THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

HealthSouth Corporation (HLSH.PK)

4/17/2006 Proxy Information

Since January 1, 2005, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer or holder of more than 5% of our voting securities, or an immediate family member of any of the foregoing, had or will have a direct or indirect material interest other than:

• compensation arrangements, which are described above; and

• the transactions described below.

MedCenterDirect.Com, Inc.

Prior to ceasing operations in 2003, MedCenterDirect.com, Inc. (“MCD”) provided certain services to us relating to the purchase of equipment and supplies. As of December 31, 2002, which was the end of the last full year of MCD’s operations, we owned 20.2% of MCD’s equity securities on a fully diluted basis and Richard M. Scrushy indirectly (through an investment partnership and a charitable foundation) owned 20.6% of MCD’s equity securities on a fully diluted basis.

In 2001, we provided a guarantee for $20 million of MCD’s debt to UBS Warburg. In 2002, we advanced $9.2 million to MCD in the form of loan. In September 2003, UBS Warburg called its loan to MCD. We have recognized a liability under the terms of the guarantee as of September 30, 2003, but, as of December 31, 2004, we have not paid the amounts due under the terms of the guarantee to UBS Warburg.

Source Medical Solutions, Inc.

In April 2001, we established Source Medical Solutions, Inc. (“Source Medical”) to continue development and allow commercial marketing of a wireless clinical documentation system originally developed by HealthSouth. This proprietary software was referred to internally as “HCAP” and was later marketed by Source Medical under the name “TherapySource.” At the time of our initial investment, certain of our directors, executive officers, and employees also purchased shares of Source Medical’s common stock.

From 2000 through 2003, Source Medical was dependent on HealthSouth for the majority of its revenues and funding. We advanced approximately $125 million to Source Medical between 2001 and 2003 to continue to develop HCAP and to fund other operations and acquisitions. The majority of our loans and advances to Source Medical have been excused in debt restructuring agreements to facilitate recapitalization efforts. Our ownership has also been diluted to approximately 7% as part of these recapitalizations and to accommodate new investment from unrelated parties.

In connection with one of Source Medical’s acquisitions during 2001, HealthSouth guaranteed certain contingent payment obligations of Source Medical to the sellers of $6.0 million. We recorded an impairment charge in 2002 related to this note receivable from Source Medical. We have established an agreement with Source Medical requiring quarterly interest payments on this note. The note is due in full in April 2008 but is callable in August 2007.

In addition, during 2002, Source Medical borrowed $5.0 million for working capital from an unrelated third-party financial institution. HealthSouth guaranteed the loan. In March 2003, the loan was called, and we were required to pay $5.1 million to repay the loan, including interest, on behalf of Source Medical. In our 2002 consolidated financial statements, we accrued $5.1 million as an uncollectible amount due from Source Medical. In the fourth quarter of 2005, we received a $5.0 million payment from Source Medical related to this note.

We received approximately $1.0 million in interest payments throughout 2005 related to the two notes discussed above. From May 2003 to December 2004, Source Medical did not make interest payments on these two notes. This unpaid interest totaling $1.9 million is considered a separate note receivable from Source Medical, accrues additional interest at 4.75%, and is due to be repaid to us in April 2008. This note is also callable in August 2007.

We continue to lease HCAP software from Source Medical for approximately $4.3 million annually, and we remain a major customer of Source Medical. We paid Source Medical an additional $1.3 million in 2005 for custom software development, plus an additional $0.6 million for other miscellaneous services, including maintenance of certain software systems. We believe that the licensing terms are as favorable as we could have received from an unaffiliated third party.

Through December 2005, we held two of five seats on Source Medical’s board of directors. In December 2005, we gave up these seats but retained certain observation rights into Source Medical’s operations.

Stradis Medical

In 2005, we purchased $92,707 in medical supplies from Stradis Medical. Jeff Jacobs, who is the son-in-law of Joel C. Gordon (who served on our board of directors from 1996 to 2005), is the President of Stradis Medical.

12/3/2005 Proxy Information

CompHealth, Inc.

In 2004, we purchased $578,111 in health care recruiting and staffing services from CompHealth, Inc. We believe that an affiliate of Acacia Venture Partners, a venture capital firm managed by C. Sage Givens (who served on our board of directors from 1985 to 2004), maintains significant ownership in CompHealth’s parent company, CMS Capital Ventures, Inc.

HealthStream, Inc.

In 2005, we entered into a two-year contract with HealthStream, Inc. to provide learning solutions to our employees. Frank E. Gordon, the son of Joel C. Gordon (who served on our board of directors from 1996 to 2005), is a member of the board of directors of HealthStream. This contract is not material to HealthSouth. We believe that the licensing terms are as favorable as we could have received from an unaffiliated third party.

