Exhibit 10.3
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| Execution Copy |
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IN THE CIRCUIT COURT OF JEFFERSON COUNTY, ALABAMA
(HEALTHSOUTH CORPORATION 2002 DERIVATIVE LITIGATION)
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WADE TUCKER, derivatively on behalf )
of HealthSouth Corporation, )
)
Plaintiff, )
)
v. ) CIVIL ACTION NO: CV-02-5212
)
RICHARD M. SCRUSHY, et al., )
)
Defendants, )
)
and )
)
HEALTHSOUTH CORPORATION, )
)
Nominal Defendant. )
STIPULATION OF SETTLEMENT WITH CERTAIN INDIVIDUAL DEFENDANTS
Wade Tucker, derivatively on behalf of HealthSouth Corporation, and the
Wendell H. Cook Testamentary Trust, John P. Cook Trustee (the "Cook Trust"),
(collectively "Plaintiff"); HealthSouth Corporation ("HealthSouth"); and Patrick
A. Foster, Larry D. Taylor, C. Sage Givens, George H. Strong, Larry D. Striplin,
Jr., Joel C. Gordon, John S. Chamberlin, Charles W. Newhall, III, Phillip C.
Watkins, Richard F. Celeste, Edwin M. Crawford, Raymond J. Dunn, III, Larry R.
House, Jan L. Jones, Jon F. Hanson, Robert P. May, Lee S. Hillman, William W.
Horton, James P. Bennett, P. Daryl Brown, Anthony J. Tanner, Robert E. Thomson,
Gerald P. Scrushy, Thomas W. Carman, and Daniel J. Riviere (the "Individual
Settling Defendants")(1); by and through their respective attorneys, have
entered into this following Stipulation of Settlement
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(1) The following Individual Settling Defendants were not named as defendants in
this Action, but are parties to this Stipulation because they were named as
defendants in other related actions: Richard F. Celeste, Edwin M. Crawford,
Raymond J. Dunn, III, Larry R. House, Jan L. Jones, Jon F. Hanson, Robert P.
May, Lee S. Hillman, William W. Horton, James P. Bennett, P. Daryl Brown,
Anthony J. Tanner, Robert E. Thomson, and Thomas W. Carman.
(the "Stipulation") subject to the approval of the Alabama Circuit Court,
Jefferson County (the "Court")(2):
WHEREAS,
A. The above captioned action (the "Action") is a stockholder
derivative action seeking monetary recovery for HealthSouth against certain
present and former HealthSouth directors, officers, accountants, investment
bankers and certain others for, among other things, alleged wrongdoing in
connection with the falsification of HealthSouth's financial statements over a
period of many years.
B. Plaintiff filed the Original Complaint in this Action on August 28,
2002, a First Amended Complaint on November 15, 2002, a Second Amended Complaint
on March 21, 2003, a Third Amended Complaint on August 22, 2003, and a
Supplemental and Fourth Amended Complaint on March 25, 2004 (collectively, the
"Complaint").
C. The Complaint alleges, among other things, that the Individual
Settling Defendants breached their fiduciary duties to HealthSouth and engaged
in self-dealing and other alleged misconduct.
D. The Individual Settling Defendants filed motions to dismiss the
Complaint. Following briefing and argument, those motions were denied by the
Court.
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(2) The following persons are not parties to this settlement: Richard M.
Scrushy; any HealthSouth officers, directors, or employees who have agreed to
plead guilty or otherwise have been convicted of crimes in connection with
HealthSouth's former financial reporting activities, including but not limited
to 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 (together with Richard M. Scrushy, the "Non-Settling Individual
Defendants"); all defendants who were never directors, officers, or employees of
HealthSouth, including, without limitation, defendants Ernst & Young LLP, UBS
Securities LLC, Source Medical Solutions, Inc., Capstone Capital Corp.,
Medcenterdirect.com, and G.G. Enterprises (the "Non-Settling Defendant
Entities"), (the Non-Settling Individual Defendants and the Non-Settling
Defendant Entities are collectively the "Non-Settling Defendants").
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E. Following arm's-length negotiations, the parties have reached an
agreement pursuant to which the Individual Settling Defendants would be
dismissed from this Action and all other related derivative litigation
(including the litigation listed in Paragraph H(iii) below) with prejudice
(together, the "Derivative Actions") and released from all claims related to the
Derivative Actions for payment of $100,000,000 (One Hundred Million Dollars) to
HealthSouth by the Individual Settling Defendants' insurance carriers into an
escrow account designated by HealthSouth.
F. After conducting a legal and factual investigation, counsel for
Plaintiff in this Action have concluded that the terms and conditions of the
settlement (the "Settlement") provided for in this Stipulation are fair,
reasonable, adequate, and in the best interests of HealthSouth.
G. Plaintiff in this Action is entering into this Stipulation because
the Settlement provides substantial and direct monetary benefits to HealthSouth,
and Plaintiff and Plaintiff's counsel believe that the terms and conditions of
the Settlement are fair, reasonable, adequate and in the best interests of
HealthSouth and its stockholders.
H. The Settlement is being entered into in contemplation of and is
contingent upon the following:
i. The contemporaneous partial settlement of litigation captioned
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
Litigation") by HealthSouth and certain of its current and
former directors and officers and the Stockholder and
Bondholder Classes. HealthSouth intends to use the proceeds of
the Settlement of this Action, net of attorneys' fees, to
enable it to fund, in part, the settlement of the Federal
Securities Litigation. A substantial factor considered by
Plaintiff and Plaintiff's counsel in agreeing to the
Settlement was that the net proceeds of this Settlement would
fund, in part, the
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settlement of the Federal Securities Litigation pending
against various defendants, including HealthSouth.
ii. Subject to the judgment credit and insurance credit provisions
of Paragraphs 12 and 15 herein, nothing contained in or
referred to in this Stipulation will limit or otherwise
inhibit continued maintenance of 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). Notwithstanding
any other provision herein, 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.
iii. Contemporaneous dismissal of all claims with prejudice against
the Individual Settling Defendants in all other pending
derivative suits involving HealthSouth, including without
limitation (a) other derivative cases pending in this Court,
including but not limited to Dennis Family Trust v.
HealthSouth Corp., CV-98-6592 (Ala. Cir. Ct.); and (b) federal
consolidated derivative cases, including but not limited to In
re HealthSouth Corp. Derivative Litig., CV-02-BE-2565 (N.D.
Ala). The parties agree to jointly submit dismissal motions to
the said courts that specify that the requested dismissals
shall become effective contemporaneously with final settlement
and dismissal of claims with prejudice against the Individual
Settling Defendants in this Action. Further, the parties agree
to jointly move for dismissal with prejudice 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
(notwithstanding that further prosecution of such claims
against the Released Parties would be barred by this
Settlement, if Finally Approved, regardless).
iv. Contemporaneous dismissal of all claims with prejudice by and
against the Settling Insurers, HealthSouth, and the Individual
Settling Defendants in the Coverage Litigation.
I. The Individual Settling Defendants have vigorously denied, and
continue to deny, any wrongdoing or liability with respect to all claims, events
and transactions complained of in the Derivative Actions, deny that they engaged
in any wrongdoing, deny that they acted improperly in any way and deny liability
of any kind to HealthSouth. The Individual Settling
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Defendants are entering into this Stipulation solely because the Settlement will
(i) avoid the substantial burden, expense, distraction and inconvenience of
continued litigation of the claims asserted against them in the Derivative
Actions; and (ii) finally put to rest and terminate those claims.
