to prevent such a declaration from being entered.

(g) Unless expressly prohibited from doing so by an order of a court of
competent jurisdiction, and subject to the provisions of Section 5(j),
HealthSouth shall pay any amounts due under Section 5(a) within ten (10)
business days of receiving written notice from one or more of the Settling
Carrier Releasees that they have paid or become legally obligated to pay such
amount(s). Such notice shall specify the precise amount(s) that HealthSouth is
obligated to pay to or on behalf of the Settling Carrier Releasee(s) and the
circumstances under which the Settling Carrier Releasee(s) became legally
obligated to pay or incurred such amount(s).

(h) In the event that (i) HealthSouth makes any payment to or on behalf
of one or more of the Settling Carrier Releasees pursuant to Section 5(a), and
(ii) it subsequently is finally determined by a court of competent jurisdiction
that HealthSouth was not obligated to make such payment for any reason,
including but not limited to such payment being prohibited by law, then the
Settling Carrier Releasee(s) to or on behalf of which such payment was made
shall promptly return such payment to HealthSouth. This paragraph 5(h) shall not
apply to require the reimbursement by any Settling Carrier Releasee of any
payment by HealthSouth pursuant to section 6.

(i) In the event that any Settling Carrier Releasee is served with or
otherwise receives any request, claim, demand, action, cause of action, lawsuit,
or arbitration (i) brought or made by any Barred Person with respect to any
Barred Claim or (ii) relating to any payment under the Policies (collectively,
"Settling Carrier Releasee Indemnified Claims"), such Settling Carrier
Releasee(s) shall promptly notify HealthSouth in writing of such Settling
Carrier

Releasee Indemnified Claim(s). The Parties agree that the claims asserted by the
Settling Carriers in the Coverage Litigation against the Non-Settling Defendants
constitute Settling Carrier Releasee Indemnified Claims. Settling Carrier
Releasee Indemnified Claims also shall include any future proceeding that seeks
declaratory relief initiated by any Settling Carrier against any Barred Person
with respect to any Barred Claims or any person requesting any payment under the
Policies if such proceeding is commenced with the consent of HealthSouth, such
consent not to be unreasonably withheld. The Settling Carriers agree that they
will not oppose a request by HealthSouth to intervene in any Settling Carrier
Releasee Indemnified Claim.

(j) Settling Carrier Releasee Indemnified Claims shall be investigated,
responded to, litigated, and defended in the following manner:

(i) The Settling Carrier Releasees shall have the right to retain
one law firm of their choice and, if necessary, one law firm to
serve as resident local counsel, to represent all of the
Settling Carrier Releasees with respect to any Settling Carrier
Releasee Indemnified Claims (collectively, the "Settling Carrier
Releasees Law Firm").

(ii) If at any time any Settling Carrier Releasee reasonably
believes, taking account of the HealthSouth indemnity, that the
Settling Carrier Releasees Law Firm cannot represent it in the
prosecution or defense of any Settling Carrier Releasee
Indemnified Claims with respect to any position reasonably
necessary to protect such Settling Carrier Releasees' interests
because (i) there are conflict(s) of interest between one or
more Settling Carrier Releasees with respect to one or more
issues or (ii) the Setting Carrier Releasees Law Firm cannot
fully and fairly advance on behalf of such Settling Carrier a
position(s), argument(s), or other matter(s) for any reason,
such Settling Carrier Releasee shall so inform HealthSouth in
writing. If HealthSouth agrees that a conflict(s) of interest
exists or that the Settling Carrier Releasees Law Firm cannot
fully and fairly advance a position(s), argument(s), or other
matter(s) on behalf of the Settling Carrier Releasee, the
Settling Carrier Releasee shall have the right to retain, at
HealthSouth's expense, one law firm of its choice and, if
necessary, one law firm to serve as resident local counsel, to
represent it with respect to the matter(s) subject to the
conflict or to advance the position(s), argument(s), or other
matter(s) that cannot be fully and fairly advanced by the
Settling Carrier Releasees Law Firm (collectively, a "Settling
Carrier Releasee Additional Law Firm"). If HealthSouth does not
agree that a conflict(s) of interest exists or that the Settling
Carrier Releasees Law Firm cannot fully and fairly advance the
position(s), argument(s), or other matter(s) on behalf of the
Settling Carrier Releasee, the Settling Carrier Releasee may
commence an arbitration proceeding in

front of a neutral arbitrator agreed upon by the Settling
Carrier Releasee and HealthSouth to determine if (i) a
conflict(s) of interest exists that would not permit the
Settling Carrier Releasees Law Firm to represent it in all or
part of the prosecution or defense of the Settling Carrier
Releasee Indemnified Claim; or (ii) the Settling Carrier
Releasee Law Firm cannot fully and fairly advance a position(s),
argument(s), or other matter(s) on behalf of the Settling
Carrier Releasee. Unless otherwise agreed to by HealthSouth and
the Settling Carrier Releasee, such arbitration shall be
conducted by the Settling Carrier Releasee providing the
arbitrator and HealthSouth one brief not to exceed twenty (20)
pages, and HealthSouth providing to the arbitrator and the
Settling Carrier Releasee within seven (7) business days of
receipt of the Settling Carrier Releasee's opening brief, a
response brief not to exceed twenty (20) pages; there also shall
be no more than one (1) hour of oral argument before the
arbitrator. If the Settling Carrier Releasee prevails in the
arbitration it shall have the right to retain a Settling Carrier
Releasee Additional Law Firm. If HealthSouth prevails in the
arbitration, any additional representation of the Settling
Carrier Releasee with respect to the matter(s) at issue in the
arbitration shall be at the Settling Carrier Releasee's expense.
The party prevailing in such arbitration shall be entitled to
the reimbursement by the losing party of its reasonable fees and
costs associated with the arbitration. The fact that such
Settling Carrier Releasee may have been represented by its own
law firm in the Coverage Litigation prior to the execution of
this Agreement shall not, by itself, be a basis for an
arbitrator to find that (i) there are conflict(s) of interest
between one or more Settling Carrier Releasees with respect to
one or more issues or (ii) the Setting Carrier Releasees Law
Firm cannot fully and fairly advance on behalf of such Settling
Carrier Releasee a position(s), argument(s), or other matter(s).

(iii) The Settling Carrier Releasees agree that (a) there are no
conflicts of interest between the Settling Carrier Releasees
with respect to the issue of whether the orders to be entered
pursuant to Sections 9(a)(iii) and 9(a)(iv) ("Bar Orders") bar a
Settling Carrier Releasee Indemnified Claim and (b) the Settling
Carrier Releasees Law Firm can fully and fairly advance on
behalf of all Settling Carrier Releases the argument and
position that the Bar Orders bar a Settling Carrier Releasee
Indemnified Claim.

(iv) At any time, a Settling Carrier Releasee can retain, at its own
expense, a law firm(s) to represent it with respect to asserting
any argument, position or other matter, including but not
limited to any argument or position with respect to the Bar
Orders.

(v) HealthSouth agrees to pay reasonable fees and costs incurred by
the Settling Carrier Releasees Law Firm and any Settling Carrier
Releasee Additional Law Firm(s) in connection with the
prosecution or defense of any Settling Carrier Releasee
Indemnified Claim. The Settling Carrier Releasees agree to
timely provide HealthSouth with the Settling Carrier Releasees
Law Firm and any Settling Carrier Releasee Additional Law
Firm(s)'s invoices, and HealthSouth agrees to pay the Settling
Carrier Releasees Law Firm and any Settling Carrier Releasee
Additional Law Firm(s) directly.

(vi) HealthSouth shall have the right to comment or make suggestions
in the selection of the Settling Carrier Releasees Law Firm and
any Settling Carrier Releasee Additional Law Firm(s), but shall
have no power to veto the Settling Carrier Releasees'
selection(s). The hourly rates of the Settling Carrier Releasees
Law Firm and the Settling Carrier Releasee Additional Law
Firm(s) shall be subject to HealthSouth's prior written consent,
which shall not be unreasonably withheld. HealthSouth agrees
that the current hourly rates paid by the Settling Carriers to
their attorneys in the Coverage Litigation are reasonable.

(vii) The Settling Carrier Releasees shall oppose and litigate to the
extent necessary any Settling Carrier Releasee Indemnified
Claims and shall use diligence and prudence in the
investigation, prosecution, defense, negotiation of settlement
and settlement of any such claims; provided however, that the
Settling Carrier Releasees shall have no obligation to take any
action that they believe to be inconsistent with the facts and
the law or inconsistent with any obligations of good faith and
fair dealing the Settling Carrier Releasees may have.

(viii) HealthSouth shall have the right to associate, at its own
expense, in the investigation, prosecution, defense, negotiation
and settlement of any Settling Carrier Releasees Indemnified
Claims.

(ix) With respect to each Settling Carrier Releasee Indemnified
Claim, the Settling Carrier Releasees will provide HealthSouth
with all information that they may reasonably request and notice
and opportunity to participate in and provide timely input
regarding litigation strategy and settlement negotiations;
provided, however, that the Settling Carrier Releasees shall
have no obligation to provide HealthSouth with proprietary
information or information protected by the attorney-client
privilege, work product doctrine, or any other privilege or
doctrine.

(x) The Settling Carrier Releasees will not make any settlement
offer, agree to any settlement or payment, admit any liability,
or stipulate to any judgment that would affect HealthSouth's
rights and/or duties under this Section 5 without the express
written approval of HealthSouth, which approval shall not be
unreasonably withheld. If HealthSouth does not respond to a
written request for approval of a recommended settlement within
ten (10) business days after receiving the request, HealthSouth
shall be deemed to have accepted and approved such settlement.

6. HealthSouth's Advancement and Indemnity Obligations to the
Non-Settling Defendants.

(a) In exchange for the consideration set forth in this Agreement and
effective upon the Federal Court's order finally approving the Federal
Securities Action Stipulation of Settlement and the State Court's order finally
approving the Derivative Action Stipulation of Settlement, HealthSouth shall
indemnify and advance to Non-Settling Defendants in the manner specified in this
Section 6.

(b) In the event that any Non-Settling Defendant is barred and enjoined
from asserting against any Settling Carrier any claim for defense costs by any
Bar Order, HealthSouth shall, to the fullest extent permitted by law, indemnify
for and advance to such Non-Settling Defendant any defense costs that any
Settling Carrier would have been obligated to pay under the Policies, but only
to the extent that such Settling Carrier would have been obligated to pay such
defense costs if there had been no Bar Order.

(c) In the event that any Non-Settling Defendant is barred and enjoined
by any Bar Order from asserting against any Settling Carrier any claim other
than for defense costs in any action in which such Non-Settling Defendant does
not or would not receive the benefit of the judgment reduction credit and
insurance credit created by the Bar Orders, HealthSouth shall, to the fullest
extent permitted by law, indemnify such Non-Settling Defendant for such claim
that any Settling Carrier would have been obligated to pay under the Policies,
but only to the extent that such Settling Carrier would have been obligated to
pay such claim if there had been no Bar Order.

(d) In no event shall HealthSouth pay indemnification to a Non-Settling
Defendant to the extent such payment would be in violation of 8 Del. C. ss. 145
or the federal securities laws.

(e) In no event shall HealthSouth pay indemnification or advancement to
a Non-Settling Defendant to the extent such payment would cause the sum of (i)
all amounts paid or credited to Non-Settling Defendants pursuant to this
paragraph 6, (ii) all amounts paid to the Non-Settling Defendants under the
Policies, and (iii) all insurance credits applied for the benefit of
Non-Settling Defendants pursuant to paragraph 12 of Exhibit C and paragraph 12
of Exhibit D,

to exceed the amount of coverage, if any, a court determines (based on jury
findings as and if required by law) would have been payable on behalf of such
Non-Settling Defendant but for a Bar Order.

(f) HealthSouth represents and warrants that it is not aware of any
directly applicable state or federal case law, including but not limited to case
law interpreting 8 Del. C. ss. 145 or the federal securities laws, that would
directly prohibit HealthSouth from advancing defense costs to Non-Settling
Defendants pursuant to paragraph 6(b).

(g) HealthSouth agrees and covenants that if it becomes aware of any
lawsuit or other proceeding that seeks any declaration that the law imposes any
limitations on its ability and obligation to indemnify or advance to the
Non-Settling Defendants pursuant to this Section 6, it will promptly provide the
Settling Carriers with written notice of the existence of such lawsuit or other
proceeding and that it will not oppose any motion by the Settling Carrier
Releasees to intervene and participate in such lawsuit or proceeding. Except as
provided for in Section 6(h), HealthSouth and the Settling Individual Defendants
shall not initiate, pursue, or cause to be initiated or pursued, directly or
indirectly, any judicial proceeding seeking a judgment, holding or declaration
that the law imposes any limitations on HealthSouth's ability and obligation to
indemnify or advance to the Non-Settling Defendants pursuant to this Section 6;
provided, however, that nothing in this Section 6 shall be construed to bar a
derivative action brought without HealthSouth's assistance or participation; and
provided further that HealthSouth shall be permitted to assert that it does not
have an obligation to indemnify a Non-Settling Defendant pursuant to paragraph
6(c) in any lawsuit or proceeding brought against it or its directors or
officers if it believes in good faith that such an obligation is prohibited by
law.