MedCenterDirect.Com, Inc.

Prior to ceasing operations in 2003, MedCenterDirect.com, Inc. (“MCD”) provided certain services to us relating to the purchase of equipment and supplies. As of December 31, 2002, which was the end of the last full year of MCD’s operations, we owned 20.2% of MCD’s equity securities on a fully diluted basis and Richard M. Scrushy indirectly (through an investment partnership and a charitable foundation) owned 20.6% of MCD’s equity securities on a fully diluted basis.

In 2001, we provided a guarantee for $20 million of MCD’s debt to UBS Warburg. In 2002, we advanced $9.2 million to MCD in the form of loan. In September 2003, UBS Warburg called its loan to MCD. We have recognized a liability under the terms of the guarantee as of September 30, 2003, but, as of December 31, 2004, we have not paid the amounts due under the terms of the guarantee to UBS Warburg. We reserved the full amount of the advance to MCD in September 2003.

Nelson-Brantley Glass Contractors

In 2002, in connection with the construction of the Digital Hospital, the general contractor on that project entered into an approximately $5.5 million subcontract with Nelson-Brantley Glass Contractors, Inc. for the provision of glass required for the project. Larry D. Striplin, Jr. (who served on our board of directors from 1999 to 2004) is the Chairman and Chief Executive Officer of Nelson-Brantley, and is also the company’s sole owner. We have paid the contractor, which is an unrelated third party, approximately $5.7 million for glass and glazing work performed on the Digital Hospital.

RPM Systems

RPM Systems, Palm Beach, Florida provides strategic business consulting services. From 2002 to 2004, we used RPM Systems for various executive consulting services and paid the following amounts to RPM Systems in connection with the provision of services: 2002 ($5,823), 2003 ($386,503) and 2004 ($198,570). Mr. May is currently a private investor and principal of RPM Systems. Mr. May served on our board of directors from 2002 to 2005, serving as our non-executive chairman from June 30, 2004 to October 1, 2005. In addition, Mr. May served as our interim Chief Executive Officer from March 20, 2003 to May 10, 2004.

Source Medical Solutions, Inc.

In April 2001, we established Source Medical Solutions, Inc. (“Source Medical”) to continue development and allow commercial marketing of a wireless clinical documentation system originally developed by HealthSouth. This proprietary software was referred to internally as “HCAP” and was later marketed by Source Medical under the name “TherapySource.” At the time of our initial investment, certain of our directors, executive officers, and employees also purchased shares of Source Medical’s common stock.

We advanced approximately $125 million to Source Medical between 2001 and 2003 to continue to develop HCAP and to fund other operations and acquisitions. We also guaranteed over $10 million of Source Medical’s debt during that time period. From 2000 through 2003, Source Medical was dependent on HealthSouth for the majority of its revenues and funding.

The majority of our loans and advances to Source Medical have been excused in debt restructuring agreements to facilitate recapitalization efforts. Our ownership has also been diluted to approximately 7% as part of these recapitalizations and to accommodate new investment from unrelated parties. We continue to lease HCAP software from Source Medical for approximately $4.2 million annually and we remain a major customer of Source Medical. We believe that the licensing terms are as favorable as we could have received from an unaffiliated third party. We retain two of five seats, currently held by HealthSouth officers Gregory Doody and Tyler Murphy, on the Source Medical board of directors.

Stradis Medical

In 2004, we purchased $197,947 in medical supplies from Stradis Medical. Jeff Jacobs, who is the son-in-law of Joel C. Gordon (who served on our board of directors from 1996 to 2005), is the President of Stradis Medical.

In connection with the merger between HealthSouth and Surgical Care Affiliates, Inc., we entered into a non-competition agreement and a consulting agreement with Mr. Joel Gordon, our former interim Chairman of the Board. Pursuant to the non-competition agreement, we agreed to pay Mr. Gordon an aggregate of $7,250,000 in 10 annual installments, beginning on June 15, 1996 and ending on June 15, 2006, comprised of five payments of $850,000 and five payments of $600,000. Pursuant to the consulting agreement, we agreed to pay Mr. Gordon an annual consulting fee of not less than $250,000 and to allow him to participate in any benefit plans generally available to HealthSouth executives. The consulting agreement, which originally expired on January 16, 2001, was amended on March 1, 2000 to extend the expiration date to January 16, 2006. In addition, since 2001 we have provided Mr. Gordon with an office in Nashville, Tennessee, at a cost of $4,050 per month.

6/27/2005 10-K Information

Mr. Scrushy was the principal founder of HealthSouth Corporation and acted as Chairman and Chief Executive Officer from 1984 until March 19, 2003 (except for a period from late August 2002 until early January 2003, when he served as Chairman only).

William T. Owens served as Chief Financial Officer of HealthSouth Corporation until March 2003.

