-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P53ZWMiROAM0vAWwQubGA7WND2q+pD0ihr6CxUVQS/Afft7s7aoUbS7UMXm+r7UZ j3qONBPadde0m+C8HGS7Gg== 0000950172-05-001864.txt : 20050611 0000950172-05-001864.hdr.sgml : 20050611 20050608161517 ACCESSION NUMBER: 0000950172-05-001864 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050606 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050608 DATE AS OF CHANGE: 20050608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHSOUTH CORP CENTRAL INDEX KEY: 0000785161 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 630860407 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14940 FILM NUMBER: 05885290 BUSINESS ADDRESS: STREET 1: ONE HEALTHSOUTH PKWY STREET 2: STE 224W CITY: BIRMINGHAM STATE: AL ZIP: 35243 BUSINESS PHONE: 2059677116 MAIL ADDRESS: STREET 1: ONE HEALTHSOUTH PARKWAY CITY: BIRMINGHAM STATE: AL ZIP: 35243 FORMER COMPANY: FORMER CONFORMED NAME: HEALTHSOUTH REHABILITATION CORP DATE OF NAME CHANGE: 19920703 8-K 1 wil417302.txt FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): June 8, 2005 (June 6, 2005) HEALTHSOUTH Corporation - ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware -------- (State or Other Jurisdiction of Incorporation) 1-10315 63-0860407 ------- ---------- (Commission File Number) (IRS Employer Identification No.) One HEALTHSOUTH Parkway, Birmingham, Alabama 35243 -------------------------------------------------- (Address of Principal Executive Offices, Including Zip Code) (205) 967-7116 -------------- (Registrant's Telephone Number, Including Area Code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 1.01. Entry into a Material Definitive Agreement. On June 8, 2005, HealthSouth Corporation ("HealthSouth" or the "Company") issued a press release, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference, announcing that on June 6, 2005, the Securities and Exchange Commission (the "SEC") approved a settlement (the "Settlement") with the Company relating to the action filed by the SEC on March 19, 2003 against, among others, the Company, captioned SEC v. HealthSouth Corporation and Richard M. Scrushy, No. CV-03-J-0615-S (N.D. Ala.) (the "SEC Litigation"). Under the terms of the Settlement, HealthSouth has agreed, without admitting or denying the SEC's allegations, to be enjoined from future violations of certain provisions of the securities laws. The Company has also agreed to: o Pay a $100 million civil penalty and disgorgement of $100 to the SEC in the following installments: $12,500,100 by October 15, 2005 (or 30 days after entry of the final judgment relating to the Settlement, whichever is later), $12.5 million by April 15, 2006, $25 million by October 15, 2006, $25 million by April 15, 2007, and $25 million by October 15, 2007. The staff of the SEC will request that the civil penalty be used to create an investor fund, as authorized under the Sarbanes-Oxley Act; o Retain a qualified governance consultant to perform a review of the adequacy and effectiveness of HealthSouth's corporate governance systems, policies, plans, and practices; o Retain a qualified accounting consultant to perform a review of the effectiveness of HealthSouth's material internal accounting control structure and policies, as well as the effectiveness and propriety of HealthSouth's processes, practices and policies for ensuring the Company's financial data is accurately reported in its public financial statements. As an alternative to retaining a qualified accounting consultant, HealthSouth can, within 60 days of filing with the SEC audited financial statements for the fiscal year ended December 31, 2005, provide to the SEC all communications between HealthSouth's independent auditor and HealthSouth's management and/or Audit Committee from the date of the final judgment regarding the Settlement is entered until such report concerning HealthSouth's internal accounting controls; o Provide reasonable training and education to certain of its officers and employees to minimize the possibility of future violations of the federal securities laws; o Continue to cooperate with the SEC and the Department of Justice in their respective ongoing investigations; and o Create, staff and maintain the position of Inspector General within the Company and permit the Inspector General to hire a staff of at least five people. The Settlement also provides that the amounts ordered to be paid as civil penalties shall be treated as penalties paid to the government for all purposes, including all tax purposes, and that the Company will not be able to be reimbursed or indemnified for such payment through insurance or any other source, or use such payment to setoff or reduce any award of compensatory damages to plaintiffs in related securities litigation pending against the Company. In connection with the Settlement, HealthSouth consented to the entry of a final judgment in the SEC Litigation to implement the terms of the Settlement. The United States District Court for the Northern District of Alabama, Southern Division, must consent to the entry of the final judgment in order to consummate the Settlement. The