J. The Plaintiff and HealthSouth desire to release all claims against
the Individual Settling Defendants, while continuing to pursue all claims
against the Non-Settling Defendants.
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED, by and among the
parties, subject to the approval of the Court pursuant to Alabama Rule of Civil
Procedure 23.1, that the claims asserted in this Action against the Individual
Settling Defendants are hereby compromised, settled, released, discharged and
dismissed with prejudice in accordance with the terms and conditions set forth
below.
THE SETTLEMENT
1. Payment of $100,000,000 (One Hundred Million Dollars) ("the
"Settlement Amount") to HealthSouth shall be made by certain of the Individual
Settling Defendants' insurance carriers who issued the Insurance Policies (the
"Settling Insurers") into an escrow account designated by HealthSouth.
2. "Released Claims" are 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
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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
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.
3. "Released Parties" are the Individual Settling Defendants or their
respective family members, heirs, executors, administrators, successors,
assigns, present and former
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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. Notwithstanding the generality of the foregoing, the "Released Parties"
shall in no event be deemed to include any of (i) the Non-Settling Defendants,
or (ii) the 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).
4. "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").
4.1 "Non-Settling Insurers" shall mean Houston Casualty Insurance and
Axis Specialty Insurance.
5. "Coverage Litigation" shall have the meaning given to that term in
the Insurance Settlement Agreement.
6. "Underlying Litigation" shall have the meaning given to that term in
the Insurance Settlement Agreement.
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7. In consideration for the terms and conditions of the Stipulation,
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, shall be 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.
8. This release is given pursuant to Alabama law and is to be construed
under Alabama law, which, as the parties acknowledge, currently bars claims for
contribution by joint tortfeasors, and other similar claims. It is the intent of
the parties hereto to protect the Released Parties against any claims for
contribution, indemnification or similar claims, arising out of or related to,
in any way, the Released Claims. Should the law of Alabama or any other
jurisdiction be construed or deemed to apply and construed to allow claims for
contribution, indemnification or similar claims against the Released Parties, it
is the intent of the parties hereto to provide the Released Parties with the
fullest protection possible against claims or potential claims for contribution,
indemnification, or similar claims, including specifically, but not limited to
10 Del. C. ss.6304(b) or any similar, comparable or equivalent provision of law.
9. In consideration for the terms and conditions 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, shall be 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
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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, shall be 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) "Barred Person" shall be defined as any person or entity other
than HealthSouth that is barred and/or enjoined by paragraph 9(a)
and 9(b).
10. HealthSouth and the Individual Settling Defendants shall be
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.
11. 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 shall be
permanently barred, enjoined and restrained from commencing,
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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.
12. 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 or indemnification 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 herein, 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. In consideration for the terms and conditions 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 shall be 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
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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.
14. 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 shall be
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.
15. In the event that (i) a judgment (net of any judgment credit
required under Paragraph 12 herein) is entered in this Action against any
Non-Settling Defendant, and (ii) a court
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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 herein, 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.
16. The bar provisions contemplated herein 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"), the 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 the bar order against the First Person.
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17. Nothing contained in this Stipulation 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.
18. Subject to the judgment credit and insurance credit provisions of
Paragraphs 12 and 15 herein, nothing referred to in this Settlement will prevent
the 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),
nor shall this Stipulation or any of the agreements to which it refers be
interpreted as satisfying or mitigating or discharging or reducing existing
derivative judgments against any of the Non-Settling Defendants. As a condition
to any future settlement of this Action as to any Non-Settling Defendant, such
Non-Settling Defendant shall agree to release and forever discharge the Settling
Insurers and the Individual Settling Defendants from the Released Claims.
Nothing in this Agreement shall be construed to prevent a party thereto from
seeking to enforce the Agreement. To the extent there is any conflict between
the terms of this Agreement and the form of Order and Partial Final Judgment
attached hereto as Exhibit C, the latter shall govern.
SUBMISSION AND APPLICATION TO COURT
19. As soon as practicable after the execution of the Stipulation, the
parties hereto shall jointly apply to the Court for an order that contains each
of the terms and conditions set out in the form attached hereto as Exhibit A
(the "Scheduling Order").
NOTICE TO STOCKHOLDERS
20. HealthSouth shall, at its expense, mail to current HealthSouth
stockholders the Notice of Proposed Settlement of Derivative Action,
substantially in the form attached hereto as Exhibit B (the "Notice"), as set
forth in the Scheduling Order.
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ORDER AND PARTIAL FINAL JUDGMENT
21. If the Settlement (including any modification thereto made with the
consent of the parties as provided for herein) is approved by the Court, the
parties shall promptly request the Court to enter an Order and Partial Final
Judgment that contains each of the terms and conditions set out in the form
attached hereto as Exhibit C, implementing the Settlement and awarding
attorneys' fees.
22. The Court's determination to enter such Order and Partial Final
Judgment containing each of the terms and conditions set out in the form
attached hereto as Exhibit C shall constitute final approval of the Settlement
("Final Approval" or "Finally Approved") for purposes of this Stipulation.
FINALITY OF SETTLEMENT
23. The Settlement shall be considered final ("Final") for purposes of
this Stipulation subsequent to entry of the Order and Partial Final Judgment
approving the Settlement only upon the expiration of any applicable appeal
period for the appeal of the Order and Partial Final Judgment without an appeal
having been filed or, if an appeal is taken, upon entry of an order affirming
the Order and Partial Final Judgment appealed from (or dismissing the appeal)
and the expiration of any applicable period for the reconsideration, rehearing
or appeal of such affirmance (or dismissal) without any motion for
reconsideration or rehearing or further appeal having been filed. An appeal only
with respect to the award of attorneys' fees and expenses shall not affect the
finality of the Settlement.
RIGHT TO WITHDRAW FROM THE
SETTLEMENT / TERMINATION OF THE SETTLEMENT
24. Each of the parties shall have the option to withdraw from and
terminate this Settlement in the event that (i) either the Scheduling Order or
the Order and Partial Final
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Judgment referred to above is not entered with each of the terms and conditions
set out in the forms attached hereto, or in such form as may be ordered by the
Court with the consent of the parties, or (ii) the Settlement is materially
modified on appeal.
25. In the event the Settlement proposed herein is not Finally Approved
by the Court, or the Court approves the Settlement but such approval is reversed
or vacated on appeal, reconsideration or otherwise and such order reversing or
vacating the Settlement becomes final by lapse of time or otherwise, or if any
of the conditions to such Settlement (including, but not limited to the
contingencies identified in paragraphs H(i), (ii), (iii), and (iv) above) are
not fulfilled or if the Settlement is terminated pursuant to P. 24 above, then
the Settlement proposed herein shall be of no further force and effect, and this
Stipulation and all negotiations, proceedings and statements relating thereto
and any amendment thereof shall be null and void and without prejudice to any
party hereto, and each party shall be restored to his, her or its respective
position as it existed prior to the execution of this Stipulation.
26. In order to exercise the option to withdraw from and terminate this
Settlement, a party must provide, within twenty (20) days of the event giving
rise to such option, written notice of such withdrawal and the grounds therefore
to all signatories to this Stipulation.