Mr. Gordon was appointed Chairman Emeritus of HEALTHSOUTH Corporation after serving as acting Chairman from March 2003 thru June 2004. He served as Chairman and Chief Executive Officer of Surgical Care Affiliates, Inc. until January 1996, when HEALTHSOUTH acquired Surgical Care Affiliates.

From 1999 to 2001, Robert P. May served as Chief Executive Officer and a director of PNV, Inc., an early-stage national telecommunications company which served the transportation marketplace. PNV filed for bankruptcy in 2000 and sold substantially all of its assets in two separate liquidating transactions in 2001.

From 2001 to 2002, Diane L. Munson served as President and Chief Executive Officer of Fluidsense, Inc., a start-up medical device company. Fluidsense filed for bankruptcy in 2002.

In 2000, Yvonne M. Curl served as a director of Winstar Communications, a broadband network and service provider. Winstar filed for bankruptcy in 2000.

Our prior management team and board of directors presided over a significant number of transactions involving HealthSouth and various HealthSouth directors, officers, and other related persons. The following chart sets forth those directors, officers, and other related persons involved in the related-party transactions summarized below, as well as those persons’ relationship to us and the period during which they were associated with us. Although the transactions summarized below are not the only transactions involving HealthSouth and various related persons, we have summarized what we believe to be all material related-party transactions involving HealthSouth, as well as certain transactions that may not be material but nevertheless worthy of disclosure because of the nature of the relationships between the parties involved. (See page 148 of 10K for chart).

Transactions Involving Certain Venture Capital Firms

Acacia Venture Partners

From 1995 through 2003, we invested approximately $3 million with Acacia Venture Partners (“Acacia”), a venture capital firm founded and managed by C. Sage Givens. In 2003, we liquidated our investment in all Acacia funds and realized a net loss of $668,920.

In addition to investing directly in Acacia funds, we co-invested with Acacia in several companies, including Caremark Rx, Inc. (formerly MedPartners, Inc.), CMS Capital Ventures, Inc., and MedCenterDirect.com. Also, we purchased various goods and services from companies in which Acacia has invested, including Caremark Rx, Inc., CompHealth, Inc. (a wholly owned subsidiary of CMS Capital Ventures, Inc.), and MedCenterDirect.com, Inc. Each of these transactions is described elsewhere in this Item.

New Enterprise Associates

Charles W. Newhall III is a co-founder and general partner of the venture capital firm New Enterprise Associates (“NEA”). HealthSouth co-invested with NEA in several companies, including Bridge Medical, Inc., Caremark Rx, Inc. (formerly MedPartners, Inc.), CMS Capital Ventures, Inc., and MedCenterDirect.com. These transactions are described elsewhere in this Item. In addition, we purchased various goods and services from companies in which NEA has invested, including:

• Aspect Medical Systems—From 2000 through 2003, we purchased medical supplies from Aspect Medical Systems in the following amounts: 2000 ($147,159), 2001 ($139,114), 2002 ($127,934), and 2003 ($147,347).

• Caremark Rx, Inc.—Described elsewhere in this Item.

• CMS Capital Ventures, Inc.—Described elsewhere in this Item.

• Gliatech, Inc.—In 2000 and 2001, we purchased surgical supplies from Gliatech in the following amounts: 2000 ($40,951), and 2001 ($17,907).

• iManage, Inc.—From 2000 through 2003, we purchased content management software and services from iManage in the following amounts: 2000 ($36,979), 2001 ($50,880), 2002 ($15,652), and 2003 ($5,902).

• Innovasive Devices, Inc.—In 2000, we purchased tissue repair systems from Innovasive Devices in the aggregate amount of $308,000.

• Iridex Corporation—From 2000 through 2003, we purchased laser lenses and associated hardware from Iridex in the following amounts: 2000 ($71,407), 2002 ($50,387), and 2003 ($109,517).

• MedCenterDirect.com—Described elsewhere in this Item.

• Motion Computing, Inc.—In 2003 and 2004 we purchased tablet computers from Motion Computing in the approximate aggregate amount of $6.9 million.

• Nellcor, Inc.—From 2000 through 2003, we purchased computer software and equipment from Nellcor in the following amounts: 2000 ($217,832), 2001 ($206,115), 2002 ($460,374), and 2003 ($289,930).

• Netopia—From 2000 through 2003, we purchased networking hardware, software, and services from Netopia in the following amounts: 2000 ($58,590), 2001 ($42,750), and 2003 ($4,041).

• Primax Recoveries Incorporated—From 2000 through 2003, we purchased health care recovery services from Primax Recoveries in the following amounts: 2000 ($252,247), 2001 ($222,558), 2002 ($222,558), and 2003 ($207,943).