foregoing description of the terms of the Settlement does not purport to be complete and is qualified in its entirety by reference to each of the Consent of Defendant HealthSouth Corporation in the SEC Litigation and the Form of Final Judgment as to Defendant HealthSouth Corporation, copies of which are attached hereto as Exhibits 99.2 and 99.3, respectively, and are incorporated by reference herein. Cautionary Statement Regarding Forward-Looking Statements Certain matters discussed herein constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which represent HealthSouth's current expectations and beliefs concerning future events that involve risks and uncertainties which could cause actual results to differ materially from those currently anticipated. Such information is based on numerous assumptions and involve a number of risks and uncertainties, many of which are beyond the Company's control. The Company does not undertake any duty to update such forward-looking statements. You are cautioned not to place undue reliance on the forward-looking statements contained in this Form 8-K. ITEM 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. The disclosure included under Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03. ITEM 9.01. Financial Statements and Exhibits. (c) Exhibits. See Exhibit Index. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized. HEALTHSOUTH CORPORATION By: /s/ Gregory L. Doody ------------------------------ Name: Gregory L. Doody Title: Executive Vice President, General Counsel and Secretary Dated: June 8, 2005 EXHIBIT INDEX Exhibit Number Description -------------- ----------- 99.1 Press release of HealthSouth Corporation, dated June 8, 2005. 99.2 Consent of Defendant HealthSouth Corporation. 99.3 Form of Final Judgment as to Defendant HealthSouth Corporation. EX-99 2 wil417544.txt EXHIBIT 99.1 - PRESS RELEASE Exhibit 99.1 NEWS FROM_____________________________________________________________________ [HEALTHSOUTH GRAPHIC OMITTED] June 8, 2005 HEALTHSOUTH REACHES AGREEMENT WITH THE SECURITIES AND EXCHANGE COMMISSION Birmingham, Alabama - HealthSouth Corporation (OTC Pink Sheets: HLSH) today announced it has reached an agreement with the Securities and Exchange Commission (the "SEC") to resolve claims brought by the SEC against the Company in a civil action on March 19, 2003. The agreement does not address claims brought against any other party in that action. As a result of the agreement, HealthSouth will pay the SEC $100 million in five installments over a two year period beginning in the fourth quarter of 2005, which may be used by the SEC to establish an investor fund pursuant to the Fair Fund provision of the Sarbanes-Oxley Act of 2002. "This agreement is both a major milestone in HealthSouth's recovery and a powerful symbol of the progress we have made as a company over the course of the last two years," said HealthSouth President and CEO Jay Grinney. "I would especially like to recognize Greg Doody, our General Counsel, and Skadden Arps, our outside counsel, for their hard work and contributions in reaching this important settlement. With the support of our employees across the country, HealthSouth has successfully put another issue behind us. We look forward to re-focusing our time and resources on what we do best - serving the needs of our patients." "HealthSouth has faced several legal obstacles in the past two years as the result of the massive fraud perpetrated against us," said Greg Doody, HealthSouth General Counsel and Secretary. "This settlement with the SEC -- in conjunction with our Bondholder consent agreement in June of 2004 and our previous settlement with the U.S. Department of Justice - Civil Division, the Office of Inspector General, and the Centers for Medicare & Medicaid Services in December 2004 -- puts a substantial portion of our legal issues behind us and allows us to move forward." The Company stated that provisions for this settlement amount have been incorporated in its long-term financial projections and that the payments will be made without compromising the resources necessary to manage its facilities in a quality manner. The agreement resolves litigation brought by the SEC in 2003 regarding allegations of violations of the federal securities laws. As part of the settlement, HealthSouth also agrees to retain the services of consultants in the areas of governance, internal controls and accounting to review policies and practices implemented under the new management team; provide training and education to appropriate officers; and continue to cooperate with the SEC and Department of Justice in their respective, ongoing investigations. A copy of the agreement is being filed today with the SEC as an exhibit to HealthSouth's Form 8-K. About HealthSouth HealthSouth is one of the nation's largest providers of outpatient surgery, diagnostic imaging and rehabilitative healthcare services, operating facilities nationwide. HealthSouth can be found on the Web at www.healthsouth.com. Statements contained in this press release which are not historical facts are forward-looking statements. In