(h) HealthSouth agrees and covenants that if it becomes aware of a
directly applicable legal authority that comes into existence after the date of
this Agreement, and which directly prohibits HealthSouth from advancing to the
Non-Settling Defendants pursuant to paragraph 6(b), HealthSouth shall so inform
the Settling Carrier Releasees. If the Settling Carrier Releasees disagree that
the legal authority identified by HealthSouth is directly applicable and
directly prohibits HealthSouth from advancing to the Non-Settling Defendants
pursuant to paragraph 6(b), HealthSouth agrees and covenants not to file a
lawsuit seeking a declaration that it is prohibited from advancing to the
Non-Settling Defendants pursuant to paragraph 6(b) unless a neutral arbitrator,
jointly selected by HealthSouth and the Settling Carriers, determines that
HealthSouth has a good-faith basis for interpreting the legal authority
identified by HealthSouth as directly applicable and directly prohibiting
HealthSouth from advancing to the Non-Settling Defendants pursuant to paragraph
6(b).

(i) HealthSouth agrees and covenants that if it becomes aware of any
lawsuit or other proceeding that seeks any declaration that the law imposes any
limitations on its ability and obligation to advance to the Non-Settling
Defendants pursuant to paragraph 6(b), it will promptly provide the Settling
Carriers with written notice of the existence of such lawsuit or other
proceeding and it will not oppose any motion by the Settling Carrier Releasees
to intervene

and participate in such lawsuit or proceeding. HealthSouth agrees and covenants
that it will vigorously defend and oppose any such lawsuit or other proceeding
and provide reasonable cooperation to the Settling Carriers to ensure that no
such declaration is entered; provided, however, that if HealthSouth believes in
good faith that a directly applicable legal authority has come into existence
after the date of this Agreement and directly prohibits HealthSouth from
advancing to the Non-Settling Defendants pursuant to paragraph 6(b), HealthSouth
shall be permitted to assert that position in responding to the lawsuit or other
proceeding, and shall be under no obligation to prevent such a declaration from
being entered.

(j) HealthSouth and the Settling Carriers agree that HealthSouth's
obligation to indemnify or advance to Non-Settling Defendants pursuant to this
Section 6 may be enforced in an action brought by one or more Non-Settling
Defendants against HealthSouth in the Federal Court or the State Court.

(k) In the event that HealthSouth makes any payment to or on behalf of
one or more of the Non-Settling Defendants pursuant to this Section 6 and it
subsequently is finally determined by a court of competent jurisdiction
(including any and all appeals) that HealthSouth was not obligated to make such
payment for any reason, including but not limited to such payment being
prohibited by law, then HealthSouth shall have the right to seek the return of
such payment from the Non-Settling Defendant to or on behalf of whom such
payment was made. In no event shall HealthSouth have the right to seek the
return from the Settling Individual Defendants or the Settling Carriers of such
payment to a Non-Settling Defendant.

(l) HealthSouth's obligations to indemnify or advance to the
Non-Settling Defendants pursuant to this Section 6 are in addition to, and shall
not limit, any other obligations HealthSouth may have to indemnify and/or
advance to the Non-Settling Defendants and/or the Settling Defendants under
state or federal law, HealthSouth's certificate of incorporation and by-laws,
other corporate documents, indemnity agreements, letter agreements, contracts or
otherwise.

7. Additional Release.

In exchange for the consideration set forth in this Agreement,
HealthSouth covenants and agrees that as a condition to any future settlement
between HealthSouth and any Non-Settling Defendant relating to the Underlying
Litigation, such Non-Settling Defendant shall agree to release and forever
discharge the Settling Carrier Releasees from the Released Claims.

8. Return of Premiums to Settling Carriers.

Upon the deposit of funds into the Second Escrow pursuant to Section 1,
any insurance policy premiums paid by the Settling Carriers into the registry or
Clerk of the Court of the Federal Court and the State Court in connection with
the Coverage Litigation or tendered or returned by the Settling Carriers to
HealthSouth, plus any accrued interest, shall be returned to

the Settling Carriers to the extent such premiums and interest have not already
been returned to the Settling Carriers. To the extent the return of insurance
policy premiums to the Settling Carriers as set forth in the preceding sentence
requires action by the Federal Court and the State Court, the Settling Carriers
shall promptly file a request for the return of such premiums with the Federal
Court and the State Court, and HealthSouth shall, at its own expense, support
such request to the extent necessary to effectuate the return of premiums. The
Settling Individual Defendants shall not oppose such request(s). In the event
that this Agreement does not become Final, the return of insurance policy
proceeds to the Settling Carriers shall be without prejudice to the Settling
Carriers' positions with respect to rescission of the Policies, coverage of the
Underlying Litigation, and the Coverage Litigation.

9. Finality of Agreement.

(a) This Agreement shall become Final when the last of the following
events occurs:

(i) HealthSouth, the Settling Individual Defendants, and the Federal
Securities Plaintiffs have entered into the Federal Securities
Action Stipulation of Settlement in a form that is satisfactory
to the Settling Carriers, consistent with the Preliminary
Settlement Agreements, and contains the terms and conditions
identified in Exhibit C, and further contains a provision that
as a condition to any future settlement between the Federal
Securities Plaintiffs and any Non-Settling Defendant, such
Non-Settling Defendant shall agree to release and forever
discharge the Settling Carrier Releasees from the Released
Claims;

(ii) HealthSouth, the Settling Individual Defendants, and the
Derivative Plaintiffs have entered into the Derivative Action
Stipulation of Settlement in a form that is satisfactory to the
Settling Carriers, consistent with the Preliminary Settlement
Agreements, and contains the terms and conditions identified in
Exhibit D and further contains a provision that as a condition
to any future settlement between the Derivative Plaintiffs and
any Non-Settling Defendant, such Non-Settling Defendant shall
agree to release and forever discharge the Settling Carrier
Releasees from the Released Claims;

(iii) The Federal Court has issued an order finally approving the
Federal Securities Action Stipulation of Settlement and
containing the terms and conditions identified in Exhibit C and
such order has become final by passage of time or on appeal;

(iv) The State Court has issued an order finally approving the
Derivative Action Stipulation of Settlement and containing the
terms and conditions identified in Exhibit D and such order has
become final by passage of time or on appeal;

(v) The Federal Court has issued an order finally approving this
Agreement and ruling it was not illegal for HealthSouth to agree
to the indemnification obligations in Section 5 and the
advancement obligations in Section 6 and such order has become
final by passage of time or on appeal;

(vi) The State Court has issued an order finally approving this
Agreement and ruling it was not illegal for HealthSouth to agree
to the indemnification obligations in Sections 5 and the
advancement obligations in Section 6 and such order has become
final by passage of time or on appeal; and

(vii) All insurance policy premiums paid into the registry of the
Federal Court and the State Court in connection with the
Coverage Litigation or tendered or returned by the Settling
Carriers to HealthSouth have been returned to the Settling
Carriers pursuant to Section 8.

(b) Except as specified in Section 9(c) and Section 10, the funds in
the Second Escrow shall not be distributed or otherwise removed from the Second
Escrow for any reason until five (5) business days after the date on which this
Agreement becomes Final.

(i) The funds in the Second Escrow shall be returned to the Settling
Carriers, net of any escrow fees and applicable taxes (if any),
in proportion to their contributions to the First Escrow;

(ii) The indemnities and covenants provided in this Agreement shall
be rendered void and of no effect and any person or entity to
whom or on whose behalf an indemnity payment was made shall
return such payment to the person or entity who made it; and

(iii) The facts and terms of this Agreement shall not be admissible
for any purpose.

10. Additional Obligation to Return Consideration from Second Escrow to
Settling Carriers.

The funds in the Second Escrow shall be returned to the Settling
Carriers, net of any escrow fees and applicable taxes (if any), in proportion to
their contributions to the First Escrow if the Federal Securities Action
Stipulation of Settlement and the Derivative Action Stipulation of Settlement
are not presented to the State Court and the Federal Courts for fairness
hearings within one hundred and twenty (120) calendar days of the entry of
orders preliminarily approving the Federal Securities Action Stipulation of
Settlement and the Derivative Action Stipulation of Settlement, but in no event
may the Settling Carriers receive funds from the Second Escrow without prior
court approval. If the Settlement Amount is returned to the Settling Carriers:
(i) the releases and indemnity agreements provided herein by HealthSouth and the
releases provided by HealthSouth, the Settling Individual Defendants, and the
Settling Carriers shall be null and void and without prejudice to any party
hereto; (ii) all amounts paid to the Settling Carriers by HealthSouth pursuant
to this Agreement shall be promptly returned to HealthSouth; (iii) HealthSouth
shall have the right to seek the return of any amounts paid to a Non-Settling
Defendant pursuant to this Agreement from such Non-Settling Defendant; and (iv)
the Parties shall be restored to the same position they were in prior to the
execution of this Agreement.

11. Motions to Vacate Orders in Coverage Litigation.

HealthSouth and the Settling Individual Defendants agree that the
Settling Carriers may request that the Federal Court and the State Court vacate
orders entered in the Coverage Litigation, respectively dated March 16, 2004 and
April 27, 2004, upon final approval of this Agreement by the Federal Court and
the State Court and HealthSouth and the Settling Individual Defendants will not
oppose those motions. The Settling Carriers agree that if the settlement by the
Parties dissolves for any reason and the Coverage Litigation resumes, the
Settling Carriers will not oppose any request to the Federal Court and the State
Court by HealthSouth and/or the Settling Individual Defendants to re-instate the
respective orders. This provision is not intended to affect the rights of the
Settling Carriers to seek reversal of either order by an appellate court.

12. No Admission of Liability or Wrongdoing.

The provisions contained in this Agreement memorialize a compromise of
disputed claims, and nothing in this Agreement shall be deemed a presumption,
concession or admission by any of the Parties hereto of any breach of duty,
liability, default or wrongdoing as to any facts or claims alleged or asserted
by any of the other Parties, nor shall this Agreement be an admission of, or
constitute a finding of, coverage under the Policies. Neither the payment of any
sum of money nor the execution of this Agreement shall constitute, be construed
as, or be offered or received into evidence as, an admission of any wrongdoing
by, or liability or obligation of, any Party hereto. This Agreement is entered
into for the sole purpose of resolving contested claims and disputes as well as
avoiding the substantial costs, expenses, and uncertainties associated with such
disputes. It is also expressly agreed and acknowledged that all Parties to this
Agreement have acted in good faith with respect thereto and that neither this

Agreement, its execution, the performance of any of its terms nor any of its
contents shall constitute or be construed or offered as evidence in any
proceeding as an admission of any liability or of any insurance coverage or of
any fact or any indication that any of the claims which were or could have been
asserted by the Parties has any merit.

13. Ownership of Claims Released.

HealthSouth and the Settling Individual Defendants each represent and
warrant that they are the owners of and have not assigned or transferred any of
the claims, demands, actions and/or causes of action which are released by each
of them herein. If, contrary to this representation and warranty, HealthSouth
and/or any Settling Individual Defendant assigns or has assigned such rights to
any other person or entity, that Party shall defend, indemnify, and hold
harmless the other Parties with respect to any claim or action brought by an
assignee of any interest assigned contrary to this representation and warranty.

14. Good Faith.

Each Settling Carrier represents and warrants to HealthSouth and the
Individual Settling Defendants that it: (i) has not admitted in writing that it
has acted in bad faith in performing its duties and obligations to any party
claiming a right to coverage under any of the Policies; (ii) has not been
advised by its counsel that it has acted in bad faith in performing its duties
and obligations to any party claiming a right to coverage under any of the
Policies; and (iii) has not concluded in writing that it has acted in bad faith
in performing its duties and obligations to any party claiming a right to
coverage under any of the Policies. The Parties agree that the representations
and warranties contained in this paragraph do not waive the attorney/client
privilege, the work-product doctrine, or any other applicable privileges.

15. Authority to Execute Agreement.

Each signatory to this Agreement who signs on behalf of another hereby
warrants that he or she has the authority to sign on behalf of said person or
entity, that the appropriate corporate resolutions or other consents have been
passed and/or obtained, and that this Agreement shall be binding on that Party.