DEFENDANTS' DENIAL OF LIABILITY
27. The Individual Settling Defendants specifically disclaim any
liability whatsoever relating to any of the Released Claims, expressly deny
having engaged in any wrongful or illegal activity, or having violated any law
or regulation or duty, expressly deny that any person or entity has suffered any
harm or damages as a result of the Released Claims, and are making this
Settlement solely to avoid the distraction, burden and expense occasioned by
continued litigation. The Court has made no finding that the Individual Settling
Defendants or any of the Released Parties engaged in any wrongdoing or wrongful
conduct or otherwise acted improperly or in
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violation of any law or regulation or duty in any respect. The Individual
Settling Defendants believe they have acted with the utmost care, good faith,
candor and honesty, and have at all times acted loyally and in the best
interests of HealthSouth. Without conceding any infirmity in their defenses
against the Released Claims, the Individual Settling Defendants are agreeing to
the Settlement solely to avoid the substantial burden, expense, distraction and
inconvenience of continued litigation.
ATTORNEYS' FEES AND EXPENSES
28. Counsel for the Plaintiff in this Action shall have a contractual
right to recover from HealthSouth, and HealthSouth shall have an obligation to
pay said counsel, reasonable attorneys' fees and costs in connection with the
claims against the Individual Settling Defendants in an amount to be determined
by the Court. The Plaintiff's counsel intend to apply for an award of attorneys'
fees of not more than 30% of the Settlement Amount, plus reimbursement of
reasonable out-of-pocket expenses in the form of a fee petition presented to the
Court, to which HealthSouth shall be free to object under applicable precedents.
Nothing in this paragraph shall constitute any admission or concession in any
respect by any party as to the manner of computation of the fee, except that the
fee shall be calculated in the same manner as if the Settlement Amount had been
deposited into the Court for and on behalf of HealthSouth and as if the fee to
be awarded were to be paid out of such amount so deposited.
29. In the event the Settlement becomes Final, HealthSouth agrees that
it will make payment of such fees and expenses that are awarded by the Court in
this Action to the firm of Prickett, Jones & Elliott, P.A. as distributing agent
for Plaintiff's counsel by wire transfer within 5 business days after the
Settlement becomes Final. The fairness, reasonableness and adequacy of the
Settlement may be considered and ruled upon by the Court independently of any
award of attorneys' fees and reimbursement of expenses. No order of the Court or
modification or
16
reversal on appeal of any order of the Court concerning the amount of any
attorneys' fees, costs and expenses awarded by the Court shall constitute
grounds for cancellation or termination of this Stipulation.
RELEASE OF UNKNOWN CLAIMS
30. With respect to any and all Released Claims against Released
Parties, the parties stipulate and agree that, upon the date when this
Settlement becomes Final, the Plaintiff and HealthSouth shall have waived and
relinquished, and all other parties whose claims are being released shall be
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 settlement with the debtor.
Also, with respect to any and all Released Claims against Released Parties,
Plaintiff and HealthSouth shall have waived and relinquished, and all other
parties whose claims are being released shall be 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. Plaintiff and
HealthSouth may hereafter discover facts in addition to or different from those
which they now know or believe to be true with respect to the subject matter of
the Released Claims, which if known, might have affected the decision to enter
into this Stipulation, but hereby stipulate and agree that on the date when this
Settlement becomes Final, they do, fully, finally and forever settle and release
any and all Released Claims against Released Parties, without regard to
subsequent discovery or existence of such different or additional facts.
Plaintiff and HealthSouth acknowledge that the inclusion of unknown claims
17
in the definition of Released Claims was separately bargained for and was a key
element of the Settlement of which the releases are a part.
AUTHORITY
31. Each of the attorneys executing the Stipulation on behalf of one of
the parties hereto warrants and represents that he or she has been duly
authorized and empowered to execute this Stipulation on behalf of his or her
respective client.
STIPULATION NOT AN ADMISSION
32. The provisions contained in the Stipulation and all negotiations,
statements and proceedings in connection therewith shall not be deemed a
presumption, a concession or an admission by the Individual Settling Defendants
or any Released Person of any fault, liability or wrongdoing as to any fact or
claim alleged or asserted in the Derivative Actions or any other actions or
proceedings and shall not be interpreted, construed, deemed, invoked, offered or
received in evidence or otherwise used by the Plaintiff, HealthSouth, or any
other person in these or any other actions or proceedings, whether civil,
criminal or administrative, except in a proceeding to enforce the terms or
conditions of this Stipulation.
33. This Stipulation, together with any exhibits, shall be deemed to
have been mutually prepared by the settling parties and shall not be construed
against any of them by reason of authorship.
COUNTERPARTS
34. This Stipulation may be executed in any number of actual,
telecopied or emailed counterparts, each of which when so executed and delivered
shall be an original. The executed signature page(s) from each actual or
telecopied counterpart may be joined together and attached to one such original
and shall constitute one and the same instrument.
18
WAIVER
35. The waiver by any party of any breach of this Stipulation shall not
be deemed or construed as a waiver of any other breach, whether prior,
subsequent, or contemporaneous, of this Stipulation.
AMENDMENTS
36. This Stipulation may not be amended, or any of its provisions
waived, except by a writing executed by all of the parties hereto. The parties
may agree, without further order of the Court, to reasonable extensions of time
to carry out any of the provisions of this Stipulation.
37. This Stipulation, upon becoming operative, shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
assigns, heirs, executors and administrators and upon any corporation,
partnership or other entity into or with which any party may merge or
consolidate.
38. All of the exhibits hereto are incorporated herein by reference
as if set forth herein verbatim, and the terms of all exhibits are expressly
made part of this Stipulation.
GOVERNING LAW; FORUM
39. This Stipulation shall be construed and enforced in accordance with
the laws of the State of Alabama, without regard to conflict of law principles.
40. In the event of any dispute or disagreement with respect to the
meaning, effect or interpretation of the Stipulation or an attached exhibit or
in the event of a claimed breach of the Stipulation or an attached exhibit, the
parties hereto agree that such dispute shall be adjudicated only in this Court.
The Court shall retain jurisdiction for purposes, among other things, of
administering the Settlement and resolving any disputes hereunder without
affecting the finality of the Settlement.
19
BEST EFFORTS
41. The parties hereto and their attorneys agree to cooperate fully
with one another in seeking the Court's approval of this Stipulation and the
Settlement and to use their best efforts to effect the prompt Final Approval of
this Stipulation and the Settlement.
42. If any claims which are or would be subject to the release and
dismissal contemplated by the Settlement are asserted against any person in any
court prior to or following Final Approval of the Settlement, the Plaintiff
shall join, where possible, in any motion to dismiss or stay such proceedings
and shall otherwise use best efforts to effect a withdrawal or dismissal of the
claims.
NON-ASSIGNMENT OF CLAIMS
43. Plaintiff in this Action and Plaintiff's counsel represent and
warrant that none of the Plaintiff's claims or causes of action in this Action
has been assigned, encumbered or in any manner transferred in whole or in part.
COMPLETE AND ENTIRE AGREEMENT
44. Except as provided through the payment of the Settlement Amount by
the Settling Insurers, the Individual Settling Defendants shall bear no
expenses, costs, damages or fees incurred by the Plaintiff, HealthSouth, or
their respective attorneys, experts, advisors, agents or representatives.