addition, HealthSouth, through its senior management, may from time to time make forward-looking public statements concerning the matters described herein. Such forward-looking statements are necessarily estimates based upon current information, involve a number of risks and uncertainties and are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. HealthSouth's actual results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by HealthSouth include, but are not limited to: the investigations by the Department of Justice and the Securities and Exchange Commission into HealthSouth's financial reporting and related activity calling into question the accuracy of the Company's previously filed financial statements; HealthSouth's statement that as a result of the investigations, the Company's previously filed financial statements should no longer be relied upon and may result in the Company restating its prior financial statements; the withdrawal by HealthSouth's former accountants of their audit reports on all of the Company's previously filed financial statements; the outcome of pending litigation relating to these matters; significant changes in HealthSouth's management team; HealthSouth's ability to successfully amend, restructure and/or renegotiate its existing indebtedness or cure or receive a waiver of the events of default under such agreements, the failure of which may result in HealthSouth filing a voluntary petition for bankruptcy; HealthSouth's ability to continue to operate in the ordinary course and manage it's relationships with its creditors, including it's lenders, bondholders, vendors and suppliers, employees and customers; changes, delays in or suspension of reimbursement for HealthSouth's services by governmental or private payors; changes in the regulation of the healthcare industry at either or both of the federal and state levels; changes to or delays in the implementation of the prospective payment system for inpatient rehabilitation services; competitive pressures in the healthcare industry and HealthSouth's response thereto; HealthSouth's ability to obtain and retain favorable arrangements with third-party payors; general conditions in the economy and capital markets; and other factors which may be identified from time to time in the Company's SEC filings and other public announcements. ### Media Contact - ------------- Andy Brimmer, 205-410-2777 EX-99 3 wil417402-1.txt EXHIBIT 99.2 Exhibit 99.2 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION - -------------------------------------------------------- : SECURITIES AND EXCHANGE COMMISSION, : : Plaintiff, : CIVIL ACTION FILE : NO. CV-03-J-0615-S v. : : HEALTHSOUTH CORPORATION and RICHARD M. SCRUSHY, : : Defendants. : : : : - -------------------------------------------------------- CONSENT OF DEFENDANT HEALTHSOUTH CORPORATION 1. Defendant HealthSouth Corporation ("Defendant") acknowledges having been served with the Complaint in this action, enters a general appearance, and admits the Court's jurisdiction over Defendant and over the subject matter of this action. 2. Without admitting or denying the allegations of the complaint (except as to personal and subject matter jurisdiction, which Defendant admits), Defendant hereby consents to the entry of the final Judgment in the form attached hereto (the "Final Judgment") and incorporated by reference herein, which, among other things: (a) permanently restrains and enjoins Defendant from violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. ss. 77q(a)] and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. ss.ss. 78j(b), 78m(a), 78m(b)(2)(A) and 78m(b)(2)(B)] and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder [17 C.F.R. ss.ss. 240.10b-5, 240.12b-20, 240.13a-1 and 240.13a-13]; (b) orders defendant to pay disgorgement of $100 and a civil penalty of $100,000,000, pursuant to Section 20(d) of the Securities Act [15 U.S.C. 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. 78u(d)(3)]. 3. Defendant acknowledges that the civil penalty paid pursuant to the Final Judgment may be distributed pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. Regardless of whether any such Fair Fund distribution is made, the civil penalty shall be treated as a penalty paid to the government for all purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, Defendant agrees that it shall not, after offset or reduction of any award of compensatory damages in any Related Investor Action (as hereinafter defined) based on Defendant's payment of disgorgement in this action, argue that it is entitled to, nor shall it further benefit by, offset or reduction of such compensatory damages award by the amount of any part of Defendant's payment of a civil penalty in this action ("Penalty Offset"). If the court in any Related Investor Action grants such a Penalty Offset, Defendant agrees that it shall, within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed in this action. For purposes of this paragraph, a "Related Investor Action" means a private damages action brought against Defendant by or on behalf of one or more investors based on substantially the same facts as alleged in the Complaint in this action. 