16. Representation by Counsel.

Each Party represents and warrants that he or it has been represented
by, and has consulted with, the counsel of his or its choice regarding the
provisions, obligations, rights, risks, and legal effects of this Agreement and
has been given the opportunity to review independently this Agreement with such
legal counsel and agree to the particular language of the provisions herein. It
is further agreed that this Agreement shall be construed without regard to the
identity or affiliation of its drafters and as if this Agreement was jointly
prepared and that, in the event of

ambiguity or dispute regarding the interpretation of this Agreement, the
Agreement will be interpreted as if each Party hereto participated in the
drafting hereof.

17. Entire Agreement, No Modification Unless in Writing.

This Agreement constitutes the entire agreement between the Parties as
to the subject matter hereof and supersedes any prior or contemporaneous written
or oral agreements or understandings between the parties as to the subject
matter hereof, including without limitation the Insurance MOU; provided,
however, that nothing contained herein shall release, alter, change, limit,
affect, dilute, eliminate, or in any way, impair or undermine existing or future
indemnification and advancement rights, and/or existing or future
indemnification and advancement claims, if any, of the Individual Settling
Defendants against HealthSouth, whether arising out of any corporate governance
provision, Certificate of Incorporation, by-laws, as in effect at any time,
other corporate documents, indemnity agreements, letter agreements, severance
agreements, contract, law, or otherwise. No modification or amendment of this
Agreement shall be valid unless made in writing and signed by or on behalf of
each Party affected by such change.

18. Choice of Law and Jurisdiction over Disputes.

This Agreement shall be interpreted, enforced and governed by and under
the laws of the State of Alabama as they exist on the date of this Agreement
without regard to Alabama's conflicts of laws provisions. Any disputes arising
out of or relating to this Agreement shall be brought in the same court in which
the Settling Carrier at issue in the dispute is or was a party in connection
with the Coverage Litigation.

19. Multiple Counterparts.

This Agreement may be executed in multiple counterparts, each
of which shall be an original, and such counterparts together shall constitute
one and the same instrument. Facsimile or .pdf copies of this Agreement in
counterpart or otherwise bearing signatures of the Parties may be treated as
executed originals.

20. Notices.

All notices required or permitted under or pertaining to this Agreement
shall be in writing and delivered by any method providing proof of delivery. Any
notice shall be deemed to have been given on the date of receipt. Notices shall
be delivered to the Parties at the addresses in Exhibit E until a different
address has been designated by notice to the other Party:

21. Full and Final Settlement.

The Parties intend that the execution and performance of this Agreement
shall, as provided above, be effective as a full and final settlement of, and as
a bar to, the claims released pursuant to Sections 2 and 3 (collectively, the
"Released Claims"). The Parties hereto covenant and agree that if they hereafter
discover facts different from or in addition to the facts that they now know or
believe to be true with respect to the subject matter of this Agreement, it is
nevertheless their intent hereby to settle and release fully and finally the
Released Claims. In furtherance of such intention, the releases herein shall be
and will remain in effect as releases notwithstanding the discovery of any such
different or additional facts. It is expressly understood and agreed by the
Parties that the Released Claims may encompass claims or matters the nature of
which have not yet been discovered, and it is understood and agreed that to the
extent they may be alleged to be applicable, all protections under California
Civil Code ss. 1542, which reads, "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY
AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR," or any similar provision of the
statutory or nonstatutory law of any other jurisdiction, are hereby waived.

22. Further Actions to Effectuate Agreement.

Each Party agrees to execute and deliver such other documents, mutual
dismissals, and instruments and to take such further action as may be reasonably
necessary to fully carry out the intent and purposes of this Agreement.

23. Limitations on Waiver and Amendment.

No breach of any provision hereof can be waived unless done in writing.
Waiver of any one breach shall not be deemed a waiver of any other breach of the
same or other provisions hereof.

24. No Precedential Value.

The Parties agree and acknowledge that this Agreement carries no
precedential value and should not be relied upon by any person as evidence of
any obligation of any Settling Carrier under identical or similar policies.

25. Headings.

Any headings contained herein are for informational purposes only and
do not constitute a substantive part of the Agreement. In the event of a dispute
concerning the terms and conditions of the Agreement, the headings shall be
disregarded.

26. Agreement Binding on Parties.

This Agreement shall be binding upon and inure to the benefit of the
Parties hereto and their respective heirs, executors, administrators,
successors, and assigns.

27. Illegality.

If any provision of this Agreement shall be held to be illegal or
unenforceable, such holding shall not affect the validity or enforceability of
the other provisions of this Agreement.

28. Effectiveness of Agreement.

This Agreement shall be deemed effective as of the date below when it
has been executed by or on behalf of all Parties and facsimile or .pdf copies of
this Agreement in counterpart or otherwise bearing signatures of the Parties
have been delivered to the persons identified in Section 20, either by
electronic transmittal, facsimile, overnight delivery service, or U.S. mail.

AGREED AS OF THIS 25th day of September, 2006.

Federal Insurance Company HealthSouth Corporation
and Executive Risk Indemnity Inc.

By: /s/ Peter R.Bisio By: /s/ John Whittington
--------------------------------- ---------------------------------
Peter R. Bisio HEALTHSOUTH Corporation
HOGAN & HARTSON L.L.P. One HealthSouth Parkway
Birmingham, Alabama 35243

St. Paul Mercury Insurance Company Anthony J. Tanner

By: Its Attorney In Fact, Michael By: /s/ Jackson R. Sharman III
Keeley /s/ Michael Keeley ---------------------------------
- --------------------------------- Jackson R. Sharman III
STRASBURGER & PRICE, LLP LIGHTFOOT, FRANKLIN & WHITE, LLC

Zurich American Insurance Company Betsy S. Atkins, P. Daryl Brown,
Richard F. Celeste, Raymond J. Dunn
III, Patrick A. Foster, Brandon O.
Hale, William W. Horton, Larry R.
House, Jan L. Jones, Russell H.
Maddox, Kimberly McCracken, Randall
Mink, Marca Pearson, Daniel J.
Riviere, Barbara Roper, Larry D.
Taylor, Dennis Wade and Phillip C.
Watkins

By: /s/ David M. Gische By: /s/ James L. Goyer III
--------------------------------- ---------------------------------
David M. Gische James L. Goyer III
ROSS, DIXON & BELL, LLP MAYNARD COOPER & GALE, LLP

Certain Underwriters at Lloyd's who Gerald P. Scrushy
subscribed, severally and not jointly,
to Policy Number 823/FD9805714

By: /s/ Gary Lockwood By: /s/ Tom E. Ellis
--------------------------------- ---------------------------------
Gary Lockwood Tom E. Ellis
WALKER WILCOX MATOUSEK LLP LAW OFFICE OF THOMAS E. ELLIS

Certain Underwriters at Lloyd's who
subscribed, severally and not jointly,
to Policy Number 823/FD9900985

By: /s/ Gary Lockwood
---------------------------------
Gary Lockwood
WALKER WILCOX MATOUSEK LLP
Certain Underwriters at Lloyd's, who ACE American Insurance Company
subscribed, severally and not jointly,
to Policy Number 823.FD0100668

By: /s/ Robert McLaughlin By: /s/ Stephen M. Sinaiko
--------------------------------- ---------------------------------
Robert McLaughlin Stephen M. Sinaiko
Daniel Esrey KRAMER LEVIN NAFTALIS & FRANKEL LLP
FIELDS HOWELL ATHANS & MCLAUGHLIN LLP
(Counsel for 2001 Lloyd's syndicate
numbers 861, 1209, 1411 and 2488)

Starr Excess Liability Arch Insurance Company
and
AIG Europe (UK) Limited as agents for
New Hampshire Insurance Company

By: /s/ Edward Bowron By: /s/ Dan Bailey
--------------------------------- ---------------------------------
Edward Bowron Dan Bailey
BOWRON LATTA & WASDEN, P.C. BAILEY CAVALIERI LLC

Clarendon America Insurance Company Lumbermens Mutual Casualty Company

By: /s/ Douglas Mangel By: /s/ Stephen Davidson
--------------------------------- ---------------------------------
Douglas Mangel Stephen Davidson
DRINKER BIDDLE DLA Piper US LLP

Royal Indemnity Company Robert E. Thomson

By: /s/ Stephen Allred By: /s/ Maxwell H. Pulliam by J. Mark
--------------------------------- Hart with express permission
Stephen Allred ---------------------------------
HELMS MULLIS & WICKER LLP Maxwell H. Pulliam, Esq.
CHRISTIAN SMALL, LLP

Edwin M. Crawford Certain Underwriters to Lloyds, who
subscribed, severally and not
jointly, to Policy Number
823.FD0100668

By: /s/ Anthony C. Harlow By: /s/ Douglas Mangel
--------------------------------- ---------------------------------
Anthony C. Harlow, Esq. Douglas Mangel
STARNES & ATCHISON LLP DRINKER BIDDLE
(Counsel for 2001 Lloyd's WNM
Syndicate 250)

Lee C. Hillman, Jon F. Hanson Thomas W. Carman
and Robert P. May

By: /s/ Martin L. Seidel by J. Mark By: /s/ Joseph A. Fawal
Hart by express permission ---------------------------------
--------------------------------- Joseph A. Fawal, Esq.
Martin L. Seidel, Esq. FAWAL & SPINA
CADWALADER WICKERSHAM & TAFT

James P. Bennett Susan M. Jones

By: /s/ Don B. Long by J. Mark Hart By: /s/ Charles A. Dauphin w/express
with express permission prermission, Betsy P. Collins
- --------------------------------- ---------------------------------
Don B. Long, Esq. Charles A. Dauphin, Esq.
JOHNSTON BARTON PROCTOR & POWELL LLP BAXLEY DILLARD DAUPHIN McKNIGHT &
BARCLIFT

Travelers Indemnity Company, successor Great Lakes Reinsurance (UK) PLC
in interest to Gulf Insurance Company

By: /s/ Tom Hanlon By: /s/ Ommid C. Farashahi
--------------------------------- ---------------------------------
Tom Hanlon Ommid C. Farashahi
D'AMATO & LYNCH BATES & CAREY LLP

Twin City Fire Insurance Company Continental Casualty Company

By: /s/ Michael R. Delhagen By: /s/ Joseph G. Finnerty III
--------------------------------- ---------------------------------
Michael R. Delhagen Joseph G. Finnerty III
DUANE MORRIS, LLP DLA Piper US LLP

Sage C. Givens, George H. Strong, Charles Greenwich Insurance Company and XL
W. Newhall, III,John S. Chamberlin, Joel Specialty Insurance Company
C. Gordon and Larry D. Striplin,Jr.

By: /s/ J. Mark Hart By: /s/ Gary V. Dixon (MER)
--------------------------------- ---------------------------------
J. Mark Hart Gary V. Dixon
J. MARK HART, P.C. ROSS DIXON & BELL, LLP

Royal Indemnity Company, as successor
in interest to Royal Insurance Company
of America

By: /s/ Douglas Noah
---------------------------------
Douglas Noah
Cathlynn Cannon
WILSON ELSER MOSKOWITZ EDELMAN & DICKER LLP

EXHIBIT A
---------

========================================= ====================================== =======================================
1998 to 1999 2001 to 2002 2002 to 2003
- ----------------------------------------- -------------------------------------- ---------------------------------------
Carrier Limit / Excess of Carrier Limit / Excess of Carrier Limit / Excess of
- ------------------- --------------------- ----------------- -------------------- ----------------- ---------------------

Federal $10 mm / Federal $10 mm / Royal $10 mm /
primary primary Indemnity primary ($10
8142-03-89B-EPP 8142-03-89C-BHM Co. mm deductible)

R2HP611468
- ------------------- --------------------- ----------------- -------------------- ----------------- ---------------------

St. Paul Mercury $10 mm / $10 mm St. Paul $10 mm / $10
Mercury mm
501CM0017
568CM01153
- ------------------- --------------------- ----------------- -------------------- ----------------- ---------------------

Federal $10 mm / $20 mm Federal $10 mm / $20 XL Specialty $25 mm / $20 mm
mm
8142-04-72A 8142-04-72B-BHM ELU 81603-02
- ------------------- --------------------- ----------------- -------------------- ----------------- ---------------------

Royal $10 mm / $30 mm Royal $10 mm / $30 ACE American $10 mm / $45 mm
mm
PSF00617 PSF00617 D0XG21644985001
- ------------------- --------------------- ----------------- -------------------- ----------------- ---------------------

Zurich American $10 mm / $40 mm Zurich American $10 mm / $40 St. Paul $10 mm / $55 mm
mm Mercury
DOC 7912-596-05 DOC 7912-596-08
568CM1645
- ------------------- --------------------- ----------------- -------------------- ----------------- ---------------------
Clarendon
ERII $10 mm / $50 mm $10 mm / $50 Twin City Fire $10 mm / $65 mm
mm Ins.
752-140835-98 MAG0410003910000
DA0212436-02