• ProVation Medical, Inc.—From 2001 through 2003, we purchased documentation and coding compliance software and services from ProVation Medical in the following amounts: 2001 ($3,479), 2002 ($1,011,799), and 2003 ($458,227).

• Pyxis Corporation—In 2003, we purchased point-of-use drug dispensing systems from Pyxis in the aggregate amount of $362,717.

• WebMD Corporation—From 2000 through 2003, we made disbursements to WebMD in the following amounts: 2000 ($1,295), 2001 ($49,725), 2002 ($155,552), and 2003 ($190,202).

Transactions Involving Investments by HealthSouth

Almost Family, Inc.

We owned 748,501 shares of Almost Family, Inc. (formerly known as Caretenders Health Corporation) common stock from 1995 through 2001. We also held a warrant to purchase 200,000 additional shares of Almost Family common stock. In 2001, we sold our investment in Almost Family for $5 million and realized a gain of approximately $3.3 million. From December 1991 through September 1994, Richard M. Scrushy and Michael D. Martin were directors of Almost Family.

Bridge Medical, Inc.

From 1999 through 2001, we invested approximately $1.2 million in Bridge Medical, Inc., a privately held software company. We owned less than 2% of the capital stock of the company. NEA was a significant investor in Bridge Medical through two of its funds. Bridge Medical was acquired by AmerisourceBergen Corporation in January 2003. In April 2003 we sold our stock in AmerisourceBergen for $385,197.

Caremark Rx, Inc. (formerly MedPartners, Inc.)

In 1993, certain of our affiliates helped form a physician practice management company, MedPartners, Inc., which filed an initial public offering in 1995 and subsequently changed its name to Caremark Rx (which was the name of a company MedPartners had previously acquired). We invested approximately $2.1 million in MedPartners prior to its initial public offering, and owned approximately 1.1 million shares of stock at that time. Certain directors, executive officers, and former executive officers of HealthSouth, or their affiliates, also invested in MedPartners prior to its initial public offering, and owned the following approximate number of shares (including options) at the time of the offering: Lawrence R. House (2.6 million), Richard M. Scrushy (817,000), Larry D. Striplin, Jr. (99,100), and NEA (1.5 million). Subsequent to MedPartner’s initial public offering, we invested an additional $5.5 million in the company. At various times during the period that we owned shares of Caremark Rx, Charles W. Newhall III, Larry D. Striplin, Jr., Michael D. Martin, and Lawrence R. House served as directors of Caremark Rx. Mr. House was also the Chairman and Chief Executive Officer of MedPartners. Richard M. Scrushy also served as a director of Caremark Rx from 1999 through 2001, including a period as Caremark Rx’s Chairman. We also purchased products and services from Caremark Rx totaling $2,870,011 in 2000 and $780,963 in 2001. We sold our investment in Caremark Rx during 2001 and realized a gain of approximately $19.3 million.

CMS Capital Ventures, Inc.

In 1998, we entered into a recapitalization agreement with CMS Capital Ventures, Inc. (a wholly owned subsidiary of HealthSouth) (“CMS”), CompHealth, Inc. (a wholly owned subsidiary of CMS), and certain other parties, whereby CMS purchased 85% of our interest in CMS. As a result of the recapitalization, we retained approximately 15% of the outstanding capital stock of CMS and received net proceeds of approximately $34.1 million. In connection with this recapitalization, certain investors purchased capital stock of CMS for a total purchase price of $8.5 million, including affiliates of Acacia and NEA, which each made investments of approximately $2.8 million. Following the recapitalization, an Acacia affiliate owned approximately 28% of the outstanding capital stock of CMS, and an NEA affiliate owned approximately 28% of the outstanding capital stock of CMS. C. Sage Givens and Michael D. Martin were also CMS directors. From 2000 through 2003, HealthSouth purchased services from CompHealth, Inc., CMS’s wholly owned subsidiary, in the following amounts: 2000 ($187,000), 2001 ($354,000), 2002 ($844,000), and 2003 ($523,000). In 2003, we sold our remaining interests in CMS for approximately $16 million.

HealthTronics, Inc.

In August 1999, we invested approximately $3 million in HealthTronics, Inc., a publicly traded specialty medical product company, in exchange for 500,000 shares, which constituted approximately 4% of the company’s outstanding capital stock. In November 1999, we transferred 83,334 of our HealthTronics shares to Richard M. Scrushy. We have no record of Mr. Scrushy paying any money for these shares. Michael D. Martin served on the board of directors of HealthTronics. From 2000 through 2003, we purchased medical equipment and related supplies from HealthTronics in the following amounts: 2000 ($330,000), 2001 ($471,000), 2002 ($891,000), and 2003 ($826,000).

MedCenterDirect.Com, Inc.