45. This Stipulation constitutes the entire agreement among the parties
with respect to its subject matter and supersedes any prior oral or written
agreements or understandings with respect thereto; 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
20
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.
NOTICES
46. All notices required or permitted under or pertaining to this
Settlement 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 D until a
different address has been designated by notice to the other parties.
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
21
IN WITNESS WHEREOF, the parties have caused this Stipulation to be executed by
their duly-authorized attorneys this 25th day of September, 2006.
GALLOWAY & SOMERVILLE, LLC
By: /s/ John Q. Somerville
---------------------------------
John Q. Somerville, Esq.
11 Oak Street
Birmingham, Alabama 35213
-and-
HARE WYNN NEWTON & NEWELL LLP
John W. Haley, Esq.
The Historic Massey Building
2025 Third Avenue North, Suite 800
Birmingham, Alabama 35203
Attorneys for Derivative Plaintiffs Wade Tucker and Wendell H. Cook
Testamentary Trust (John P. Cook, Trustee), for and on behalf of
HealthSouth Corporation
HEALTHSOUTH CORPORATION
By: /s/ John Whittington
---------------------------------
John Whittington, Esq.
Executive Vice President, Interim General Counsel, and Secretary
One HealthSouth Parkway
Birmingham, Alabama 35243
STARNES & ATCHISON LLP
By: /s/ Anthony C. Harlow
---------------------------------
Anthony C. Harlow, Esq.
100 Brookwood Place, Seventh Floor
Birmingham, Alabama 35209
Attorneys for Edwin M. Crawford
J. MARK HART, P.C.
By: /s/ J. Mark Hart
---------------------------------
J. Mark Hart, Esq.
1400 Park Place Tower
2001 Park Place Tower
Birmingham, Alabama 35203
-and-
CADWALADER, WICKERSHAM & TAFT LLP
Martin L. Seidel, Esq.
One World Financial Center
New York, New York 10281
Attorneys for Jon F. Hanson, Robert P. May and Lee S. Hillman
MAYNARD COOPER & GALE, P.C.
By: /s/ N. Lee Cooper
---------------------------------
N. Lee Cooper, Esq.
1901 Sixth Avenue, North
2400 AmSouth / Harbert Plaza
Birmingham, Alabama 35203
-and-
ALSTON & BIRD LLP
Peter Q. Bassett, Esq.
Betsy P. Collins, Esq.
1201 West Peachtree Street
Atlanta, Georgia 30309
Attorneys for Patrick A. Foster, Larry D. Taylor, Phillip C. Watkins,
Richard F. Celeste, Raymond J. Dunn, III, Larry R. House, Jan L. Jones,
William W. Horton, P. Daryl Brown and Daniel J. Riviere
J. MARK HART, P.C.
By: /s/ J. Mark Hart
---------------------------------
J. Mark Hart, Esq.
1400 Park Place Tower
2001 Park Place Tower
Birmingham, Alabama 35203
-and-
SIMPSON THACHER & BARTLETT LLP
Michael J. Chepiga, Esq.
Paul C. Gluckow, Esq.
425 Lexington Avenue
New York, New York 10017
Attorneys for C. Sage Givens, George H. Strong, Larry D. Striplin, Jr.,
Joel C. Gordon, John S. Chamberlin and Charles W. Newhall, III
JOHNSTON BARTON PROCTOR & POWELL LLP
By: /s/ Don B. Long, Jr. (by GEN with express permission)
------------------------------------------------------------
Don B. Long, Jr., Esq.
James F. Henry, Esq.
2900 AmSouth / Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
Attorneys for James P. Bennett
FAWAL & SPINA
By: /s/ Joseph A. Fawal
---------------------------------
Joseph A. Fawal, Esq.
1330 21st Way South, Suite 200
Birmingham, Alabama 35205
Attorneys for Thomas W. Carman
LIGHTFOOT, FRANKLIN & WHITE, L.L.C.
By: /s/ Jackson R. Sharman III
---------------------------------
Jackson R. Sharman III, Esq.
James F. Hughey III, Esq.
The Clark Building
400 20th Street North
Birmingham, Alabama 35203
Attorneys for Anthony J. Tanner
CHRISTIAN SMALL LLP
By /s/ Maxwell H. Pulliam
---------------------------------
Maxwell H. Pulliam, Esq.
1800 Financial Center
505 North 20th Street
Birmingham, Alabama 35203
Attorneys for Robert E. Thomson
ELLIS & BLOOM
By: /s/ Thomas E. Ellis
---------------------------------
Thomas E. Ellis, Esq.
300 Office Park Drive, Suite 309
Birmingham, Alabama 35223
Attorneys for Gerald P. Scrushy
EXHIBIT A
IN THE CIRCUIT COURT OF JEFFERSON COUNTY, ALABAMA
(HEALTHSOUTH CORPORATION 2002 DERIVATIVE LITIGATION)
----------------------------------------------------
WADE TUCKER, derivatively on behalf )
of HealthSouth Corporation, )
)
Plaintiff, )
)
v. ) CIVIL ACTION NO: CV-02-5212
)
RICHARD M. SCRUSHY, et al., )
)
Defendants, )
)
and )
)
HEALTHSOUTH CORPORATION, )
)
Nominal Defendant. )
SCHEDULING ORDER
Wade Tucker, derivatively on behalf of HealthSouth Corporation, and the
Wendell H. Cook Testamentary Trust, John P. Cook Trustee (the "Cook Trust"),
(collectively "Plaintiff"), HealthSouth Corporation ("HealthSouth"), and Patrick
A. Foster, Larry D. Taylor, C. Sage Givens, George H. Strong, Larry D. Striplin,
Jr., Joel C. Gordon, John S. Chamberlin, Charles W. Newhall, III, Phillip C.
Watkins, Richard F. Celeste, Edwin M. Crawford, Raymond J. Dunn, III, Larry R.
House, Jan L. Jones, Jon F. Hanson, Robert P. May, William W. Horton, James P.
Bennett, P. Daryl Brown, Anthony J. Tanner, Robert E. Thomson, Gerald P.
Scrushy, Thomas W. Carman, and Daniel J. Riviere (the "Individual Settling
Defendants"), having applied pursuant to Alabama Rule of Civil Procedure 23.1
for an Order to approve the proposed settlement of this action (the "Action") in
accordance with the Stipulation of Settlement with Certain Individual Defendants
entered into by the parties, dated as of September 25, 2006 (the "Stipulation"),
and for the dismissal of the Individual Settling Defendants from this Action
with
prejudice upon the terms and conditions set forth in the Stipulation (the
"Settlement"), and the Court having read and considered the Stipulation and
accompanying documents, including the Insurance Settlement Agreement, and all
parties having consented to the entry of this Order,
NOW, this _____ day of _____________, 2006, upon application of
Plaintiff, HealthSouth, and the Individual Settling Defendants,
IT IS HEREBY ORDERED as follows:
1. The Court adopts and incorporates the definitions in the Stipulation
for purposes of this Order.
2. The Settlement and the Insurance Settlement Agreement are
preliminarily 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.