AIG Europe UK
Ltd.
- ------------------- --------------------- ----------------- -------------------- ----------------- ---------------------

St. Paul Mercury $ 5 mm / $60 mm St. Paul $ 5 mm / $60 Lumbermens $10 mm / $75 mm
Mercury mm
501CM0018 3DY02109500
568CM1152
(through
02/17/03)
- ------------------- --------------------- ----------------- -------------------- ----------------- ---------------------

Royal $10 mm / $65 mm Royal $10 mm / $65 Starr Excess $ 5 mm / $85 mm
mm
PSF000113 PSF000113 6457794
- ------------------- --------------------- ----------------- -------------------- ----------------- ---------------------

Federal $10 mm / $75 mm Greenwich $10 mm / $75 Arch Insurance $ 5 mm / $90 mm
mm
8152-85-78 ELU 82663-01 11DOX0521000
- ------------------- --------------------- ----------------- -------------------- ----------------- ---------------------

ERII $15 mm / $85 mm Gulf $15 mm / $85 Continental $ 5 mm / $95 mm
mm Casualty
752-140846-98 GA 2846151
169914082
- ------------------- --------------------- ----------------- -------------------- ================= =====================

Lloyds $25 mm / $100 Clarendon $17.5 / $100
mm mm
823/FD9805714 MAG0410004010000

823/FD9900985 Lloyd's
823/FD0100668

Lloyd's WNM

Lloyd's AGM

Lloyd's MEB

Lloyd's SUT

New Hampshire
Insurance Company
(per AIG Europe
UK Ltd.)
- ------------------- --------------------- ----------------- --------------------
ERII $25 mm / $125 Great Lakes UK $15 / $117.5
mm mm
752-143919-98
01-UK-PX-
0000030-00
=================== ===================== ----------------- --------------------
Twin City $10 / $132.5
(Hartford) mm

NDA-0201674-01
----------------- --------------------
Lumbermens $17.5 /
(Kemper) $142.5 mm

3DY-001211-01
----------------- --------------------
Greenwich $40 mm /
$160 mm
ELU 81603-00
================== ===================

================== ===================
ERII $10mm

8167-1518
================== ===================

EXHIBIT B
---------

Amalgamated Gadget, L.P. v HealthSouth Corp., No. 4-04CV-198-A (N.D. Tex.)

James Bachand v. Richard M. Scrushy, et al., No. 19968-NC (Del. Chancery)

Biondi, et al. v. Scrushy, et al., No. CA-19896 (Del. Ch. Ct.)

Brasfield & Gorrie, L.L.C. v. HealthSouth, Case No. 03-2393 (Circuit Court,
Jefferson County, Alabama)

Brookwood HealthServices, Inc., d/b/a Brookwood Medical Center v. Alabama State
Health Planning and Development Agency, No. CV0102475 (Circuit Court, Jefferson
County, Alabama)

Burke v. HealthSouth Corp., et al., No. 04-B-2451 (Colo.)

Burke v. HealthSouth Corp., et al., Case No. 05-998 (N.D. Ala.)

John T. Campbell v. Scrushy, et al., No. CV0406985 (Ala. Cir. Ct., Jefferson
County)

CLA Architecture, Inc. v. HealthSouth Corp., cv-03-2644 (?)

Crooks v. Richard M. Scrushy, et al., No. 02-6268 (Circuit Court, Jefferson
County, Alabama)

Ernst &Young v. HealthSouth, 05-1618 (Circuit Court, Jefferson County, Ala.)

Formal Order of Investigation by the United States Securities and Exchange
Commission styled In the Matter of HealthSouth Corp., File No. MA-02772, and
related subpoena dated September 17, 2002

Francis v. Richard M. Scrushy, et al., No. CV-03-1782 (Circuit Court, Jefferson
County, Ala.)

General Electric Capital Corporation v. HealthSouth Leasing Company, L.L.C.,
Case No. 03-2115 (Circuit Court, Jefferson County, Alabama)

General Medicine v. HealthSouth, 04-958 (?)

Grand Jury Subpoena issued to HealthSouth Corporation, dated February 5, 2003
(N.D. Ala.)

HealthSouth Corporation v. Benchmark Medical, 04-0479 (_______)

HealthSouth Corp. v. HSBC Bank USA, et al., No. CV-04-1538 (Ala. Cir. Ct.,
Jefferson County)

Hervey v. HealthSouth Corp. et al., No. CV-03-8031 (Ala. Cir. Ct.)

Hilsman v. Ernst & Young, et al., No. CV-03-7790 (Ala. Cir. Ct.)

In re Sealed, (Cal.)

In re Anthony Tanner, No. CV03-5378 (Circuit Court, Jefferson County, Alabama)

In re HealthSouth Corporation ERISA Consolidated Litig., No. CV-03-BE-1700-S
(N.D. Ala.)

Klein v. John Chamberlain, et al., No. CV02 5662 (Circuit Court, Jefferson
County, Alabama)

Kosseff v. HealthSouth, House, Case No. 98-0558

Lebovitz v. Richard Scrushy, et al., No. CV02 6006 (Circuit Court, Jefferson
County, Alabama)

Julian L. McPhillips, Jr. v. William T. Owens, No. CV-03-846 (Circuit Court,
Montgomery County, Ala.)

Sellers v. Tenet Healthcare Corp., No. CV-03-0457 (N.D. Al.)

Senior Housing Properties Trust and HRES Properties v. HealthSouth Corp., No.
284182 (Land Court Suffolk Co., Mass.)

Siemens One, Inc., No. CV-03-4228 (___)

Steven R. Nichols et al. v. HealthSouth Corp., No. CV-03-2023 (Circuit Court,
Tenth Judicial Cir. Ala.)

Peter J. Petrunya v. HealthSouth Corp. No. __________ (Circuit Court, Jefferson
County, Alabama)

Neostar Sports and Entertainment, Inc. v. Mandalay Sports Action Entertainment,
LLC, Case No. BC295322 (Cal. Superior Court)

Scrushy v. Gordon, Case No. 20375 (Delaware Chancery Court)

Scrushy v. HealthSouth Corp., No. 03C-05-115 CHT (Delaware Superior Court)

Richard M. Scrushy v. HealthSouth Corporation, Case No. CV-2005-07364, (Cir. Ct.
of Jefferson Co., Ala.)

Scrushy v. HealthSouth Corp., No. 20357-nc (Delaware Chancery Court)

Scrushy v. HealthSouth Corp., No. CR-03-BE-530-S (N.D. Ala.)

S.E.C. v. Harris, No. CV-03-J-0715-S (N.D. Ala.)

S.E.C. v. HealthSouth Corporation et al., No. CV-03-J-0615-S (N.D. Ala.)

S.E.C. v. Livesay, et al., No. CV-03-S-0758-S (N.D. Ala.)

SEC v. Martin, et al., No. CV-03-C-02424 (N.D. Ala.)

S.E.C. v. Owens, et al., No. CV-03-C-0720-S (N.D. Ala.)

Senior Housing Properties Trust and HRES Properties Trust v. HealthSouth, Case
No. 289182 (Land Court, Mass.)

The State of Tennessee, on the Relation of Fayetteville Imaging Associates, Inc.
v. National Imaging Affiliates of Fayetteville, Inc., Case No. 157919-1
(Chancery Ct., Knox County, Tennessee)

Tanner v. HealthSouth, 04-7715 (___________)

Teachers' Retirement System of La. et al. v. HealthSouth Corp., No. 20062
(Delaware Chancery Court 2002)

Teachers' Retirement System of La. et al. v. HealthSouth Corp., No. 20524-nc
(Delaware Chancery Court 2002)

Teachers Retirement System of Louisiana et al. v. Scrushy et al., No. 20529
(Delaware Chancery Court 2003)

United States v. Ayers, et al., No. CR-03-C-0183-S (N.D. Ala.)

United States v. Beam, No. CR-03-197 (N.D. Ala.)

United States v. Bennett, 05-064 (N.D. Ala.)

United States v. Botts, CR-03-C-0374 (N.D. Ala.)

United States v. Brown, No. CR-03-0338-S (N.D. Ala.)

United States v. Fowler, No. CR-03-C-478-S (N.D. Ala.)

United States v. Harris, No. CR-03-J-0157-S (N.D. Ala.)

United States v. Hicks, CR-03-PT-0375-S (N.D. Ala.)

United States v. Livesay, No. CR-03-C-0182-S (N.D. Ala.)

United States v. Martin, No. CR-03-C-0191-S (N.D. Ala.)

United States v. McVay, No. CR-03-195 (N.D. Ala.)

United States v. Owens, No. CR-03-B-0131-S (N.D. Ala.)

United States v. Scrushy, No. CR-03-BE-0530-S (N.D. Ala.)

United States v. Sielegman, No. CR-05-119 (M.D. Ala.)

United States v. Smith, No. CR-03-PT-0126-S (N.D. Ala.)

United States of America ex rel. James J. Devage vs. HealthSouth Corp., et al.,
No. SA-98-EA-0372-FV (W.D. Tex.)

United States of America ex rel. Greg Madrid vs. HealthSouth Corp., et al., No.
97-cv-3206 (N.D. Ala.)

Ward and CAW Imaging, P.C. v. HealthSouth, Civ. 03-1564-L (W.D. Ok.)

Warren v. HealthSouth Corp. et al., No. CV-03-790 (Circuit Court, Montgomery
County, Ala.)

EXHIBIT C
---------

The following paragraphs shall be included in the Federal Securities Action
Stipulation of Settlement and the Federal Court's Order finally approving the
Federal Securities Action Stipulation of Settlement:

1. "Released Parties" means, with respect to each Settling Defendant,
the family members, heirs, executors, administrators, successors, assigns,
present and former employees, officers, directors, attorneys, legal
representatives, and agents of each of them, and any person or entity which is
or was related to or affiliated with any Settling Defendant or in which any
Settling Defendant has or had a controlling interest and the present and former
parents, subsidiaries, divisions, affiliates, predecessors, successors,
employees, officers, directors, attorneys, assigns, and agents of each of them.
The Released Parties shall also include the Insurers who issued the Insurance
Policies and are contributing to the Settlement Amount (the "Settling Insurers")
and the present and former parents, subsidiaries, divisions, affiliates,
predecessors, successors, employees, officers, directors, attorneys, assigns,
and agents of each of them. Notwithstanding anything in this paragraph, Released
Parties shall not include any Non-Settling Defendant, defined as a Defendant in
the Securities Action that is not a party to this Settlement, including but not
limited to Ernst & Young LLP, UBS AG, UBS Warburg LLC, PaineWebber, Inc. now
d/b/a UBS Financial Services, Inc. (subsidiary of UBS AG), Citigroup, Inc.,
Smith Barney, Inc. (subsidiary of Citigroup), Salomon Brothers, Inc. now d/b/a
Citigroup Global Markets (subsidiary of Citigroup), Salomon Smith Barney now
d/b/a Citigroup Global Markets (subsidiary of Citigroup), J.P. Morgan
Securities, Inc. (subsidiary of J.P. Morgan Chase & Co.), Chase Securities, Inc.
now d/b/a J.P. Morgan Securities, Inc. (subsidiary of J.P. Morgan Chase & Co.),
Bear Stearns & Co., Cowen & Company now d/b/a Cowen Securities Corporation,
Credit Suisse First Boston Corporation, Morgan Stanley & Co. Inc., Goldman,
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith, Inc. (a subsidiary of
Merrill Lynch & Co., Inc.), Deutsche Bank Securities, Inc. (subsidiary of
Deutsche Bank AG), Deutsche Bank Alex. Brown, Inc. (division of Deutsche Bank
Securities, Inc. (subsidiary of Deutsche Bank AG)), First Union Securities now
d/b/a Wachovia Securities, Inc., Scotia Capital Markets (USA), Inc. (division of
Scotia Capital Inc.), Jefferies & Company, Inc., Lehman Brothers, Inc., BNY
Capital Markets, Inc., Fleet Securities, Inc. (wholly owned subsidiary of
FleetBoston Financial Corp.), NatCity Investments, Inc., Banc of America
Securities, LLC (subsidiary of Bank of America Corp.), NationsBanc Montgomery
Securities, LLC now d/b/a Banc of America Securities, LLC (subsidiary of Bank of
America Corp.), Benjamin D. Lorello, William C. McGahan, Howard Capek, Richard
Scrushy, William T. Owens, Weston L. Smith, Michael D. Martin, Aaron Beam, Jr.,
Malcom E. McVay, Emery W. Harris, Angela Ayers, Kenneth Livesay, Cathy C.
Edwards, Rebecca Kay Morgan, Virginia B. Valentine, Richard E. Botts, Will
Hicks, Jason M. Brown, and Catherine Fowler.