4. Defendant waives the entry of findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure. 5. Defendant waives the right, if any, to appeal from the entry of the Final Judgment. 6. Defendant enters into this Consent voluntarily and represents that no threats, offers, promises, or inducements of any kind have been made by the Commission or any member, officer, employee, agent, or representative of the Commission to induce Defendant to enter into this Consent. 7. Defendant agrees that this Consent shall be incorporated into the Final Judgment with the same force and effect as if fully set forth therein. 8. Defendant will not oppose the enforcement of the Final Judgment on the ground, if any exists, that it fails to comply with Rule 65(d) of the Federal Rules of Civil Procedure, and hereby waives any objection based thereon. 9. Defendant waives service of the Final Judgment and agrees that entry of the Final Judgment by the Court and filing with the Clerk of the Court will constitute notice to Defendant of its terms and conditions. Defendant further agrees to provide counsel for the Commission, within thirty days after the Final Judgment is filed with the Clerk of the Court, with an affidavit or declaration stating that Defendant has received and read a copy of the Final Judgment. 10. Consistent with 17 C.F.R. 202.5(f), this Consent resolves only the claims asserted against Defendant in this civil proceeding. Defendant acknowledges that no promise or representation has been made by the Commission or any member, officer, employee, agent, or representative of the Commission with regard to any criminal liability that may have arisen or may arise from the facts underlying this action or immunity from any such criminal liability. Defendant waives any claim of Double Jeopardy based upon the settlement of this proceeding, including the imposition of any remedy or civil penalty herein. Defendant further acknowledges that the Court's entry of a permanent injunction may have collateral consequences under federal or state law and the rules and regulations of self-regulatory organizations, licensing boards, and other regulatory organizations. Such collateral consequences include, but are not limited to, a statutory disqualification with respect to membership or participation in, or association with a member of, a self-regulatory organization. This statutory disqualification has consequences that are separate from any sanction imposed in an administrative proceeding. In addition, in any disciplinary proceeding before the Commission based on the entry of the injunction in this action, Defendant understands that it shall not be permitted to contest the factual allegations of the complaint in this action. 11. Defendant understands and agrees to comply with the Commission's policy "not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegation in the complaint or order for proceedings." 17 C.F.R. ss. 202.5. In compliance with this policy, Defendant agrees: (i) not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis; and (ii) that upon the filing of this Consent, Defendant hereby withdraws any papers filed in this action to the extent that they deny any allegation in the complaint. If Defendant breaches this agreement, the Commission may petition the Court to vacate the Final Judgment and restore this action to its active docket. Nothing in this paragraph affects Defendant's: (i) testimonial obligations; or (ii) right to take legal or factual positions in litigation or other legal proceedings in which the Commission is not a party. 12. Defendant hereby waives any rights under the Equal Access to Justice Act, the Small Business Regulatory Enforcement Fairness Act of 1996, or any other provision of law to pursue reimbursement of attorney's fees or other fees, expenses, or costs expended by Defendant to defend against this action. For these purposes, Defendant agrees that Defendant is not the prevailing party in this action since the parties have reached a good faith settlement. 13. In connection with this action and any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party, Defendant (i) agrees to use its best efforts to make its employees available to be interviewed by Commission staff at such times and places as the staff requests upon reasonable notice; (ii) will accept service by mail or facsimile transmission of notices or subpoenas issued by the Commission for documents or testimony at depositions, hearings, or trials, or in connection with any related investigation by Commission staff; (iii) appoints Defendant's undersigned attorney as agent to receive service of such notices and subpoenas; (iv) with respect to such notices and subpoenas, waives the territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any applicable local rules, provided that the party requesting the testimony reimburses Defendant's travel, lodging, and subsistence expenses at the then-prevailing U.S. Government per diem rates; and (v) consents to personal jurisdiction over Defendant in any United States District Court for purposes of enforcing any such subpoena. 