3. A hearing shall be held on ____________________, 2006, at _______
___.m, in the Alabama Circuit Court, Jefferson County, 716 North Richard
Arrington Jr. Blvd., Room 350, Birmingham, Alabama (the "Settlement Hearing") to
determine the fairness, reasonableness and adequacy of the Stipulation and the
Settlement, whether the Stipulation and the Settlement should be approved by the
Court and judgment entered thereon, and to hear and determine any objections to
the Settlement. At the Settlement Hearing, Plaintiff's counsel may apply for an
award of attorneys' fees and expenses as set forth in the Stipulation, which
application shall be heard by the Court at the Settlement Hearing or at such
time thereafter as the Court in its discretion deems appropriate. Plaintiff
shall submit his brief in support of the Settlement and fee petition seven (7)
days prior to the Settlement Hearing.
2
4. The Court reserves the right to adjourn the Settlement Hearing,
including consideration of the application for attorneys' fees and costs,
without further notice other than by announcement at the Settlement Hearing or
any adjournment thereof.
5. The Court reserves the right to approve the Settlement at or after
the Settlement Hearing with such modifications as may be consented to by the
parties to the Stipulation and without further notice.
6. Not less than forty-five (45) days prior to the date of the
Settlement Hearing, HealthSouth shall mail to its stockholders of record, by
first class mail, postage prepaid, the Notice substantially in the form attached
to the Stipulation as Exhibit B. Furthermore, HealthSouth shall use reasonable
efforts to mail additional copies of the Notice to any record holder requesting
the Notice for the purpose of distribution to any beneficial owners of
HealthSouth stock.
7. The form and method of notice specified herein is the best notice
practicable and constitute due and sufficient notice of the Settlement Hearing
to all persons entitled to receive such notice in this Action and in all other
derivative cases pending in the Circuit Court of Jefferson County, Alabama,
including but not limited to Dennis Family Trust v. HealthSouth Corp.,
CV-98-6592 (Ala. Cir. Ct.), and fully satisfies the requirements of due process,
Rule 23.1 of the Rules of this Court and applicable law. HealthSouth shall, on
or before the date of the Settlement Hearing directed herein, file proof of
mailing of the Notice.
8. Any HealthSouth stockholder with standing to assert the derivative
claims asserted in this Action or any other derivative action filed on behalf of
HealthSouth who objects to the Stipulation, the Settlement, the Order and
Partial Final Judgment and/or the application for attorneys' fees and expenses,
or who otherwise wishes to be heard, may appear in person or by
3
his attorney at the Settlement Hearing and present any evidence or argument that
may be proper and relevant; provided however, that no person other than
Plaintiff or his counsel shall be heard, and no papers, briefs, pleadings or
other documents submitted by any such person shall be received and considered by
the Court (unless the Court in its discretion shall thereafter otherwise direct,
upon application of such person and for good cause shown), unless no later than
ten (10) days prior to the Settlement Hearing directed herein, (i) written
notice of the intention to appear; (ii) a detailed statement of such person's
objections to any matter before the Court; and (iii) the grounds therefore or
the reasons why such person desires to appear and to be heard, as well as all
documents and writings which such person desires the Court to consider, shall be
filed by such person with the Alabama Circuit Court, Jefferson County Clerk and,
on or before such filing, shall be served by hand or any mode of delivery
providing proof of delivery on the following counsel of record:
John W. Haley, Esquire
Hare, Wynn, Newell & Newton
2025 Third Avenue North, Suite 800
Birmingham, Alabama 35203
John Q. Somerville, Esquire
Galloway & Somerville, LLC
11 Oak Street
Birmingham, Alabama 35213
J. Mark Hart, Esquire
J. Mark Hart, P.C.
1400 Park Place Tower
2001 Park Place North
Birmingham, Alabama 35203
Patrick C. Cooper, Esquire
Maynard, Cooper & Gale, P.C.
1901 Sixth Avenue North, Suite 2400
Birmingham, Alabama 35203
4
9. Any person who fails to object in the manner prescribed above shall
be deemed to have waived such objection and shall be forever barred from raising
such objection in this Action or any other action or proceeding.
10. Pending final determination of whether the Stipulation should be
approved, Plaintiff's counsel, Plaintiff, HealthSouth, any stockholder of
HealthSouth, and any Barred Person (as defined in the Stipulation) are barred
and enjoined from commencing or prosecuting any action asserting any Released
Claims (as defined in the Stipulation) against any Released Parties (as defined
in the Stipulation).
11. If the Settlement provided for in the Stipulation shall be approved
by the Court following the Settlement Hearing, an Order and Partial Final
Judgment shall be entered as described in the Stipulation.
12. If the Stipulation is not approved by the Court or is terminated or
shall not become effective for any reason whatsoever, the claims in this Action
against the Individual Settling Defendants shall proceed, completely without
prejudice to any party as to any matter of law or fact, as if the Stipulation
had not been made and had not been submitted to the Court, and neither the
Stipulation nor any provision contained in the Stipulation nor any action
undertaken pursuant thereto nor the negotiation thereof by any party shall be
deemed an admission or offered or received in evidence at any proceeding in this
Action or any other action or proceeding.
-----------------------------------
Allwin E. Horn, III, Circuit Judge
5
EXHIBIT B
IN THE CIRCUIT COURT OF JEFFERSON COUNTY, ALABAMA
(HEALTHSOUTH CORPORATION 2002 DERIVATIVE LITIGATION)
----------------------------------------------------
WADE TUCKER, derivatively on behalf )
of HealthSouth Corporation, )
)
Plaintiff, )
)
v. ) CIVIL ACTION NO: CV-02-5212
)
RICHARD M. SCRUSHY, et al., )
)
Defendants, )
)
and )
)
HEALTHSOUTH CORPORATION, )
)
Nominal Defendant. )
NOTICE OF PROPOSED PARTIAL SETTLEMENT
OF DERIVATIVE ACTION
TO: All current record and beneficial stockholders of HealthSouth
Corporation
PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS WILL
BE AFFECTED BY THE LEGAL PROCEEDINGS IN THIS LITIGATION. IF YOU ARE NOT
A BENEFICIAL HOLDER OF ANY HEALTHSOUTH CORPORATION COMMON STOCK, BUT
HOLD SUCH STOCK FOR A BENEFICIAL HOLDER, PLEASE TRANSMIT THIS DOCUMENT
TO SUCH BENEFICIAL HOLDER.
This notice relates to a lawsuit brought derivatively on behalf of
HealthSouth Corporation ("HealthSouth"), and is given pursuant to Rule 23.1 of
the Rules of the Circuit Court of Jefferson County Alabama (the "Court") and an
order entered by the Court in the above-captioned action (the "Action").
SETTLEMENT HEARING
Stockholders of HealthSouth are hereby notified that the Court will
hold a hearing in the Alabama Circuit Court, Jefferson County, 716 North Richard
Arrington Jr. Blvd., Room 350,
Birmingham, Alabama on ______________, 2006 at ____.m. (the "Settlement
Hearing"). At the Settlement Hearing, the Court will determine whether or not
(i) to approve a proposed settlement of certain claims in this Action (the
"Settlement") as memorialized in a Stipulation of Settlement with Certain
Individual Defendants in this Action (the "Stipulation"); (ii) to approve an
Order ending a portion of this Action and barring further lawsuits over the
claims made or which could have been made against certain individual defendants
in this Action; (iii) to award attorneys' fees and expenses to counsel for
Plaintiff in this Action pursuant to the application described below; and (iv)
to approve a Settlement Agreement and Policy Release between HealthSouth,
Certain Individual Settling Defendants and the Settling Insurers ("Insurance
Settlement Agreement").