2. "Released Claims" means all claims and causes of action of every
nature and description, whether known or unknown, whether arising under federal,
state, common or foreign

law, whether brought directly or derivatively, that Plaintiffs or any member of
the Class in the Action asserted in the Complaint, or could have asserted as a
result of purchases, acquisitions, sales, or exercises made during the Class
Period in securities issued by HealthSouth (including, without limitation, all
claims arising out of or relating to any disclosures, public filings,
registration statements or other statements by HealthSouth or any Defendant in
the Action), based upon or arising out of any facts, allegations or claims set
forth in the Complaint. In addition, with respect to the Settling Insurers and
the present and former parents, subsidiaries, divisions, affiliates,
predecessors, successors, employees, officers, directors, attorneys, assigns,
and agents of each of them, Released Claims means all claims and causes of
action of every nature and description, whether known or unknown, whether
arising under federal, state, common or foreign law, whether brought directly or
derivatively, that are based upon, in consequence of, arise out of or relate in
any way, whether in whole or in part, to (i) the Insurance Policies, (ii) the
Coverage Litigation, (iii) the Underlying Litigation, (iv) the litigation,
defense, and settlement of the Coverage Litigation and the Underlying
Litigation, and/or (v) any of the facts, circumstances, and situations
underlying or alleged in the Coverage Litigation and the Underlying Litigation.

3. Insurance Policies means the insurance policies issued by the
Settling Insurers to HealthSouth that are identified in Exhibit A to the
Settlement Agreement and Policy Release between the Settling Defendants and the
Settling Insurers.

4. Coverage Litigation shall have the meaning given to that term in the
Settlement Agreement and Policy Release between the Settling Defendants and the
Settling Insurers.

5. Underlying Litigation shall have the meaning given to that term in
the Settlement Agreement and Policy Release between the Settling Defendants and
the Settling Insurers.

6. Plaintiffs, all members of the Class, the successors and assigns of
any of them and anyone claiming through or on behalf of any of them, are hereby
permanently BARRED, ENJOINED and RESTRAINED from instituting, commencing or
prosecuting in this Litigation or any other action or proceeding any Released
Claims against any of the Released Parties. The Released Claims against each and
all of the Released Parties shall be released and dismissed with prejudice and
on the merits. Nothing in this paragraph shall release the Released Claims
against the Released Parties of any Person who submitted a timely, signed
request for exclusion from the Class and did not submit a timely, signed request
to revoke the prior request for exclusion ("Opt-Out Plaintiffs").

7. (a) The Non-Settling Defendants and all other persons, including but
not limited to any other person or entity later named as a defendant
in this Litigation, are hereby permanently BARRED, ENJOINED and
RESTRAINED from commencing, prosecuting, or asserting any claim for
contribution (whether contractual or otherwise) against the Released
Parties or any other claim against the Released Parties where the
injury to the entity/individual is any person's

actual or threatened liability to the Lead Plaintiff, Named
Plaintiffs and other Class Members or any costs or expenses
(including attorneys' fees) incurred in connection with this
Litigation; provided, however, that the Bar Order stated in this
paragraph shall not apply to claims that may be asserted by any
Opt-Out Plaintiff, or between and/or among any defendants in cases
brought by Opt-Out Plaintiffs (but only to the extent such a claim
between and/or among defendants is based upon the defendant's actual
or threatened liability solely to the Opt-Out Plaintiffs or the
costs and expenses incurred solely in connection with a claim
asserted by an Opt-Out Plaintiff).

(b) The Non-Settling Defendants and all other persons, including but
not limited to any other person or entity later named as a defendant
in this Litigation, are hereby permanently BARRED, ENJOINED and
RESTRAINED from commencing, prosecuting, or asserting against the
Settling Insurers and the present and former parents, subsidiaries,
divisions, affiliates, predecessors, successors, employees,
officers, directors, attorneys, assigns, and agents of each of them
any and all manner of action or actions, cause or causes of action,
suits, debts, liens, contracts, agreements, promises, liabilities,
claims, rights, demands, damages, losses, costs, charges or
expenses, of any nature whatsoever, in law or in equity, known or
unknown, suspected or unsuspected, fixed or contingent, that are
based upon, in consequence of, arise out of or relate in any way,
whether in whole or in part, to (i) the Insurance Policies, (ii) the
Coverage Litigation, (iii) the Underlying Litigation, (iv) the
litigation, defense, and settlement of the Coverage Litigation and
the Underlying Litigation, and/or (v) any of the facts,
circumstances, and situations underlying or alleged in the Coverage
Litigation and the Underlying Litigation.

(c) For purposes of this Bar Order, Barred Person shall be defined
as any Person who is barred and/or enjoined by paragraph 7(a) and
7(b).

8. All Settling Parties are hereby permanently BARRED, ENJOINED and
RESTRAINED from commencing, prosecuting or asserting any actions or claims
against the Settling Insurers and the present and former parents, subsidiaries,
divisions, affiliates, predecessors, successors, employees, officers, directors,
attorneys, assigns, and agents of each of them that are based upon, in
consequence of, arise out of or relate in any way, whether in whole or in part,
to (i) the Insurance Policies, (ii) the Coverage Litigation, (iii) the
Underlying Litigation, (iv) the litigation, defense, and settlement of the
Coverage Litigation and the Underlying Litigation, and/or (v) any of the facts,
circumstances, and situations underlying or alleged in the Coverage Litigation
and the Underlying Litigation.

9. All Settling Insurers and the present and former parents,
subsidiaries, divisions, affiliates, predecessors, successors, employees,
officers, directors, attorneys, assigns, and agents of each of them are hereby
permanently BARRED, ENJOINED and RESTRAINED from

commencing, prosecuting or asserting any actions or claims against the Settling
Parties that are based upon, in consequence of, arise out of or relate in any
way, whether in whole or in part, to (i) the Insurance Policies, (ii) the
Coverage Litigation, (iii) the Underlying Litigation, (iv) the litigation,
defense, and settlement of the Coverage Litigation and the Underlying
Litigation, and/or (v) any of the facts, circumstances, and situations
underlying or alleged in the Coverage Litigation and the Underlying Litigation.

10. Barred Persons shall be entitled to a judgment credit (i.e., a
reduction to the total amount of the judgment for each claim entered in the
Action) in an amount that is the greater of: (i) that part of the Settlement
Amount paid by the Settling Parties and the Settling Insurers that is allocated
to claims for which contribution would be sought; or (ii) for each such claim,
the proportionate share of the Settling Defendants' fault as determined at
trial.

11. (a) The Settling Defendants and Settling Insurers are hereby
permanently BARRED, ENJOINED and RESTRAINED from commencing,
prosecuting, or asserting any claim for contribution (whether
contractual or otherwise) against the Barred Persons or any other
claim against the Barred Persons where the injury to the Settling
Defendant or the Insurer is any person's actual or threatened
liability to the Lead Plaintiff, Named Plaintiffs and other Class
Members or any costs or expenses (including attorneys' fees)
incurred in connection with this Litigation; and provided, however,
that the Bar Order stated in this paragraph shall not apply to
claims that may be asserted by the Settling Defendants in any case
brought by an Opt-Out Plaintiff (but only to the extent such a claim
by a Settling Defendant is based upon such Person's actual or
threatened liability solely to the Opt-Out Plaintiffs or the costs
and expenses incurred solely in connection with a claim asserted by
an Opt-Out Plaintiff).

(b) The Settling Insurers and the present and former parents,
subsidiaries, divisions, affiliates, predecessors, successors,
employees, officers, directors, attorneys, assigns, and agents of
each of them are hereby permanently BARRED, ENJOINED and RESTRAINED
from commencing, prosecuting, or asserting against the Barred
Persons any and all manner of action or actions, cause or causes of
action, suits, debts, liens, contracts, agreements, promises,
liabilities, claims, rights, demands, damages, losses, costs,
charges or expenses, of any nature whatsoever, in law or in equity,
known or unknown, suspected or unsuspected, fixed or contingent,
that are based upon, in consequence of, arise out of or relate in
any way, whether in whole or in part, to (i) the Insurance Policies,
(ii) the Coverage Litigation, (iii) the Underlying Litigation, (iv)
the litigation, defense, and settlement of the Coverage Litigation
and the Underlying Litigation, and/or (v) any of the facts,
circumstances, and situations underlying or alleged in the Coverage
Litigation and the Underlying Litigation.

12. In the event that (i) a judgment (net of any judgment credit
required under the

PSLRA or paragraph 10 herein) is entered against any Non-Settling Defendant, and
(ii) a court determines that such Non-Settling Defendant would have been
entitled to coverage for such judgment under the Insurance Policies but for the
Federal Securities Action Stipulation of Settlement and the Order finally
approving same, then such Non-Settling Defendant shall have the judgment reduced
by the amount of coverage, if any, such court determines (based on jury findings
as and if required by law) is payable on behalf of such Non-Settling Defendant,
but only to the extent such a reduction has not already been made with respect
to another judgment. In connection with the judicial determination of insurance
coverage referred to in the preceding sentence, the Federal Plaintiffs shall
have the right to defend all claims of coverage asserted by any Non-Settling
Defendant and to assert all defenses to coverage that may have been available to
the Insurers, and the Settling Insurers and the Settling Defendants shall
cooperate fully in the defense of all such claims.

13. The provisions in this Bar Order are reciprocal and in the event
that any person asserts and is legally not barred by the Bar Order from bringing
any claim, action or actions, cause or causes of action, suits, debts, liens,
contracts, agreements, promises, liabilities, claims, rights, demands, damages,
losses, costs, charges or expenses falling within the scope of this Bar Order
(the "First Person") against any other person (the "Second Person"), this Bar
Order shall not bar, enjoin or restrain the Second Person from asserting or
bringing any claim, action or actions, cause or causes of action, suits, debts,
liens, contracts, agreements, promises, liabilities, claims, rights, demands,
damages, losses, costs, charges or expenses falling within the scope this Bar
Order against the First Person.

14. The Court retains exclusive jurisdiction to enforce the provisions
of this Bar Order.

EXHIBIT D
---------

A hearing having been held before this Court (the "Court") on
________________, 2006, pursuant to the Court's Order of __________________,
2006 (the "Scheduling Order"), upon a Stipulation of Settlement with certain
defendants, filed on ____________________, 2006 (the "Stipulation"), of the
above-captioned action (the "Action"), which is incorporated herein by
reference; it appearing that due notice of said hearing has been given in
accordance with the aforesaid Scheduling Order; the respective parties having
appeared by their attorneys of record; the Court having heard and considered
evidence in support of the proposed Settlement; the attorneys for the respective
parties having been heard; an opportunity to be heard having been given to all
other persons requesting to be heard in accordance with the Scheduling Order;
and the entire matter of the proposed Settlement having been heard and
considered by the Court;

IT IS HEREBY ORDERED, ADJUDGED AND DECREED, this _____ day of
__________________, 2006, that:

1. Unless otherwise defined herein, all defined terms shall have the
meaning set forth in the Stipulation.

2. The form and manner of notice given to HealthSouth's stockholders is
hereby determined to have been the best notice practicable under the
circumstances and to have been given in full compliance with the requirements of
due process, and Rule 23.1 of the Rules of this Court and applicable law.

3. The Stipulation, the Settlement, and the Insurance Settlement
Agreement are approved as fair, reasonable, adequate and in the best interests
of HealthSouth, and it was not

illegal for HealthSouth to agree to the indemnification obligations in Section 5
and the advancement obligations in Section 6 of the Insurance Settlement
Agreement. The Settlement and the Insurance Settlement Agreement shall be
consummated in accordance with the terms and conditions of the Stipulation and
the Insurance Settlement Agreement.