14. Defendant agrees that the Commission may present the Final Judgment to the Court for signature and entry without further notice. 15. Defendant agrees that this Court shall retain jurisdiction over this matter for the purpose of enforcing the terms of the Final Judgment. Dated: 1 June 2005 /s/ Gregory L. Doody -------------------- ---------------------------------- HealthSouth Corporation, By: Gregory L. Doody Its: Executive Vice President, General Counsel and Secretary On June 1, 2005, Gregory L. Doody, a person known to me, personally appeared before me and acknowledged executing the foregoing Consent. /s/ Karen E. Carlee ---------------------------- Notary Public Commission expires: 11-8-08 Approved as to form: /s/ Charles F. Walker - ------------------------- Attorney for Defendant EX-99 4 was621575.txt EXHIBIT 99.3 Exhibit 99.3 ------------ DRAFT UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION - ------------------------------------------- | SECURITIES AND EXCHANGE COMMISSION, | | Plaintiff, | CIVIL ACTION FILE v. | NO. CV-03-J-0615-S | HEALTHSOUTH CORPORATION and | RICHARD M. SCRUSHY, | | Defendants. | | | - ------------------------------------------- FINAL JUDGMENT AS TO DEFENDANT HEALTHSOUTH CORPORATION ------------------------------------------------------ The Securities and Exchange Commission (the "Commission") having filed a Complaint and Defendant HealthSouth Corporation ("Defendant") having entered a general appearance; consented to the Court's jurisdiction over Defendant and the subject matter of this action; consented to entry of this Final Judgment as to Defendant ("Final Judgment") without admitting or denying the allegations of the Complaint (except as to jurisdiction and venue); waived findings of fact and conclusions of law; and waived any right to appeal from this Final Judgment. I. IT IS HEREBY ORDERED, ADJUDGED AND DECREED that Defendant, and its agents, servants, employees, and attorneys, and those persons in active concert or participation with it who receive actual notice of this Final Judgment, by personal service or otherwise, and each of them, be and hereby are permanently enjoined and restrained from violating, directly or indirectly, Section 17(a) of the Securities Act of 1933 [15 U.S.C. ss. 77q(a)], by, through the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, in the offer or sale of any security: 1. employing any device, scheme or artifice to defraud; 2. obtaining money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or 3. engaging in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. II. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defendant, and Defendant's agents, servants, employees, and attorneys, and those persons in active concert or participation with Defendant who receive actual notice of this Final Judgment, by personal service or otherwise, and each of them, be and hereby are permanently enjoined and restrained from violating, directly or indirectly, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. ss. 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. ss. 240.10b-5], by, in connection with the purchase or sale of any security, through the use of any means or instrumentality of interstate commerce or of the mails or of any facility of any national securities exchange, 1. employing any device, scheme or artifice to defraud; 2. making any untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or 3. engaging in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. III. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defendant, and Defendant's agents, servants, employees, and attorneys, and those persons in active concert or participation with them who receive actual notice of this Final Judgment, by personal service or otherwise, and each of them, be and hereby are permanently enjoined and restrained from violations of Section 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act [15 U.S.C. ss. 78m(a), 78m(b)(2)(A) and 78m(b)(2)(B)] and Rules 12b-20, 13a-1 and 13a-13 thereunder [17 C.F.R. ss.ss. 240.12b-20, 240.13a-1 and 240.13a-13], by: 1. filing any materially untrue, incorrect, false or misleading annual report while an issuer with a security registered pursuant to Section 12 of the Exchange Act [15 U.S.C. ss. 78l] or while required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. ss. 78o(d)]; 2. filing any materially untrue, incorrect, false or misleading quarterly report while an issuer with a security registered pursuant to Section 12 of the Exchange Act [15 U.S.C. ss. 78l] or while required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. ss. 78o(d)]; 3. failing, in addition to information expressly required to be included in statements or reports filed with the Commission, to add such further material information, if any, as may be necessary to make required statements, in light of the circumstances under which they are made, not misleading; 4. failing to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of any company which has a class of securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C. 78l] or any company which is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. 