The Court has reserved the right to adjourn the Settlement Hearing,
including consideration of the application for attorneys' fees and expenses, by
oral announcement at such hearing or adjournment thereof, and without further
notice of any kind. The Court also has reserved the right to approve the
Settlement, with or without modifications, to enter its final judgment
dismissing this Action as to certain defendants with prejudice and on the
merits, and to order the payment of attorneys' fees and expenses, without
further notice of any kind.
If the Settlement is approved, all pending claims against the
Individual Settling Defendants (who are listed below) in all derivative
litigation involving HealthSouth will be dismissed with prejudice. The cases
that will be dismissed with prejudice as to the Individual Settling Defendants
include (a) other derivative cases pending in the Circuit Court of Jefferson
County, Alabama, including but not limited to Dennis Family Trust v. HealthSouth
Corp., CV-98-6592 (Ala. Cir. Ct.); and (b) federal consolidated derivative
cases, including but not limited to In re HealthSouth Corp. Derivative Litig.,
CV-02-BE-2565 (N.D. Ala). Additionally, the parties will jointly move to make
the previously-entered dismissal in Teachers' Retirement System of
2
Louisiana v. Scrushy, et al., C.A. No. 20529 (Del. Ch.), a dismissal with
prejudice as to the Individual Settling Defendants, notwithstanding that further
prosecution of such claims against the Released Parties would be barred by this
Settlement, if Finally Approved, regardless.
SUMMARY OF SETTLEMENT
This is a stockholder derivative action seeking monetary recovery for
HealthSouth against certain present and former HealthSouth directors, officers,
accountants, investment bankers and certain others for, among other things,
alleged wrongdoing in connection with the falsification of the Company's
financial statements over a period of many years.
The Plaintiff and HealthSouth have agreed to settle the claims against
certain defendants--namely, the officer and director defendants, but excluding
Richard M. Scrushy, officers and directors who have pleaded guilty to crimes in
connection with HealthSouth's financial reporting, and the corporate
defendants--in return for payment of $100,000,000 (One Hundred Million Dollars)
to HealthSouth by the Individual Settling Defendants' insurance carriers. The
defendants who are settling are Patrick A. Foster, Larry D. Taylor, C. Sage
Givens, George H. Strong, Larry D. Striplin, Jr., Joel C. Gordon, John S.
Chamberlin, Charles W. Newhall, III, Phillip C. Watkins, Richard F. Celeste,
Edwin M. Crawford, Raymond J. Dunn, III, Larry R. House, Jan L. Jones, Jon F.
Hanson, Robert P. May, Lee S. Hillman, William W. Horton, James P. Bennett, P.
Daryl Brown, Anthony J. Tanner, Robert E. Thomson, Gerald P. Scrushy, Thomas W.
Carman, and Daniel J. Riviere (the "Individual Settling Defendants").(1)
- --------------------
(1) The following Individual Settling Defendants were not named as defendants in
this Action, but are parties to the Stipulation because they were named as
defendants in other related actions: Richard F. Celeste, Edwin M. Crawford,
Raymond J. Dunn, III, Larry R. House, Jan L. Jones, Jon F. Hanson, Robert P.
May, Lee S. Hillman, William W. Horton, James P. Bennett, P. Daryl Brown,
Anthony J. Tanner, Robert E. Thomson, and Thomas W. Carman.
3
This Action will continue as against Non-Settling Defendants, including
Richard M. Scrushy, and HeathSouth's accountants and investment banker.(2)
The Settlement described herein is being entered into simultaneously
with and is related to the proposed settlement of certain Federal Securities
Litigation pending against HealthSouth. HealthSouth intends to use the proceeds
of the Settlement of this Action, net of attorneys' fees, to enable it to fund,
in part, the settlement of the Federal Securities Litigation pending against it.
A substantial factor considered by Plaintiff and Plaintiff's counsel in agreeing
to the Settlement discussed herein was that the net proceeds of this Settlement
would enable HealthSouth to fund, in part, the settlement of the Federal
Securities Litigation pending against it.
THE FACTUAL BACKGROUND
THE DESCRIPTION OF THIS ACTION AND THE SETTLEMENT
WHICH FOLLOWS HAS BEEN PREPARED BY COUNSEL FOR THE
PARTIES. THE COURT HAS MADE NO FINDINGS WITH RESPECT
TO SUCH MATTERS, AND THIS NOTICE IS NOT AN EXPRESSION
BY THE COURT OF FINDINGS OF FACT.
As noted above, this is a stockholder derivative action seeking
monetary recovery for HealthSouth against certain present and former HealthSouth
directors, officers, accountants, investment bankers and certain others for,
among other things, alleged wrongdoing in connection with the falsification of
the Company's financial statements over a period of many years.
- --------------------
(2) The following persons are not parties to this settlement: Richard M.
Scrushy; any HealthSouth officers, directors, or employees who have agreed to
plead guilty or otherwise have been convicted of crimes in connection with
HealthSouth's former financial reporting activities, including but not limited
to 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 (together with Richard M. Scrushy, the "Non-Settling Individual
Defendants"); all defendants who were never directors, officers, or employees of
HealthSouth, including, without limitation, defendants Ernst & Young LLP, UBS
Securities LLC, Source Medical Solutions, Inc., Capstone Capital Corp.,
Medcenterdirect.com, and G.G. Enterprises (the "Non-Settling Defendant
Entities"), (the Non-Settling Individual Defendants and the Non-Settling
Defendant Entities are collectively the "Non-Settling Defendants").
4
Plaintiff filed the Original Complaint in this Action on August 28,
2002, a First Amended Complaint on November 15, 2002, a Second Amended Complaint
on March 21, 2003, a Third Amended Complaint on August 22, 2003, and a
Supplemental and Fourth Amended Complaint on March 25, 2004 (the "Complaint").
The Complaint alleges, among other things, that the Individual Settling
Defendants breached their fiduciary duties to HealthSouth, engaged in
self-dealing and other alleged misconduct.
The Individual Settling Defendants filed motions to dismiss the
Complaint. Following briefing and argument, those motions were denied by the
Court.
Following arm's-length negotiations, the parties have reached an
agreement pursuant to which the Individual Settling Defendants would be
dismissed from this Action and all other related derivative litigation listed in
Paragraph H(iii) of the Stipulation (together, the "Derivative Actions") with
prejudice and released from all claims related to the Derivative Actions in
return for payment of $100,000,000 (One Hundred Million Dollars) (the
"Settlement Amount") to HealthSouth by the Individual Settling Defendants'
insurance carriers into an escrow account designated by HealthSouth.
After conducting a legal and factual investigation, counsel for
Plaintiff in this Action have concluded that the terms and conditions of the
Settlement are fair, reasonable, adequate, and in the best interests of
HealthSouth.
Plaintiff in this Action is entering into this Stipulation because the
Settlement provides substantial and direct monetary benefits to HealthSouth and
Plaintiff and his counsel believe that the terms and conditions of the
Settlement are fair, reasonable, adequate and in the best interests of
HealthSouth and its stockholders.
5
The Individual Settling Defendants have vigorously denied, and continue
to deny, any wrongdoing or liability with respect to all claims, events and
transactions complained of in the Derivative Actions, deny that they engaged in
any wrongdoing, deny that they acted improperly in any way and deny liability of
any kind to HealthSouth. The Individual Settling Defendants are entering into
this Stipulation solely because the Settlement will (i) avoid the substantial
burden, expense, distraction and inconvenience of continued litigation of the
claims asserted against them in the Derivative Actions; and (ii) finally put to
rest and terminate those claims.