4. Any and all claims, demands, rights, actions or causes of action,
liabilities, damages, losses, attorneys' fees, costs, expenses, obligations,
duties, judgments, suits, proceedings, debts, dues, sums of money, accounts,
bonds, bills, covenants, contracts, controversies, agreements, promises,
variances, executions, matters and issues of any kind or nature whatsoever,
whether in law, admiralty, or equity, and whether based on any federal, state,
local, statutory or common law, or any other rule or regulation, foreseen or
unforeseen, matured or unmatured, known or unknown, accrued or not accrued,
contingent or absolute, apparent or unapparent, suspected or unsuspected,
disclosed or undisclosed, liquidated or unliquidated, whether or not asserted,
that have been or could have been asserted in this Action by or on behalf of
HealthSouth or any of its affiliates, predecessors, successors, assigns, past or
present officers, directors, debt or equity securities holders, general or
limited partners or partnerships, trustees, employees, representatives, agents,
advisors, parents, or subsidiaries, or by or on behalf of any stockholder of
HealthSouth acting or purporting to act on behalf of HealthSouth, whether
directly, indirectly, representatively, derivatively or in any other capacity,
against any of the Individual Settling Defendants or their respective family
members, heirs, executors, administrators, successors, assigns, present and
former employees, officers, directors, attorneys, legal representatives, and
agents of each of them, and any person or entity in which any

Individual Settling Defendant has or had a controlling interest and the present
and former parents, subsidiaries, divisions, affiliates, predecessors,
successors, employees, officers, directors, attorneys, assigns, and agents of
each of them, and the Settling Insurers, and the present and former parents,
subsidiaries, divisions, affiliates, predecessors, successors, employees,
officers, directors, attorneys, assigns, and agents of each of them, and any
other current or former directors, officers, or employees of HealthSouth other
than the Non-Settling Defendants, regardless of whether such person was served
with process and appeared in this Action (collectively, the "Released Parties"),
which have or could have arisen or arise at any time, and relate in any manner
to the allegations, facts, events, transactions, acts, occurrences, statements,
representations, misrepresentations, omissions, acts or failures to act, course
of conduct, or any other matter, thing or cause whatsoever, or any series
thereof, embraced, involved, set forth or otherwise related, directly or
indirectly, to the facts and circumstances alleged or that could have been
alleged in the Complaint; and, with respect to the Settling Insurers, and the
present and former parents, subsidiaries, divisions, affiliates, predecessors,
successors, employees, officers, directors, attorneys, assigns, and agents of
each of them, all claims and causes of action of every nature and description,
whether known or unknown, whether arising under any federal, state, local,
statutory or common law, whether brought directly or derivatively, that are
based upon, in consequence of, arise out of or relate in any way, whether in
whole or in part, to (i) the Insurance Policies, (ii) the Coverage Litigation
(iii) the Underlying Litigation, (iv) the litigation, defense, and settlement of
the Coverage Litigation and the Underlying Litigation, and/or (v) any of the
facts, circumstances, and situations underlying or alleged in the Coverage
Litigation and the

Underlying Litigation (collectively, the "Released Claims") are hereby fully,
finally, and forever compromised, settled, discharged, dismissed with prejudice
and released with full preclusive effect as to each of the Released Parties.
Notwithstanding any other provision in this Paragraph 4 or elsewhere in this
Order, "Released Parties" shall not be deemed to include (a) Richard M. Scrushy,
or (b) any person who agreed to plead guilty or otherwise have been convicted of
crimes in connection with HealthSouth's former financial reporting activities,
or (c) any third party entities who are defendants in the Action including Ernst
& Young LLP, UBS Securities, LLC, Source Medical Solutions, Inc., Capstone
Capital Corporation, Medcenterdirect.com, and G.G. Enterprises, or (d) any other
Non-Settling Individual Defendants or Non-Settling Defendant Entities, or (e)
any Non-Settling Insurers (and any other person or entity in their capacity as a
successor in interest to the Non-Settling Insurers with respect to the insurance
policy or policies they issued to HealthSouth and/or the Individual Settling
Defendants). This Order shall not operate to release or reduce the judgment
entered against Richard Scrushy based upon the claim of unjust enrichment for
approximately $47.8 million entered on January 3, 2006 in favor of Wade Tucker,
derivatively on behalf of HealthSouth. This Release shall not operate to release
in whole or in part any claim asserted against any of the Non-Settling
Individual Defendants or Non-Settling Defendant Entities.

5. Plaintiff, HealthSouth (and its affiliates, predecessors,
successors, assigns, parents, subsidiaries, stockholders, and any person acting
or purporting to act on behalf of HealthSouth), or any of them, are hereby
permanently BARRED, ENJOINED and RESTRAINED from instituting, commencing or
prosecuting in this Action or any other action or proceeding any

Released Claims against any of the Released Parties. The Released Claims against
each and all of the Released Parties shall be released and dismissed with
prejudice and on the merits with full preclusive effect as to each of the
Released Parties.

6. Consistent with Paragraph 9 of the Stipulation and in accordance
with 10 Del. C. ss.6304(b) or any similar, comparable or equivalent provision of
law:

(a) The Non-Settling Defendants and all other persons, including but
not limited to any other person or entity later named as a defendant
in this Action, are hereby permanently BARRED, ENJOINED and
RESTRAINED to the fullest extent permitted under applicable law from
commencing, prosecuting, or asserting any action, proceeding or
claim against the Released Parties involving, related to or arising
out of the facts and events that are the subject of the Released
Claims, including but not limited to claims for contribution
(whether contractual or otherwise), indemnification (whether
contractual or otherwise) or similar claims.

(b) The Non-Settling Defendants and all other persons, including but
not limited to any other person or entity later named as a defendant
in this Action, are hereby permanently BARRED, ENJOINED and
RESTRAINED from commencing, prosecuting, or asserting against the
Settling Insurers and the present and former parents, subsidiaries,
divisions, affiliates, predecessors, successors, employees,
officers, directors, attorneys, assigns, and agents of each of them
any and all manner of action or actions, cause or causes of action,
suits, debts, liens, contracts, agreements, promises, liabilities,
claims, rights, demands, damages, losses, costs, charges or
expenses, of any nature whatsoever, in law or in equity, known or
unknown, suspected or unsuspected, fixed or contingent, that are
based upon, in consequence of, arise out of or relate in any way,
whether in whole or in part, to (i) the Insurance Policies, (ii) the
Coverage Litigation, (iii) the Underlying Litigation, (iv) the
litigation, defense, and settlement of the Coverage Litigation and
the Underlying Litigation, and/or (v) any of the facts,
circumstances, and situations underlying or alleged in the Coverage
Litigation and the Underlying Litigation.

(c) For purposes of this Order, Barred Person shall be defined as
any person or entity other than HealthSouth that is barred and/or
enjoined by paragraph 6(a) and 6(b).

7. HealthSouth and the Individual Settling Defendants are hereby
permanently BARRED, ENJOINED and RESTRAINED from commencing, prosecuting or
asserting any actions or claims against the Settling Insurers and the present
and former parents, subsidiaries, divisions, affiliates, predecessors,
successors, employees, officers, directors, attorneys, assigns, and agents of
each of them that are based upon, in consequence of, arise out of or relate in
any way, whether in whole or in part, to (i) the Insurance Policies, (ii) the
Coverage Litigation, (iii) the Underlying Litigation, (iv) the litigation,
defense, and settlement of the Coverage Litigation and the Underlying
Litigation, and/or (v) any of the facts, circumstances, and situations
underlying or alleged in the Coverage Litigation and the Underlying Litigation.

8. All Settling Insurers and the present and former parents,
subsidiaries, divisions, affiliates, predecessors, successors, employees,
officers, directors, attorneys, assigns, and agents of each of them are hereby
permanently BARRED, ENJOINED and RESTRAINED from commencing, prosecuting or
asserting any actions or claims against HealthSouth and/or the Individual
Settling Defendants that are based upon, in consequence of, arise out of or
relate in any way, whether in whole or in part, to (i) the Insurance Policies,
(ii) the Coverage Litigation, (iii) the Underlying Litigation, (iv) the
litigation, defense, and settlement of the Coverage Litigation and the
Underlying Litigation, and/or (v) any of the facts, circumstances, and
situations underlying or alleged in the Coverage Litigation and the Underlying
Litigation.

9. Barred Persons shall be entitled to a judgment credit (i.e., a
reduction to the total amount of the judgment for each claim entered in the
Action) in an amount that is the greater of: (i) that part of the Settlement
Amount paid by the settling parties and the Settling Insurers that is

allocated to claims for which contribution would otherwise be available; or (ii)
for each such claim, the proportionate share of the Individual Settling
Defendants' fault as determined at trial; or (iii) the value of any contribution
claim (whether contractual or otherwise), indemnification claim (whether
contractual or otherwise) or similar claim that the Court determines would have
been available but for this Settlement. The credit referred to herein is not
effective or applicable until final approval of this Settlement. Notwithstanding
any other provision in this Order, nothing shall operate to release or reduce
the judgment entered against Richard Scrushy based upon the claim of unjust
enrichment for approximately $47.8 million entered on January 3, 2006 in favor
of Wade Tucker, derivatively on behalf of HealthSouth.

10. Consistent with Paragraph 13 of the Stipulation and in accordance
with 10 Del. C. ss.6304(b) or any similar, comparable or equivalent provision of
law: the Released Parties are hereby permanently BARRED, ENJOINED and RESTRAINED
to the fullest extent permitted under applicable law from commencing,
prosecuting, or asserting any action, proceeding or claim against the Barred
Persons and/or HealthSouth involving, related to or arising out of the facts and
events that are the subject of the Released Claims, including but not limited to
claims for contribution (whether contractual or otherwise), indemnification
(whether contractual or otherwise) or similar claims; provided, however, that
nothing contained herein shall release, alter, change, limit, affect, dilute,
eliminate, or in any way, impair or undermine existing or future indemnification
and advancement rights, and/or existing or future indemnification and
advancement claims, if any, of the Individual Settling Defendants against
HealthSouth, whether arising out of any corporate governance provision,
Certificate of Incorporation, By-laws, as in

effect at any time, other corporate documents, indemnification agreements,
letter agreements, severance agreements, contract, law, or otherwise.

11. The Settling Insurers and the present and former parents,
subsidiaries, divisions, affiliates, predecessors, successors, employees,
officers, directors, attorneys, assigns, and agents of each of them are hereby
permanently BARRED, ENJOINED and RESTRAINED from commencing, prosecuting, or
asserting against the Barred Persons any and all manner of action or actions,
cause or causes of action, suits, debts, liens, contracts, agreements, promises,
liabilities, claims, rights, demands, damages, losses, costs, charges or
expenses, of any nature whatsoever, in law or in equity, known or unknown,
suspected or unsuspected, fixed or contingent, that are based upon, in
consequence of, arise out of or relate in any way, whether in whole or in part,
to (i) the Insurance Policies, (ii) the Coverage Litigation, (iii) the
Underlying Litigation, (iv) the litigation, defense, and settlement of the
Coverage Litigation and the Underlying Litigation, and/or (v) any of the facts,
circumstances, and situations underlying or alleged in the Coverage Litigation
and the Underlying Litigation.

12. In the event that (i) a judgment (net of any judgment credit
required under Paragraph 9 herein) is entered in this Action against any
Non-Settling Defendant, and (ii) a court determines that such Non-Settling
Defendant would have been entitled to coverage for such judgment under the
Insurance Policies but for the Stipulation, then such Non-Settling Defendant
shall have the judgment reduced by the amount of coverage, if any, such court
determines (based on jury findings as and if required by law) is payable on
behalf of such Non-Settling Defendant, but only to the extent such a reduction
has not already been made with respect to another

judgment. In connection with the judicial determination of insurance coverage
referred to in the preceding sentence, the Plaintiff shall have the right to
defend all claims of coverage asserted by any Non-Settling Defendant and to
assert all defenses to coverage that may have been available to the insurers,
and the Settling Insurers, HealthSouth and the Individual Settling Defendants
shall provide reasonable cooperation in the defense of all such claims. The
credit referred to herein is not effective or applicable until final approval of
this Settlement. Notwithstanding any other provision in this Order, nothing
shall operate to release or reduce the judgment entered against Richard Scrushy
based upon the claim of unjust enrichment for approximately $47.8 million
entered on January 3, 2006 in favor of Wade Tucker, derivatively on behalf of
HealthSouth.

13. The provisions in this bar order are reciprocal and in the event
that any person or entity asserts and is legally not barred by the bar order
from bringing any claim, action or actions, cause or causes of action, suits,
debts, liens, contracts, agreements, promises, liabilities, claims, rights,
demands, damages, losses, costs, charges or expenses falling within the scope of
this bar order (the "First Person") against any other person (the "Second
Person"), this bar order shall not bar, enjoin or restrain the Second Person
from asserting or bringing any claim, action or actions, cause or causes of
action, suits, debts, liens, contracts, agreements, promises, liabilities,
claims, rights, demands, damages, losses, costs, charges or expenses falling
within the scope of this bar order against the First Person.

14. With respect to any and all Released Claims against Released
Parties, Plaintiff and HealthSouth have hereby waived and relinquished, and all
other parties whose claims are

being released are hereby deemed to have waived and relinquished, to the fullest
extent permitted by law, the provisions, rights and benefits of Section 1542 of
the California Civil Code, which provides:

A general release does not extend to claims which the
creditor does not know or suspect to exist in his or her
favor at the time of executing the release, which if known
by him or her must have materially affected his or her
settlement with the debtor.

Also, with respect to any and all Released Claims against Released Parties,
Plaintiff and HealthSouth have hereby waived and relinquished, and all other
parties whose claims are being released are hereby deemed to have waived and
relinquished, to the fullest extent permitted by law, any and all provisions,
rights, and benefits conferred by the law of any state or territory of the
United States or any other jurisdiction, or principle of common law, which is
similar, comparable or equivalent to Cal. Civ. Code ss. 1542.

