A Diagnostics & Imaging Week

HealthSouth (Birmingham, Alabama) reported that it has entered into agreements with the lead plaintiffs in the federal securities class actions and the derivative actions, as well as certain of its insurance carriers, to settle litigation filed against it, and against certain of its former directors and officers and certain other parties in the U.S. District Court for the Northern District of Alabama and the Circuit Court in Jefferson County, Alabama.

The agreement relates to financial reporting and related activity at the company during periods ended in March 2003 and "memorialize" the preliminary settlement reported Feb. 23.

Federal securities and fraud claims brought in the class action against HealthSouth and certain of its former directors and officers will be settled by the payment of common stock and warrants of $215 million, and cash payments by HealthSouth's insurance carriers of $230 million, or a total of $445 million.

In addition, the federal securities class action plaintiffs will receive 25% of any recoveries from future judgments obtained by or on behalf of HealthSouth with respect to certain claims against Richard Scrushy, the company's former CEO, Ernst & Young, the company's former auditors, and UBS, the company's former investment bank, all of which remain as defendants in the derivative actions as well as the federal securities class actions.

The settlement is subject to approval of the U.S. District Court and conditioned upon the approval of bar orders in the federal securities and derivative litigations by the U.S. District Court and the Circuit Court that would preclude certain claims by the non-settling co-defendants against HealthSouth and the insurance carriers relating to matters covered by the agreements.

"This settlement represents another significant milestone in HealthSouth's recovery and is a powerful symbol of the progress we have made as a company," said Jay Grinney, president/CEO of HealthSouth.

The settlement does not contain any admission of wrongdoing by HealthSouth or any other settling defendant. Securities to be issued by HealthSouth in connection with the settlement will consist of 25,118,656 shares of its common stock and 11-year warrants to purchase 40,756,326 additional shares of HealthSouth common stock at $8.28 a share, in each case, as the same will be adjusted by the proposed 1-for-5 reverse stock split of HealthSouth's common stock, which is expected to become effective before the end of October.

HealthSouth is a provider of outpatient surgery, diagnostic imaging and rehabilitative healthcare services.