THE COURT HAS NOT DETERMINED THE MERITS OF THE CLAIMS
MADE BY PLAINTIFF AGAINST, OR THE DEFENSES OF, THE
INDIVIDUAL SETTLING DEFENDANTS. THIS NOTICE DOES NOT
IMPLY THAT THERE HAS BEEN OR WOULD BE ANY FINDING OF
VIOLATION OF THE LAW OR THAT RELIEF IN ANY FORM OR
RECOVERY IN ANY AMOUNT COULD BE HAD AGAINST THE
INDIVIDUAL SETTLING DEFENDANTS IF THE CLAIMS ASSERTED
AGAINST THEM IN THIS ACTION WERE NOT SETTLED.
DISMISSAL, RELEASE AND BAR ORDER
The Stipulation provides that any 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,
6
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,(5)
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
- --------------------
(3) The terms "Settling Insurers," "Non-Settling Insurers," "Insurance
Policies," "Coverage Litigation," and "Underlying Litigation" are defined in the
Stipulation.
7
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") shall be
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 the Stipulation, "Released
Parties" will not 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 this 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. The Order will 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.
The Stipulation also provides that all Non-Settling Defendants and all
other persons ("Barred Persons") will be permanently and forever barred 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
8
limited to claims for contribution (whether contractual or otherwise),
indemnification (whether contractual or otherwise) or similar claims. The
Non-Settling Defendants and all other persons will also be permanently and
forever barred 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.
The Released Parties are also permanently barred 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. However, nothing in the
Stipulation releases, alters, changes, limits, affects, dilutes, eliminates, or
in any way, impairs or undermines 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
9
Incorporation, By-laws, as in effect at any time, other corporate documents,
indemnification agreements, letter agreements, severance agreements, contract,
law, or otherwise.
Under the Stipulation, Barred Persons will 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 or indemnification 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 is not
effective or applicable until final approval of this Settlement. The credit will
not 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.
Insurance carriers who issued policies to HealthSouth and the
Individual Settling Defendants are contributing a total of $230 million toward
the settlement of the Federal Securities Litigation and the Derivative Actions.
In exchange for this contribution, HealthSouth and the Individual Settling
Defendants are giving full policy releases and are settling claims with the
settling insurance carriers. As a result of the Settlement, no one, including
the Non-Settling Individual Defendants, will be able to make a claim against
these insurance policies. In the event that a judgment is entered against a
Non-Settling Defendant in this Action, and a court determines that the
Non-Settling Defendant would have been entitled to coverage for the judgment but
for the Settlement, that Non-Settling Defendant will be entitled to have his or
her
10
judgment reduced by the amount of coverage, if any, that the court determines
would have otherwise been payable to the Non-Settling Defendant, but only to the
extent no such reduction has already been made in connection with another
judgment.
With respect to any and all Released Claims, the parties have
stipulated and agreed that, upon the date when the Settlement becomes Final,
Plaintiff and HealthSouth shall have waived and relinquished, and all other
parties whose claims are being released shall be 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 settlement with the debtor.
Also, with respect to any and all Released Claims, Plaintiff and HealthSouth
shall have waived and relinquished, and all other parties whose claims are being
released shall be 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. Plaintiff and HealthSouth may hereafter discover facts in
addition to or different from those which they now know or believe to be true
with respect to the subject matter of the Released Claims, which if known, might
have affected the decision to enter into the Stipulation, but have stipulated
and agreed that the Released Parties, on the date when the Settlement becomes
Final, do, fully, finally and forever settle and release any and all Released
Claims, without regard to subsequent discovery or existence of such different or
additional facts. Plaintiff and HealthSouth acknowledge that the inclusion of
unknown claims in the definition of
11
Released Claims was separately bargained for and was a key element of the
Settlement of which the releases are a part.
The Settlement shall be considered final ("Final") for purposes of the
Stipulation of Settlement subsequent to entry by the Court of an Order and
Partial Final Judgment approving the Settlement only upon the expiration of any
applicable appeal period for the appeal of the Order and Final Judgment without
an appeal having been filed or, if an appeal is taken, upon entry of an order
affirming the Order and Partial Final Judgment appealed from (or dismissing the
appeal) and the expiration of any applicable period for the reconsideration,
rehearing or appeal of such affirmance (or dismissal) without any motion for
reconsideration or rehearing or further appeal having been filed. An appeal only
with respect to the award of attorneys' fees and expenses shall not affect the
finality of the Settlement.
RELATIONSHIP TO FEDERAL SECURITIES SETTLEMENT
The Settlement described herein is being entered into simultaneously
with and is related to the proposed settlement of certain Federal Securities
Litigation pending against HealthSouth. HealthSouth intends to use the proceeds
of the Settlement of this Action, net of attorneys' fees, to enable it to fund,
in part, the settlement of the Federal Securities Litigation pending against it.
A substantial factor considered by Plaintiff and Plaintiff's counsel in agreeing
to the Settlement discussed herein was that the net proceeds of this Settlement
would enable HealthSouth to fund, in part, the settlement of the Federal
Securities Litigation pending against it.
ATTORNEYS' FEES
The parties have agreed that counsel for the derivative Plaintiffs in
this Action shall have a contractual right to recover from HealthSouth, and
HealthSouth shall have an obligation to pay said counsel, reasonable attorneys
fees and costs in connection the claims against the Individual Settling
Defendants in an amount to be determined by the Circuit Court of Jefferson
County,
12
Alabama. Derivative Plaintiffs' counsel intend to apply for an award of
attorneys' fees of not more than 30% of the Settlement Amount, plus
reimbursement of reasonable out-of-pocket expenses in the form of a fee petition
presented to the Circuit Court of Jefferson County, Alabama, to which
HealthSouth shall be free to object under applicable precedents. The parties
agreed that the entitlement of derivative counsel to an award of fees and
expenses does not constitute any admission or concession in any respect by any
party as to the manner of computation of the fee, except that the fee shall be
calculated in the same manner as if the Settlement Amount had been deposited
into Court for and on behalf of HealthSouth and as if the fee to be awarded were
to be paid out of such amount so deposited. No order of the Court or
modification or reversal on appeal of any order of the Court concerning the
amount of any attorneys' fees, costs and expenses awarded by the Court shall
constitute grounds for cancellation or termination of this Stipulation.