15. Nothing contained in the Settlement or this Order shall be
interpreted as satisfying or mitigating or discharging or reducing the judgment
entered against Richard Scrushy based upon the claim of unjust enrichment for
approximately $47.8 million entered on January 3, 2006 in favor of Wade Tucker,
derivatively on behalf of HealthSouth. Subject to the judgment credit and
insurance credit provisions of Paragraphs 9 and 12 herein, nothing in the
Settlement or this Order shall limit or otherwise inhibit continued maintenance
of the derivative claims against the Non-Settling Defendants by or on behalf of
HealthSouth (which is neither a Non-Settling Defendant, nor a Released Person,
nor a Barred Person under this Settlement).

16. Counsel for the Plaintiff is awarded attorneys' fees in the amount
of $________________ and reimbursement of expenses in the amount of
$__________________ which sums the Court finds to be fair and reasonable, to be
paid in accordance with the terms of the Stipulation.

17. Without affecting the finality of this Order and Partial Final
Judgment in any way, this Court reserves exclusive jurisdiction over all matters
relating to the administration and consummation of the Settlement.

18. Pursuant to A.R.C.P., Rule 54(b), this Court hereby certifies that
there is no just reason for delay and expressly directs entry of final judgment
forthwith as per the above.

------------------------------------
Allwin E. Horn, III, Circuit Judge

EXHIBIT E
---------

TO HEALTHSOUTH:

HealthSouth Corporation
One HealthSouth Parkway
Birmingham, AL 35243
Attention: General Counsel

with a copy to:

Julia Boaz Cooper
Bradley, Arant, Rose & White LLP
One Federal Place
1819 Fifth Avenue North
Birmingham, AL 35203

TO THE INDIVIDUAL SETTLING DEFENDANTS:

James P. Bennett:

James P. Bennett
3732 Shady Cove Drive
Vestavia Hills Al 35243

with a copy to:

James F. Henry
Johnston Barton Proctor and Powell LLP
2900 AmSouth/Harbert Plaza
Birmingham AL 35203

Anthony J. Tanner:

Anthony J. Tanner
2112 Swan Lake Cove
Birmingham, Alabama 35244

with a copy to:

Jackson R. Sharman III
Lightfoot, Franklin & White, LLC
The Clark Building
400 20th Street North
Birmingham, AL 35203-3200

Betsy Atkins, P. Daryl Brown, Richard F. Celeste, Raymond J. Dunn, III, Patrick
A. Foster, Brandon O. Hale, William W. Horton, Larry R. House, Jan L. Jones,
Russell H. Maddox, Kimberly McCracken, Randall Mink, Marca Pearson, Daniel J.
Riviere, Barbara Roper, Larry D. Taylor, Dennis Wade, and Phillip C. Watkins:

Peter Q. Bassett
Betsy P. Collins
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, GA 30309

James L. Goyer, III
Maynard, Cooper & Gale, P.C.

1901 Sixth Ave., North
2400 AmSouth/Harbert Plaza
Birmingham, Alabama 35203

Edwin M. Crawford:

Anthony C. Harlow
Starnes & Atchison LLP
100 Brookwood Place Seventh Floor
Birmingham, AL, 35209

C. Sage Givens, George H. Strong, Larry D. Striplin, Jr., Joel C. Gordon, John
S. Chamberlin or Charles W. Newhall, III:

J. Mark Hart, Esq.
J. MARK HART, P.C.
1400 Park Place Tower
2001 Park Place Tower
Birmingham, Alabama 35203

with a copy to

Michael J. Chepiga, Esq.
Paul C. Gluckow, Esq.
SIMPSON THACHER & BARTLETT LLP
425 Lexington Avenue
New York, New York 10017

TO THE SETTLING CARRIERS:

Federal Insurance Company and
Executive Risk Indemnity Inc.

Peter Bisio
Hogan & Hartson LLP
555 13th Street, NW
Washington, D.C. 20004
Phone: 202-637-5749
Fax: 202-637-5910
prbisio@hhlaw.com

Royal Indemnity Co. as successor in interest to Royal Insurance Company of
America

R. Douglas Noah, Jr.
Wilson Elser Moskowitz Edelman & Dicker
1201 Elm St., Suite 5000
Dallas, Texas 75270
214-698-8000(phone)
214-698-1101(fax)
douglas.noah@wilsonelser.com

Continental Casualty Company

Joseph G. Finnerty III
DLA Piper US LLP
1251 Avenue of the Americas
New York, New York 10020
Phone: (212) 335-4800
Fax: (212) 884-8660
joseph.finnertyiii@dlapiper.com

Great Lakes Reinsurance (UK) PLC

Ommid C. Farashahi
Bates & Carey LLP
191 North Wacker
Suite 2400
Chicago, IL 60606
Phone: (312) 762-3205
Fax: (312) 762-3200

ofarashahi@batescarey.com
Greenwich Insurance Company and
XL Specialty Insurance Company

Gary V. Dixon
Ross, Dixon & Bell, LLP
2001 K Street, NW
Washington, DC 20006
Phone: 202-662-2003
Fax: 202-662-2190
gdixon@rdblaw.com

Certain Underwriters at Lloyd's, who subscribed, severally and not jointly, to
Policy No. 823/FD9805714 and
Certain Underwriters at Lloyd's, who subscribed, severally and not jointly, to
Policy No. 823/FD9900985

William P. Bila
Walker Wilcox Matousek LLP
225 W. Washington, Suite 2400
Chicago, Illinois 60606
Phone: 312.244.6764
Fax: 312.244.6700
wbila@wwmlawyers.com

Certain Underwriters at Lloyd's, who subscribed, severally and not jointly, to
Policy Number 823.FD0100668

Robert McLaughlin
Fields Howell Athans & McLaughlin LLP
One Midtown Plaza
1360 Peachtree Street, Suite 800
Atlanta, Georgia
Phone: 404-214-1255
Fax: 404-214-1251
rmclaughlin@fieldshowell.com

Lumbermens Mutual Casualty Company

Stephen P. Davidson
DLA Piper US LLP
1251 Avenue of the Americas
New York, New York 10020
Phone: (212) 335-4656
Fax: (212) 884-8456
stephen.davidson@dlapiper.com

St. Paul Mercury Insurance Company

Michael Keeley
Strasburger & Price, LLP
901 Main Street, Suite 4400
Dallas, TX 75202
Phone: 214-651-4718
Fax: 214-659-4121
michael.keeley@strasburger.com

Starr Excess Liability
AIG Europe (UK) Limited as agents for New Hampshire Insurance Company

Edward G. Bowron
Bowron, Latta & Wasden, P.C.
Post Office Box 16046
Mobile, Al. 36616.

Twin City Fire Insurance Company

Michael R. Delhagen
Duane Morris LLP
380 Lexington Avenue
New York, NY 10168
Phone: 212-692-1085
Fax: 212-692-1020
mrdelhagen@duanemorris.com

Zurich American Insurance Company

David Gische
Ross Dixon & Bell, LLP
2001 K Street N.W.
Washington D.C. 20006-1040
202-662-2015
Fax 202-662-2190
dgische@rdblaw.com

Clarendon America Insurance Company and
2001 Lloyd's WNM Syndicate 250

Douglas M. Mangel
Drinker Biddle & Reath
1500 K Street, NW
Washington, D.C. 20005-1219
Fax: 202-842-8465
douglas.mangel@dbr.com

ACE American Insurance Company
c/o ACE USA
Attention: Kenneth D. Milbauer
140 Broadway, 40th Floor
New York, New York 10005

with a copy to:

Philip S. Kaufman, Esq.
Stephen M. Sinaiko, Esq.
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION

In re HEALTHSOUTH CORPORATION )
SECURITIES LITIGATION ) Consolidated Case No.
) CV-03-BE-1500-S
- ------------------------------------------- )
) CLASS ACTION
This Document Relates To: ) ------------
)
) [PROPOSED] PARTIAL FINAL
ALL ACTIONS. ) JUDGMENT AND ORDER OF DISMISSAL
) WITH PREJUDICE
- -------------------------------------------
EXHIBIT B

This matter came before the Court for hearing pursuant to the Order
Preliminarily Approving Settlement and Providing for Notice ("Order") dated
___________, 2006, on the application of the parties for approval of the
settlement set forth in the Stipulation of Settlement dated as of _________,
2006 (the "Stipulation"). Due and adequate notice having been given to the
Settlement Class as required in said Order, and the Court having considered all
papers filed and proceedings had herein and otherwise being fully informed in
the premises and good cause appearing therefore, IT IS HEREBY ORDERED, ADJUDGED
AND DECREED that:

1. This Judgment incorporates by reference the definitions in the
Stipulation, and all terms used herein shall have the same meanings as set forth
in the Stipulation, unless otherwise set forth herein.

2. This Court has jurisdiction over the subject matter of the Federal
Actions and over all parties to the Federal Actions, including all Members of
the Class.

3. "Bondholder Class" means all Persons who purchased or otherwise
acquired HealthSouth bonds, notes or other debt instruments during the period
between March 31, 1998 and March 18, 2003, inclusive, including all Persons who
purchased or otherwise acquired debt securities of HealthSouth pursuant or
traceable to the Integrated Public Offerings or in the secondary market.
Excluded from the Bondholder Class are the Defendants, members of the immediate
family of the Defendants, the directors, officers, subsidiaries and affiliates
of HealthSouth, any person, firm, trust, corporation, officer, director or other
individual or entity in which any Defendant has a controlling interest, and the
legal representatives, affiliates, heirs, successors-in-interest, or assigns of
any such excluded party. Also excluded from the Bondholder Class are those
Persons who timely and validly request exclusion from the Bondholder Class
pursuant to the Notice of Pendency and Proposed Settlement of Class Action.

4. "Stockholder Class" means all Persons who purchased or otherwise
acquired the stock or options of HealthSouth, including HealthSouth securities
received in exchange for the stock or options of certain other companies
acquired by HealthSouth between April 24, 1997 and March 18, 2003, inclusive.
Excluded from the Class are the Defendants, members of the immediate family of
the Defendants, the directors, officers, subsidiaries and affiliates of
HealthSouth, any person, firm, trust, corporation, officer, director or other
individual or entity in which any Defendant has a controlling interest, and the
legal representatives, affiliates, heirs, successors-in-interest, or assigns of
any such excluded party. Also excluded from the Stockholder Class are those
Persons who timely and validly request exclusion from the Stockholder Class
pursuant to the Notice of Pendency and Settlement of Class Action.

5. Pursuant to Federal Rule of Civil Procedure 23, this Court hereby
approves the settlement set forth in the Stipulation and finds that said
settlement is, in all respects, fair, reasonable and adequate to the Bondholder
Class and the Stockholder Class.

6. The Court hereby approves the Settlement set forth in the
Stipulation and finds that:

(a) said Stipulation is, in all respects, fair, reasonable and
adequate and in the best interest of the Stockholder Class and the Bondholder
Class;

(b) there was no collusion in connection with the Stipulation;

(d) the record is sufficiently developed and complete to have
enabled the Lead Plaintiffs and Settling Defendants to have adequately evaluated
and considered their positions.

7. Accordingly, the Court authorizes and directs implementation of all
the terms and provisions of the Stipulation, as well as the terms and provisions
hereof. The Court hereby dismisses, as to the Settling Defendants only, the
Federal Actions and all Released Claims of the

Bondholder Class and the Stockholder Class with prejudice, without costs as to
any Settling Party, except as and to the extent provided in the Stipulation and
herein.

8. Pursuant to Rule 23 of the Federal Rules of Civil Procedure, the
Court finds that the Stipulation and settlement are fair, reasonable and
adequate as to each of the Settling Parties, and that the Stipulation and
settlement are hereby finally approved in all respects, and the Settling Parties
are hereby directed to perform its terms. The shares of HealthSouth common stock
to be issued as part of the settlement consideration are to be issued solely in
exchange for bona fide outstanding claims; all parties to whom it is proposed to
issue such shares of common stock have had the right to appear at the hearing on
the fairness of the settlement; and the shares are therefore exempt from
registration under the Securities Act of 1933, 15 U.S.C. ss.77c(a)(10), as
amended, pursuant to ss.3(a)(10) thereunder.

9. The Insurance Settlement Agreement is approved as fair, reasonable,
and adequate and in the best interests of HealthSouth, and it was not illegal
for HealthSouth to agree to the indemnification obligations in Section 5 and the
advancement obligations in Section 6 of the Insurance Settlement Agreement. The
Insurance Settlement Agreement shall be consummated in accordance with the terms
and conditions of the Stipulation and the Insurance Settlement Agreement.