In 1999, we acquired 6,390,583 shares of Series A Preferred Stock of MedCenterDirect.com, Inc. (“MCD”) for a total purchase price of approximately $2.2 million. At the time of our initial investment, certain of our directors, executive officers, and employees also purchased shares of MCD’s Series A Preferred Stock, directly or indirectly through one or more of their affiliates, for a total purchase price of approximately $3.4 million. In 2000, an NEA fund purchased 4,800,000 shares of MCD’s Series E Preferred Stock through one of its funds for a total purchase price of $12 million. Charles W. Newhall III served on MCD’s board of directors.

The following table sets forth the approximate ownership of MCD by HealthSouth directors, executive officers, and employees, directly or indirectly through one or more of their affiliates, on a fully diluted basis (i.e., assuming the exercise of all outstanding options and warrants and issuance and exercise of all reserved options). The ownership is calculated as of December 31, 1999, which was shortly after MCD’s initial capitalization, and as of December 31, 2002, which was the end of the last full year of MCD’s operations. MCD discontinued operations in 2003. (See page 151 of 10K for chart).

Until November 2002, MCD purchased equipment and supplies from third party vendors for resale, and we paid MCD 105% of its cost for the purchase of equipment and supplies purchased through MCD, with the 5% margin intended to compensate MCD for the use of its software and inventory management services. Beginning in November 2002, we began paying MCD a flat annual fee (equal to $5 million for the first year of the arrangement, payable in equal monthly installments, and declining thereafter) for the use of its software and systems, and we resumed paying equipment and supply vendors directly. We were MCD’s primary customer. We purchased equipment and supplies from MCD in the total approximate amount of $74.6 million in 2000, $100 million in 2001, $89.4 million in 2002, and $2.1 million in 2003.

We also provided a guarantee for $20 million of MCD’s debt to UBS Warburg in 2001. In 2002, we advanced $9.2 million to MCD in the form of loan.

In September 2003, UBS Warburg called its loan to MCD. We have recognized a liability under the terms of the guarantee as of September 30, 2003, but, as of December 31, 2004, we have not paid the amounts due under the terms of the guarantee to UBS Warburg. See Note 10, Long-Term Debt, to our accompanying consolidated financial statements. We reserved the full amount of the advance to and our investment in MCD in September 2003.

Montagu Newhall Global Partners, L.P.

From 2001 through 2003, we invested approximately $1.8 million in Montagu Newhall Global Partners, L.P. (“Montagu Newhall”). Montagu Newhall is a venture capital fund that was co-founded by C. Ashton Newhall, the son of Charles W. Newhall III. Mr. Charles Newhall had an investment of over $200,000 in Montagu Newhall, and his venture capital firm, NEA, invested over $2 million in Montagu Newhall through one of its funds. In addition, Mr. Charles Newhall acted on the Advisory Board and the Investment Committee of Montagu Newhall. In 2003, we sold our investment in Montagu Newhall for $154,000 and realized a net loss of approximately $1.6 million.

OrthoRx

In 2002, we invested a total of approximately $4.5 million in OrthoRx, Inc., which was a joint venture between HealthSouth and Orthofix International N.V. As of December 31, 2002, we owned approximately 48% of the outstanding capital stock of OrthoRx. Richard M. Scrushy, Weston L. Smith, and William G. Hicks were also investors in OrthoRx, and together owned approximately 2% of the outstanding capital stock of OrthoRx as of December 31, 2002. As part of the initial financing, Mr. Hicks and Larry D. Taylor became OrthoRx directors.

In June 2003, we sold our ownership in OrthoRx to an unrelated financial buyer for approximately $3 million and realized a net loss of approximately $1.2 million. Services purchased from OrthoRx were less than $20,000 during each of 2002 and 2003.

Pathology Partners

From 1998 through 2003, we invested approximately $3.2 million in Pathology Partners, Inc., a privately held pathology service company. As of December 31, 2002, we owned approximately 15.5% of the company on a fully diluted basis. William G. Hicks and James P. Bennett served as directors of Pathology Partners. In addition, as of December 31, 2002, the following related parties held the following approximate ownership in Pathology Partners: James P. Bennett (6.48%), Patrick A. Foster (.24%), William G. Hicks (.8%), Lawrence R. House (.04%), Michael D. Martin (.31%), and Richard M. Scrushy (4.28%). In 2002 and 2003, we purchased pathology services from Pathology Partners in the following approximate amounts: 2002 ($94,000) and 2003 ($100,000). In 2003, we sold our ownership in Pathology Partners for approximately $4.5 million.

Source Medical Solutions, Inc.

In April 2001, we established Source Medical Solutions, Inc. (“Source Medical”) and acquired 3,932,500 shares of Source Medical’s common stock for a total purchase price of $393,250. At the time of our initial investment, certain of our directors, executive officers, and employees also purchased shares of Source Medical’s common stock for a total purchase price of approximately $600,000. Richard M. Scrushy, William T. Owens, Brandon O. Hale, and P. Daryl Brown were each directors of Source Medical.