RIGHT TO APPEAR AT SETTLEMENT HEARING
Any HealthSouth stockholder with standing to assert the derivative
claims asserted in this Action (i.e., any person who owned HealthSouth stock at
the time of the wrongs alleged in this Action and who held such stock
continuously to date) who objects to the Stipulation of Settlement, the
Settlement, the Order and Partial Final Judgment and/or the application for
attorneys fees and expenses, or who otherwise wishes to be heard, may appear in
person or by his attorney at the Settlement Hearing and present any evidence or
argument that may be proper and relevant; provided however, that no person other
than Plaintiff or his counsel shall be heard, and no papers, briefs, pleadings
or other documents submitted by any such person shall be received and considered
by the Court (unless the Court in its discretion shall thereafter otherwise
direct, upon application of such person and for good cause shown), unless no
later than ten (10) days prior to the Settlement Hearing directed herein, (i)
written notice of the intention to appear;
13
(ii) a detailed statement of such person's objections to any matter before the
Court; and (iii) the grounds therefore or the reasons why such person desires to
appear and to be heard, as well as all documents and writings which such person
desires the Court to consider, shall be filed by such person with the Alabama
Circuit Court, Jefferson County Clerk and, on or before such filing, shall be
served by hand or any mode of delivery providing proof of delivery on the
following counsel of record:
John W. Haley, Esquire
Hare, Wynn, Newell & Newton
2025 Third Avenue North, Suite 800
Birmingham, Alabama 35203
John Q. Somerville, Esquire
Galloway & Somerville, LLC
11 Oak Street
Birmingham, Alabama 35213
Julia Boaz Cooper, Esquire
Bradley Arant Rose & White LLP
One Federal Place
Birmingham, Alabama 35203
J. Mark Hart, Esquire
J. Mark Hart, P.C.
1400 Park Place Tower
2001 Park Place North
Birmingham, Alabama 35203
Patrick C. Cooper, Esquire
Maynard, Cooper & Gale, P.C.
1901 Sixth Avenue North, Suite 2400
Birmingham, Alabama 35203
Any person who fails to object in the manner prescribed above shall be deemed to
have waived any objections and shall be forever barred from raising any
objections in this or in any other action or proceeding.
14
INTERIM INJUNCTION
Pending final determination of whether the Stipulation of Settlement
should be approved, Plaintiff's counsel, Plaintiff, HealthSouth, any stockholder
of HealthSouth, and any Barred Person (as defined in the Stipulation) are barred
and enjoined from commencing or prosecuting any action asserting any Released
Claims (as defined in the Stipulation) against any Released Parties (as defined
in the Stipulation).
SCOPE OF THIS NOTICE AND FURTHER INFORMATION
This Notice does not purport to be a comprehensive description of this
Action, the allegations or transactions related thereto, the terms of the
Settlement or the Settlement Hearing. For a more detailed statement of the
matters involved in this litigation, you may inspect the pleadings, the
Stipulation, the Orders entered by the Court and other papers filed in this
litigation, unless sealed, at the Office of the Clerk of the Alabama Circuit
Court, Jefferson County, 716 North Richard Arrington Jr. Blvd., Birmingham,
Alabama, during regular business hours of each business day.
Alternatively, you may direct any inquiries to Plaintiff's counsel:
John W. Haley, Esquire
Hare, Wynn, Newell & Newton
2025 Third Avenue North, Suite 800
Birmingham, Alabama 35203
Phone: (205) 328-5330
Fax: (205) 324-2165
haley@hwnn.com
PLEASE DO NOT WRITE OR TELEPHONE THE COURT.
NOTICE TO PERSONS OR ENTITIES HOLDING
RECORD OWNERSHIP ON BEHALF OF OTHERS
Brokerage firms, banks and other persons or entities who are members of
the Class in their capacities as record owners, but not as beneficial owners,
are requested to send this Notice
15
promptly to beneficial owners. Additional copies of this notice for transmittal
to beneficial owners are available on request directed to Judy Hsu, Mellon
Investor Services, 300 Galleria Parkway, Suite 1020, Atlanta, Georgia.30339,
(770) 818-1153, hsu.j@mellon.com.
BY ORDER OF THE COURT:
--------------------------------
Dated: _____________, 2006
16
EXHIBIT C
IN THE CIRCUIT COURT OF JEFFERSON COUNTY, ALABAMA
(HEALTHSOUTH CORPORATION 2002 DERIVATIVE LITIGATION)
----------------------------------------------------
WADE TUCKER, derivatively on behalf )
of HealthSouth Corporation, )
)
Plaintiff, )
)
v. ) CIVIL ACTION NO: CV-02-5212
)
RICHARD M. SCRUSHY, et al., )
)
Defendants, )
)
and )
)
HEALTHSOUTH CORPORATION, )
)
Nominal Defendant. )
ORDER AND PARTIAL FINAL JUDGMENT PURSUANT TO A.R.C.P RULE 54(b)
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,
2
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
3
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.
4
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.
5
(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
6
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.
7
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
8
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.
9
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.
10
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
11
EXHIBIT D
If to Wade Tucker or Wendell H. Cook Testamentary Trust (John P. Cook, Trustee):
John W. Haley, Esq.
HARE WYNN NEWTON & NEWELL LLP
The Historic Massey Building
2025 Third Avenue North, Suite 800
Birmingham, Alabama 35203
with a copy to
John Q. Somerville, Esquire
Galloway & Somerville, LLC
11 Oak Street
Birmingham, Alabama 35213
If to HealthSouth:
General Counsel
HEALTHSOUTH CORPORATION
One HealthSouth Parkway
Birmingham, Alabama 35243
with a copy to
Julia Boaz Cooper
BRADLEY, ARANT, ROSE & WHITE LLP
One Federal Place
1819 Fifth Avenue North
Birmingham, Alabama 35203
If to Thomas W. Carman:
Joseph A. Fawal, Esq.
FAWAL & SPINA
1330 21st Way South, Suite 200
Birmingham, Alabama 35205
If to Edwin M. Crawford:
Anthony C. Harlow, Esq.
STARNES & ATCHISON LLP
100 Brookwood Place, Seventh Floor
Birmingham, Alabama 35209
If to Patrick A. Foster, Larry D. Taylor, Phillip C. Watkins, Richard F.
Celeste, Raymond J. Dunn, III, Larry R. House, Jan L. Jones, William W. Horton,
P. Daryl Brown or Daniel J. Riviere:
James L. Goyer, III, Esq.
MAYNARD COOPER & GALE, P.C.
1901 Sixth Avenue, North
2400 AmSouth / Harbert Plaza
Birmingham, Alabama 35203
with a copy to
Peter Q. Bassett, Esq.
Betsy P. Collins, Esq.
ALSTON & BIRD LLP
1201 West Peachtree Street
Atlanta, Georgia 30309
If to 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
If to Anthony J. Tanner:
Jackson R. Sharman III, Esq.
James F. Hughey III, Esq.
LIGHTFOOT, FRANKLIN & WHITE, L.L.C.
The Clark Building
400 20th Street North
Birmingham, Alabama 35203
If to Gerald P. Scrushy:
Thomas E. Ellis, Esq.
ELLIS & BLOOM
300 Office Park Drive, Suite 309
Birmingham, Alabama 35223
If to Jon F. Hanson, Robert P. May or Lee S. Hillman:
J. Mark Hart, Esq.
J. MARK HART, P.C.
1400 Park Place Tower
2001 Park Place Tower
Birmingham, Alabama 35203
with a copy to
Martin L. Seidel, Esq.
CADWALADER, WICKERSHAM & TAFT LLP
One World Financial Center
New York, New York 10281
If to James P. Bennett:
James P. Bennett
3732 Shady Cove Drive
Vestavia Hills, Alabama 35243
with a copy to
James F. Henry, Esq.
JOHNSTON BARTON PROCTOR & POWELL LLP
2900 AmSouth / Harbert Plaza
Birmingham, Alabama 35203
If to Robert E. Thomson:
Maxwell H. Pulliam, Esq.
CHRISTIAN SMALL LLP
1800 Financial Center
505 North 20th Street
Birmingham, Alabama 35203