10. Upon the Effective Date hereof, the Lead Plaintiffs shall, and each
of the Bondholder and Stockholder Class Members shall be deemed to have, and by
operation of this Judgment shall have, fully, finally, and forever released,
relinquished and discharged all Released Claims against the Released Persons,
whether or not such Bondholder and Stockholder Class Member executes and
delivers the Proof of Claim and Release.

11. Upon the Effective Date hereto, each of the Settling Defendants
shall be deemed to have, and by operation of this Judgment shall have, fully,
finally, and forever released, relinquished

and discharged the Lead Plaintiffs, each and all of the Bondholder and
Stockholder Class Members and counsel to the Lead Plaintiffs from all claims
(including Unknown Claims) arising out of, relating to, or in connection with
the institution, prosecution, assertion, settlement or resolution of the Federal
Actions or the Released Claims.

12. Lead Plaintiffs, all members of the Bondholder and Stockholder
Classes, the successors and assigns of any of them and anyone claiming through
or on behalf of any of them, are hereby permanently BARRED, ENJOINED and
RESTRAINED from instituting, commencing or prosecuting in the Federal Actions or
any other action or proceeding any Released Claims against any of the Released
Parties. The Released Claims against each and all of the Released Parties shall
be released and dismissed with prejudice and on the merits. Nothing in this
paragraph shall release the Released Claims against the Released Parties of any
Person who submitted a timely, signed request for exclusion from the Bondholder
or Stockholder Class and did not submit a timely, signed request to revoke the
prior request for exclusion ("Opt-Out Plaintiffs").

13. The Non-Settling Defendants and all other persons, including but
not limited to any other person or entity later named as a defendant or
third-party in the Federal Actions, are hereby permanently BARRED, ENJOINED and
RESTRAINED from commencing, prosecuting, or asserting any claim for contribution
(whether contractual or otherwise) against the Released Parties or any other
claim against the Released Parties where the injury to such entity/individual is
any person's actual or threatened liability to the Lead Plaintiff, Named
Plaintiffs and other Class Members or any costs or expenses (including
attorneys' fees) incurred in connection with the Federal Actions; provided,
however, that the Bar Order stated in this paragraph shall not apply to claims
that may be asserted by any Opt-Out Plaintiff, or between and/or among any
defendants in cases brought by Opt-Out Plaintiffs (but only to the extent such a
claim between and/or among defendants is based upon the defendant's actual or
threatened liability solely to the Opt-Out

Plaintiffs or the costs and expenses incurred solely in connection with a claim
asserted by an Opt-Out Plaintiff). For purposes of this Bar Order, Barred
Persons shall be defined as any Person who is barred and/or enjoined by this P.
13.

14. The Non-Settling Defendants and all other persons, including but
not limited to any other person or entity later named as a defendant in the
Federal Actions, are hereby permanently BARRED, ENJOINED and RESTRAINED from
commencing, prosecuting, or asserting against the Settling Insurers and the
present and former parents, subsidiaries, divisions, affiliates, predecessors,
successors, employees, officers, directors, attorneys, assigns, and agents of
each of them any and all manner of action or actions, cause or causes of action,
suits, debts, liens, contracts, agreements, promises, liabilities, claims,
rights, demands, damages, losses, costs, charges or expenses, of any nature
whatsoever, in law or in equity, known or unknown, suspected or unsuspected,
fixed or contingent, that are based upon, in consequence of, arise out of or
relate in any way, whether in whole or in part, to (i) the Insurance Policies,
(ii) the Coverage Litigation, (iii) the Federal Actions, (iv) the litigation,
defense, and settlement of the Coverage Litigation and the Federal Actions,
and/or (v) any of the facts, circumstances, and situations underlying or alleged
in the Coverage Litigation and the Federal Actions.

15. All Settling Parties are hereby permanently BARRED, ENJOINED and
RESTRAINED from commencing, prosecuting or asserting any action or claims
against the Settling Insurers and the present and former parents, subsidiaries,
division, affiliates, predecessors, successors, employees, officers, directors,
attorneys, assigns, and agents of each of them that are based upon, in
consequence of, arise out of or relate in any way, whether in whole or in part,
to (i) the Insurance Policies, (ii) the Coverage Litigation, (iii) the Federal
Actions, (iv) the litigation, defense, and settlement of the Coverage Litigation
and the Federal Actions, and/or (v) any of the

facts, circumstances, and situations underlying or alleged in the Coverage
Litigation and the Federal Actions, but not as to Non-Settling Insurers.

16. All Settling Insurers and the present and former parents,
subsidiaries, divisions, affiliates, predecessors, successors, employees,
officers, directors, attorneys, assigns, and agents of each of them are hereby
permanently BARRED, ENJOINED and RESTRAINED from commencing, prosecuting or
asserting any action or claims against the Settling Parties that are based upon,
in consequence of, arise out of or relate in any way, whether in whole or in
part, to (i) the Insurance Policies, (ii) the Coverage Litigation, (iii) the
Federal Actions, (iv) the litigation, defense, and settlement of the Coverage
Litigation and the Federal Actions, and/or (v) any of the facts, circumstances,
and situations underlying or alleged in the Coverage Litigation and the Federal
Actions.

17. Barred Persons shall be entitled to a judgment credit (i.e., a
reduction to the total amount of the judgment for each claim entered in the
Action) in an amount that is the greater of: (i) that part of the Settlement
Amount paid by the Settling Parties and the Settling Insurers that is allocated
to claims for which contribution would be sought; or (ii) for each such claim,
the proportionate share of the Settling Defendants' fault as determined at
trial.

18. The Settling Defendants and Settling Insurers are hereby
permanently BARRED, ENJOINED and RESTRAINED from commencing, prosecuting, or
asserting any claim for contribution (whether contractual or otherwise) against
the Barred Persons or any other claim against the Barred Persons where the
injury to the Settling Defendant or the Settling Insurer is any person's actual
or threatened liability to the Lead Plaintiffs, Named Plaintiffs and other Class
Members or any costs or expenses (including attorneys' fees) incurred in
connection with the Federal Actions, provided, however, that the Bar Order
stated in this paragraph shall not apply to claims that may be asserted by the
Settling Defendants in any case brought by an Opt-Out Plaintiff (but only to the

extent such a claim by a Settling Defendant is based upon such Person's actual
or threatened liability solely to the Opt-Out Plaintiffs or the costs and
expenses incurred solely in connection with a claim asserted by an Opt-Out
Plaintiff); and provided further that nothing contained herein shall release,
alter, change, limit, affect, dilute, eliminate, or in any way, impair or
undermine existing or future indemnification and advancement rights, and/or
existing or future indemnification and advancement claims, if any, of the
Individual Settling Defendants against HealthSouth, whether arising out of any
corporation governance provisions, Certificate of Incorporation, By-laws, as in
effect at any time, other corporate documents, indemnity agreements, letter
agreements, severance agreements, contract, law, or otherwise.

19. The Settling Insurers and the present and former parents,
subsidiaries, divisions, affiliates, predecessors, successors, employees,
officers, directors, attorneys, assigns, and agents of each of them are hereby
permanently BARRED, ENJOINED and RESTRAINED from commencing, prosecuting, or
asserting against the Barred Persons any and all manner of action or actions,
causes of action, suits, debts, liens, contracts, agreements, promises,
liabilities, claims, rights, demands, damages, losses, costs, charges or
expenses, of any nature whatsoever, in law or in equity, known or unknown,
suspected or unsuspected, fixed or contingent, that are based upon, in
consequence of, arise out of or relate in any way, whether in whole or in part,
to (i) the Insurance Policies, (ii) the Coverage Litigation, (iii) the Federal
Actions, (iv) the litigation, defense, and settlement of the Coverage Litigation
and the Federal Actions, and/or (v) any of the facts, circumstances, and
situations underlying or alleged in the coverage Litigation and the Federal
Actions.

20. In the event that (i) a judgment (net of any judgment credit
required under the PSLRA or P. 17 herein) is entered in the Federal Actions
against any Non-Settling Defendant, and (ii) a court of competent jurisdiction
determines that such Non-Settling Defendant is entitled to coverage under the
Insurance Policies, then such Non-Settling Defendant shall have the overall
judgment reduced by

the amount of coverage, if any, such court determines (based on jury findings as
and if required by law) is payable on behalf of such Non-Settling Defendant. In
connection with the judicial determination of insurance coverage referred to in
the preceding sentence, the Federal Plaintiffs shall have the right to defend
all claims of coverage asserted by any Non-Settling Defendant, and to assert all
defenses to coverage that may have been available to the Settling Insurers, the
Settling Defendants shall cooperate as set out in P. 2.2(b) of the Stipulation
and the Settling Insurers shall provide reasonable cooperation in the defense of
all such claims.

21. The provisions in this bar order are reciprocal and in the event
that any person or entity asserts and is legally not barred by the bar order
from bringing any claim, action or actions, cause or causes of action, suits,
debts, liens, contracts, agreements, promises, liabilities, claims, rights,
demands, damages, losses, costs, charges or expenses falling within the scope of
this bar order (the "First Person") against any other person (the "Second
Person"), this bar order shall not bar, enjoin or restrain the Second Person
from asserting or bringing any claim, action or actions, cause or causes of
action, suits, debts, liens, contracts, agreements, promises, liabilities,
claims, rights, demands, damages, losses, costs, charges or expenses falling
within the scope of this bar order against the First Person.

22. The Notice of Pendency and Proposed Settlement of Class Action
given to the Bondholder and Stockholder Class was the best notice practicable
under the circumstances, including the individual notice to all Members of the
Bondholder and Stockholder Class who could be identified through reasonable
effort. Said notice provided the best notice practicable under the circumstances
of those proceedings and of the matters set forth therein, including the
proposed settlement set forth in the Stipulation, to all Persons entitled to
such notice, and said notice fully satisfied the requirements of Federal Rule of
Civil Procedure 23, ss.21D(a)(7) of the Securities

Exchange Act of 1934, 15 U.S.C. ss.78u-4(a)(7), as amended including by the
Private Securities Litigation Reform Act of 1995 and the requirements of due
process.

23. Any Plan of Allocation submitted by Lead Plaintiffs' Counsel or any
order entered regarding any attorneys' fee and expense application shall in no
way disturb or affect this Judgment and shall be considered separate from this
Judgment.

24. Neither the Stipulation nor the settlement contained therein, nor
any act performed or document executed pursuant to or in furtherance of the
Stipulation or the settlement: (a) is or may be deemed to be or may be used as
an admission of, or evidence of, the validity of any Released Claim, or of any
wrongdoing or liability of the Settling Defendants or their respective Related
Parties, or (b) is or may be deemed to be or may be used as an admission of, or
evidence of, any fault or omission of any of the Settling Defendants or their
respective Related Parties in any civil, criminal or administrative proceeding
in any court, administrative agency or other tribunal. Settling Defendants
and/or their respective Related Parties may file the Stipulation and/or the
Judgment from this action in any other action in which they are parties or that
may be brought against them in order to support a defense, claims or
counterclaim based on principles of res judicata, collateral estoppel, release,
good faith settlement, judgment bar or reduction or any theory of claim
preclusion or issue preclusion or similar defense or counterclaim.

25. Without affecting the finality of this Judgment in any way, this
Court hereby retains continuing jurisdiction over: (a) implementation of this
settlement and any award or distribution of the Settlement Fund, including
interest earned thereon; (b) disposition of the Settlement Fund; (c) hearing and
determining applications for attorneys' fees, interest and expenses in the
Federal Actions; (d) all parties hereto for the purpose of construing, enforcing
and administering the Stipulation; and (e) exclusive jurisdiction to enforce the
provisions of the Bar Orders in this Judgment.

26. The Court finds that during the course of the Federal Actions, the
Settling Parties and their respective counsel at all times complied with the
requirements of Federal Rule of Civil Procedure 11.

27. In the event that the settlement does not become effective in
accordance with the terms of the Stipulation, or the Effective Date does not
occur, or in the event that the Settlement Fund, or any portion thereof, is
returned to the Settling Defendants or the Settling Insurers, then this Judgment
shall be rendered null and void to the extent provided by and in accordance with
the Stipulation and shall be vacated and, in such event, all orders entered and
releases delivered in connection herewith shall be null and void to the extent
provided by and in accordance with the Stipulation.

28. Without further order of the Court, the Settling Parties may agree
to reasonable extensions of time to carry out any of the provisions of the
Stipulation.

29. There is no reason for delay in the entry of this Partial Final
Judgment and Order of Dismissal with Prejudice and immediate entry by the Clerk
of the Court is expressly directed pursuant to Rule 54(b) of the Federal Rules
of Civil Procedure.

IT IS SO ORDERED.

DATED:
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THE HONORABLE KARON OWEN BOWDRE
UNITED STATES DISTRICT JUDGE