The following table sets forth the approximate ownership of Source Medical by HealthSouth directors, executive officers, and employees. The ownership is calculated as of April 23, 2001, which was shortly after Source Medical’s initial capitalization. (See page 153 of 10K for table).

Source Medical was created to continue development and allow commercial marketing of a wireless clinical documentation system originally developed by HealthSouth. This proprietary software was referred to internally as “HCAP” and was later marketed by Source Medical under the name “TherapySource.” Source Medical acquired HCAP assets, including intellectual property rights to the technology, pursuant to an Asset Purchase Agreement and a Non-Negotiable Demand Note for $25 million, both dated July 1, 2001. Total amounts advanced by HealthSouth to Source Medical to continue to develop HCAP and to fund other operations and acquisitions were approximately $81.3 million in 2001, $31.5 million in 2002, and $11.8 million in 2003. In connection with one of Source Medical’s acquisitions during 2001, we also guaranteed certain contingent payment obligations of Source Medical to the sellers of $6 million. During the restatement period, Source Medical was dependent on HealthSouth for the majority of its revenues and funding.

In addition, during 2002 Source Medical borrowed $5 million for working capital from an unrelated third-party financial institution. HealthSouth guaranteed this loan. In March 2003, the loan was called and we were required to pay $5.1 million to repay the loan, including interest, on behalf of Source Medical. We have reserved $5.1 million as an uncollected amount due from Source Medical.

The majority of our loans and advances to Source Medical have been excused in debt restructuring agreements to facilitate recapitalization efforts. Our ownership has also been diluted to approximately 7% as part of these recapitalizations and to accommodate new investment from unrelated parties. We continue to lease HCAP software from Source Medical for approximately $4.2 million annually and we remain Source Medical’s primary customer. We believe that the licensing terms are as favorable as we could have received from an unaffiliated third party. We retain two of five seats, currently held by Gregory Doody and Tyler Murphy, on the Source Medical board of directors.

Summerville Healthcare Group

From 1997 through 2000, we invested approximately $13 million in Summerville Healthcare Group, a privately held operator of assisted living facilities. Richard M. Scrushy and Michael D. Martin both served as members of the board of directors of Summerville until 2000. As of December 31, 2000 indicators were present that we would not recover our investment, and as part of the restatement process, we recognized an impairment loss of $13 million.

U.S. HealthWorks, Inc.

In March 2001, we sold our occupational medicine business to U.S. HealthWorks, Inc. for approximately $43.1 million. The purchase price consisted of approximately $30.1 million in cash at closing, and two notes ($7 million and $6 million) for the balance. William T. Owens was appointed to the board of directors of U.S. HealthWorks in connection with the sale.

In April 2001, we loaned U.S. HealthWorks $2.9 million, which loan was repaid in 5 days. In May 2001, we paid U.S. HealthWorks $2 million to settle a dispute related to the transaction. In October 2002, we loaned U.S. HealthWorks $2.3 million (which was repaid in December 2002), paid U.S. HealthWorks $1.2 million to settle another dispute related to the transaction, and forgave the remaining $4 million due on the $6 million note. In April 2003, there was another dispute regarding the transaction that was resolved by us forgiving the $7 million note in 2004.

Transactions Involving Real Property

Balanced Care Corporation

From 2000 through 2003, we subleased space from Balanced Care Corporation and paid that company the following amounts: 2000 ($58,104), 2001 ($41,230), 2002 ($28,580), and 2003 ($10,796). George H. Strong was a director of Balanced Care in 1999 and 2000.

Capstone Capital Corporation

Capstone Capital Corporation (“Capstone”) was incorporated on March 31, 1994. Capstone was intended to qualify as a real estate investment trust. Its assets initially consisted of 10 HealthSouth properties and 10 properties owned by certain unrelated health care operators. Capstone purchased these properties from HealthSouth and the other operators and subsequently leased back the same properties to their prior owners. The purchase price of the HealthSouth properties sold to Capstone was approximately $51 million. HealthSouth properties made up 44.1% of Capstone’s portfolio at the time it filed its initial public offering.

The following table sets forth the approximate ownership of Capstone by HealthSouth and its then-directors and officers before and after completion of Capstone’s initial public offering in 1994. (See page 154 of 10K for table).