78o(d)]; or 5. failing to devise and maintain a system of internal accounting controls, of any company which has a class of securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C. 78l] or any company which is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. 78o(d)], sufficient to provide reasonable assurances that: (a) transactions are executed in accordance with management's general or specific authorization; (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets; (c) access to assets is permitted only in accordance with management's general or specific authorization; and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. IV. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is liable for disgorgement of $100, and a civil penalty in the amount of $100,000,000 pursuant to Section 20(d) of the Securities Act [15 U.S.C. 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. 78u(d)(3)]. Defendant shall satisfy this obligation by paying $12,500,100 by October 15, 2005 (or 30 days after this Order, whichever is later), $12.5 million by April 15, 2006, $25 million by October 15, 2006, $25 million by April 15, 2007, and $25 million by October 15, 2007, to the Clerk of this Court, together with a cover letter identifying Defendant as a defendant in this action; setting forth the title and civil action number of this action and the name of this Court; and specifying that payment is made pursuant to this Judgment. Defendant shall pay post-judgment interest on any delinquent amounts pursuant to 28 USC ss. 1961. Defendant shall simultaneously transmit photocopies of such payment and letter to the Commission's counsel in this action. By making this payment, Defendant relinquishes all legal and equitable right, title, and interest in such funds, and no part of the funds shall be returned to Defendant. The Clerk shall deposit the funds into an interest bearing account with the Court Registry Investment System ("CRIS"). These funds, together with any interest and income earned thereon (collectively, the "Fund"), shall be held by the CRIS until further order of the Court. In accordance with the guidelines set by the Director of the Administrative Office of the United States Courts, the Clerk is directed, without further order of this Court, to deduct from the income earned on the money in the Fund a fee equal to ten percent of the income earned on the Fund. Such fee shall not exceed that authorized by the Judicial Conference of the United States. The Commission shall subsequently propose to the Court a master, distribution agent, or other person to prepare and submit a plan to distribute the Fund subject to the Court's approval. Such a plan shall provide that Fund shall be distributed to investor victims (including certain public shareholders and/or bondholders as of the date when trading in Defendant's stock was suspended) pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. In addition to its obligation to pay disgorgement and penalties, defendant HealthSouth shall pay all reasonable expenses of such distribution within thirty (30) days after receipt of an invoice for such services from the master, distribution agent, or other person or entity conducting the distribution. Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil penalties pursuant to this Final Judgment shall be treated as penalties paid to the government for all purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, Defendant shall not, in any Related Investor Action (as hereinafter defined), benefit from any offset or reduction of any investor's claim by the amount of any Fair Fund distribution to such investor in this action that is proportionately attributable to the civil penalty paid by Defendant ("Penalty Offset"). If the court in any Related Investor Action grants such an offset or reduction, Defendant shall, within 30 days after entry of a final order granting the offset or reduction, notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed in this Final Judgment. For purposes of this paragraph, a "Related Investor Action" means a private damages action brought against Defendant by or on behalf of one or more investors based on substantially the same facts as alleged in the Complaint in this action. Defendant shall not seek or accept, directly or indirectly, reimbursement or indemnification, including but not limited to payment made pursuant to any insurance policy, with regard to any penalty amounts that Defendant shall pay pursuant to this Final Judgment, regardless of whether any such penalty amounts are distributed pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. V. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that HealthSouth shall retain, within 60 days after the entry of this Final Judgment, a qualified consultant ("governance consultant") acceptable to the Commission, to perform a review of the adequacy and effectiveness of Defendant's corporate governance systems, policies, plans, and practices. The governance consultant shall perform such a review. This review will include but is not limited to inquiries into: 1. whether Defendant is complying with recognized standards of "best practices" with respect to corporate governance; 2. whether Defendant has sufficient policies and safeguards in place (a) to ensure that Defendant's Board of Directors or any committee thereof then-currently responsible for carrying out, and duly authorized to carry out, the duties of Defendant's Board of Directors (the "Board of Directors") and all committees of Defendant's Board of Directors (including without limitation the Audit Committee and the Compensation Committee) have appropriate powers, structure, composition, and resources and (b) to prevent self-dealing by management; 3. whether Defendant has an adequate and appropriate code of ethics and business conduct, and related compliance mechanisms; and 4. whether Defendant has appropriate safeguards in place to prevent further violations of the federal securities laws. Defendant shall provide to the governance consultant all documents and information within its custody or control requested by the governance consultant in connection with the review. The governance consultant shall use his or her best efforts to submit to Defendant's Board of Directors, the Court and the Commission a report setting forth the governance consultant's recommendations with respect to the corporate governance issues reviewed within 60 days of his appointment, and in any event shall submit the report to Defendant's Board of Directors, the Court and the Commission within 120 days of his or her appointment. Within 60 days of the receipt of the report of the governance consultant with respect to corporate governance, Defendant's Board of Directors shall report to the Court and the Commission with respect to the decisions and actions taken as a result of each of the recommendations made by the governance consultant. VI. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant shall retain, within 60 days after the entry of this Judgment, a qualified consultant ("accounting consultant") acceptable to the Commission, to perform a review of the effectiveness of Defendant's material internal accounting control structure and policies, as well as the effectiveness and propriety of Defendant's processes, practices and policies for ensuring Defendant's financial data is accurately reported in its public financial statements. Within 60 days after the retention of such accounting consultant acceptable to the Commission, the accounting consultant shall submit to the Commission a proposal that is acceptable to the Commission which includes a detailed description of the various tasks to be undertaken in the course of the accounting consultant's review, sets forth the identities and credentials of the individuals who will perform those tasks, and provides an estimate of the number of hours expected to be devoted to the various tasks involved in the accounting consultant's review. Any disagreement between Defendant and the Commission concerning the proposal shall be submitted to and resolved by the Court. The Report of the Special Audit Review Committee of the Board of Directors of HealthSouth Corporation (the "SARC Report") shall be transmitted to the accounting consultant within ten days of its appointment and, along with such other information as may be relevant, shall be considered by the accounting consultant. Within 210 days after approval of the proposal, and taking note of the SARC Report and such other information as may be relevant, the consultant shall complete its review and submit to Defendant's Board of Directors, the Court and the Commission, a report fully documenting the findings of its review and making specific recommendations that the accounting consultant may have. Within 60 days of the submission of the report, Defendant's Board of Directors shall report to the Court and Commission with respect to the decisions and actions taken as a result of each of the recommendations made by the accounting consultant. VII. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant shall be permitted to satisfy section VI above by providing the Commission, within 60 days of Defendant filing with the Commission audited financial statements for the year ended December 31, 2005, including an auditor's attestation on internal control over financial reporting, all communications between Defendant's independent auditor and Defendant's management and/or Audit Committee from the date of this judgment until such report concerning Defendant's internal accounting controls. In addition, if the independent auditor doe not make a written communication because the information was provided by a prior written communication from the auditor, internal auditor, or others within the organization, such prior communications shall be included. Within 60 days of such submission, Defendant shall report to the Commission with respect to the decisions and actions taken as a result of such communications. VIII. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant shall provide reasonable training and education to certain of its officers and employees to minimize the possibility of future violations of the federal securities laws. Completion of such training shall be mandatory for Defendant's officers and employees involved in its corporate level accounting and financial reporting functions; for those officers and employees involved in financial reporting at Defendant's major divisions and subsidiaries (including, specifically, those officers and employees responsible for closing the books in their area of responsibility at the end of a quarterly or annual reporting period); and for senior operational officers at Defendant's corporate and divisional levels. Such training and education shall include, at a minimum, components covering the following subjects: 1. the obligations imposed by the federal securities laws; proper internal accounting controls and procedures; 2. recognizing indications of non-GAAP accounting practices or fraud most relevant to Defendant's business endeavors; and 3. the obligations incumbent upon, and the responses expected of, Defendant's officers and employees upon learning of illegal or potentially illegal acts concerning the company's accounting and financial reporting. Defendant shall submit to the Commission a detailed proposal within 60 days after entry of this Judgment which describes the content and implementation of the training and education program, in a form that is acceptable to the Commission. Defendant shall commence providing initial training and education sessions within 60 days thereafter, and shall continue to provide such training and education on an annual basis, for a minimum period of three years after entry of this Judgment. IX. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant shall continue to cooperate with the Commission and the Department of Justice in their respective ongoing investigations related to Defendant and its employees and agents and will provide such information, records and testimony as it is able to provide, upon request by such agencies. X. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant shall create, staff and maintain the position of Inspector General within the company. The individual employed in that position, and all successors, shall be selected by the Audit Committee of Defendant's Board of Directors (the "Audit Committee") and shall report directly to the Audit Committee. The compensation of the Inspector General shall be set by the Audit Committee. Defendant shall permit the Inspector General to hire a staff of at least five people. The compensation of such staff shall also be set by the Audit Committee. The person appointed as Inspector General shall be licensed as a certified public accountant, and shall have unfettered access to the books and records of Defendant. Upon request by the Inspector General, Defendant's internal audit and legal staff shall provide to the Inspector General all reasonable assistance in the performance of his duties. Defendant shall devise and maintain a mechanism whereby employees of Defendant and others may provide information anonymously to the Inspector General or to the Audit Committee. Defendant shall not retaliate against any person in any manner for providing information to the Inspector General or to the Audit Committee. Defendant shall implement, publish and enforce internal rules requiring all employees of Defendant to apprise the Inspector General and/or the Audit Committee of all complaints and indications of violations of law or company policies and procedures relating to the company's books and records and financial reporting processes. Defendant will advise new HealthSouth employees of this requirement during their normal orientation process. The Inspector General shall be charged with reporting any indications of violations of law or of Defendant's procedures, insofar as they are relevant to the duties of the Audit Committee, to the Audit Committee. XI. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that the Consent of Defendant HealthSouth Corporation filed herein be, and the same hereby is, incorporated in this Judgment by reference with the same force and effect as if fully set forth herein and that Defendant, its agents, accountants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Judgment by personal service or otherwise, and each of them, shall comply in all respects with the terms of the Consent. XII. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court shall retain jurisdiction of this action for all purposes, including, without limitation, the implementation and enforcement of the terms of this Judgment and all other Orders and Decrees that have been or may be entered herein, and the implementation of additional equitable remedies or sanctions, if any, as determined following a hearing. XIII. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that there being no just reason for delay, the Clerk of the Court is ordered to enter this Judgment of Permanent Injunction. Dated: ______________, 2005 _________________________________ UNITED STATES DISTRICT JUDGE JUDGMENT ENTERED: ________________________ Clerk -----END PRIVACY-ENHANCED MESSAGE-----