First Cambridge HCI Acquisitions, LLC

In December 2001, HealthSouth entered into an agreement with HealthCare Capital Investors, LLC (“HCI”) to sell and lease back land, buildings, and improvements associated with 13 HealthSouth facilities. The sale price for the property was approximately $81.5 million. Immediately following that transaction, HCI assigned all its rights and duties under the sale-leaseback agreement to First Cambridge. On the same day, we signed a master lease agreement with First Cambridge to lease back the 13 real properties from First Cambridge for 15 years. On December 27, 2001, First Cambridge financed this transaction with UBS AG (“UBS”) with the proceeds from an $82.5 million promissory note. We guaranteed First Cambridge’s debt for the financing of this transaction. During 2002, we paid approximately $9.5 million to First Cambridge under the terms of the master lease agreement.

First Cambridge was a partnership established by five members of our senior management team and two outside investors. The following table sets forth the approximate ownership of First Cambridge by HealthSouth directors, executive officers, and officers at the time of the sale-leaseback transaction.

December 31, 2001 Richard M. Scrushy(1) 20 % William T. Owens 10 % William W. Horton 5 % Malcolm E. McVay 5 % Weston L. Smith 5 % Richard Davis(2) 3 % Jason M. Brown 1 %

Total 49 %

(1) Shares held in Mr. Scrushy’s daughter’s name. (2) Shares held in Mr. Davis’ brother’s name.

First Cambridge defaulted on its loan to UBS and UBS demanded payment from HealthSouth under the terms of the guarantee agreement. As a result, we entered into a subsequent repurchase agreement with First Cambridge to effectively unwind the original agreement at a cost of $87.5 million. The repurchase agreement provided for our payment of approximately $82.5 million to UBS to repay the First Cambridge loan and our payment of approximately $5 million to First Cambridge to repurchase the 13 HealthSouth facilities originally sold to First Cambridge. We recognized an $8.8 million loss on payment of the UBS loan guarantee reflecting the difference between the amount due to First Cambridge and the amount paid to UBS on December 30, 2002.

Transactions Involving Vendors

AmerisourceBergen Corporation

From 2000 to 2003, we purchased pharmaceutical supplies from AmerisourceBergen Corporation (which was created through the 2001 merger of AmeriSource Health Corp. and Bergen Brunswig Corp.) in the following amounts: 2000 ($65,798,730), 2001 ($64,957,559), 2002 ($66,970,374), and 2003 ($86,1725,715). George H. Strong was a director of AmeriSource Health Corp. from 1992 until its merger with Bergen Brunswig Corp. in 2001.

Cannongate Partners, LLC

In 2001, we hired Cannongate Partners, LLC, which was owned in part by Michael D. Martin, to investigate a potential purchase of a HealthSouth subsidiary by Cannongate or a third party. We paid Cannongate $482,779 in 2001 and $28,243 in 2002.

G.G. Enterprises

From 1996 to 1999, we purchased computer and office equipment and supplies from G.G. Enterprises, which was a company owned by Richard M. Scrushy’s parents, in the following amounts: 1996 ($14,403,325), 1997 ($32,686,261), 1998 ($12,929,687), and 1999 ($56,117). We purchased equipment and supplies from G.G. Enterprises prior to 1996, but that information is not accessible by our current accounts payable system.

HealthStream, Inc.

We recently entered into a two-year contract with HealthStream, Inc. to provide learning solutions to our employees. Frank E. Gordon, the son of Joel C. Gordon, is a member of the board of directors of HealthStream. This contract is not material to HealthSouth. We believe that the licensing terms are as favorable as we could have received from an unaffiliated third party.

Imagyn Medical Technologies

We purchased OB/GYN products, surgical dissectors, and endoscopic tools and supplies from Imagyn Medical Technologies. These purchases totaled approximately $80,000 in each of 2000 and 2001. During this same period, John S. Chamberlin served as a director of Imagyn Medical Technologies.

Nelson-Brantley Glass Contractors

In connection with the construction of the Digital Hospital, in 2002 the general contractor on that project, which is an unrelated third party, entered into an approximately $5.5 million subcontract with Nelson-Brantley Glass Contractors, Inc. for the provision of glass required for the project. Larry D. Striplin, Jr. is the Chairman and Chief Executive Officer of Nelson-Brantley, and is also the company’s sole owner. Since that time we have paid the contractor approximately $7.2 million for glass and glazing work performed on the Digital Hospital.

Stradis Medical

From 2001 through 2003, HealthSouth purchased medical supplies from Stradis Medical in the following approximate amounts: 2001 ($10,319), 2002 ($35,682), and 2003 ($74,568). Jeff Jacobs, who is the son-in-law of Joel C. Gordon, is the President of Stradis Medical.

The Directorship Search Group

In 2003, we utilized the executive search services of The Directorship Search Group for which we paid the total amount of $195,840. George H. Strong was a member of the advisory board of The Directorship Search Group.

Other Transactions

Alabama Sports Medicine & Orthopedic Center

In January 2000, we became the practice manager under a clinical services agreement with the Alabama Sports Medicine & Orthopedic Center (“ASMOC”), which is a partnership formed by physicians James R. Andrews and Lawrence J. Lemak in January 1989, both of whom were, at one time, HealthSouth national medical directors. We entered into this agreement despite concerns regarding the profitability of the arrangement and risks related to reimbursements and other incentives given in connection with the transaction. On June 30, 2003, we terminated the employment agreements with Drs. Andrews and Lemak and made severance payments to them. We have also terminated the clinic services agreement.

American Sports Medicine Institute

American Sports Medicine Institute (“ASMI”) is a charitable organization operating a medical research organization. Dr. James R. Andrews, who is Chairman of ASMI, formed ASMI in 1987 along with his physician partners. Richard M. Scrushy, Larry D. Striplin, Jr., Larry D. Taylor, and P. Daryl Brown also acted as directors of ASMI. Pursuant to an agreement dated October 1, 1999 between ASMI and HealthSouth, we contributed to ASMI $256,050 in 1999, $414,200 in 2000, $596,300 in 2001, $252,069 in 2002 and $462,636 in 2003. We have terminated cash payments to ASMI. In addition, we provided approximately $350,000 of office space for use by ASMI. We have notified ASMI of our intent to reduce the amount of our rent support. We have been informed by ASMI that it intends to seek space in a new location not affiliated with HealthSouth.

Andrews-HealthSouth Racing, LLC/Aloha Racing Foundation

In 1997, we contributed $1 million to a newly formed entity, Andrews-HealthSouth Racing, LLC, in exchange for a 58.82% interest in the company. Dr. James R. Andrews contributed a sailboat, with an agreed upon value of $700,000, in exchange for a 41.18% interest in the company. The operating agreement for the company identifies Dr. Andrews as its Manager. It is unclear how our money was used.

In 1998 and 1999, we advanced $4.3 million to Aloha Racing Foundation (“Aloha”), which owned two yachts that competed to represent the U.S. in the America’s Cup races to be held in February 2000. Promissory notes and a lien interest in the two yachts secured this amount. We were a major sponsor of the two yachts operated by Aloha and were party to a management services agreement by which we agreed to process all accounts payable and payroll for Aloha. Dr. James R. Andrews was a partial owner of Aloha and served as President and Chairman of its board of directors. In addition, P. Daryl Brown and Larry D. Striplin, Jr. served as members of the board of directors of Aloha from December 1997 and March 1998, respectively. Richard M. Scrushy was named honorary co-chair of the board of directors of Aloha in October 1999. After Aloha’s challenge in the America’s Cup was unsuccessful, it declared bankruptcy in April 2000. We settled our secured claim against Aloha for $800,000, including $236,000 of accrued interest.

Medistar Corporation

Between 1997 and 2002, we developed several integrated medical plazas (“IMPs”) with Medistar Corporation, a medical real estate development firm based in Houston, Texas. These IMPs combined on one campus or at one facility physician medical offices, HealthSouth business operations, an ambulatory surgery center, and often physical therapy and diagnostic centers. Medistar was primarily responsible for identifying prominent orthopedic practices with whom to discuss the establishment of an IMP, locating suitable real estate, obtaining financing, and establishing leasing. An accounting analysis of certain of the HealthSouth-Medistar transactions reveals that we entered into lease arrangements and accepted financing on unfavorable terms and paid tenant improvement overage charges. One of our previous affiliates, Capstone Capital Corporation, financed various IMPs. See Item 13, Certain Relationships and Related Transactions, for additional information about Capstone Capital Corporation.

Kerlan-Jobe Orthopaedic Clinic

In 1995 we acquired physical therapy facilities at four locations owned by the Kerlan-Jobe Orthopaedic Clinic (“KJOC”) for $6,498,000. In connection with the transaction we assumed or executed leases or subleases, transferred KJOC employees to our payroll, purchased physical therapy accounts, and executed non-compete agreements with certain KJOC physicians. In 1997, our then-affiliate, Capstone Capital Corporation, entered into a development agreement with KJOC and Medistar to build an ambulatory surgery center within an IMP. We agreed to provide construction and working capital loans for that surgery center project. In 1998, we leased diagnostic equipment and services to KJOC. We later acquired the diagnostic business from KJOC. In December 2002 and January 2003 we made loans to an affiliate of KJOC totaling $3 million and assumed responsibility for management of the KJOC medical practice. This management relationship was terminated in 2003 and the parties are negotiating a settlement of outstanding issues.

Dr. Swaid N. Swaid and Neurological Surgery Associates, P.C.

Beginning in 1994, we, directly or through our subsidiaries, entered into various agreements with Dr. Swaid N. Swaid, including several medical directorship agreements, a physician employment agreement, a physician development agreement, a facility medical direction agreement, a physician services agreement, and a Gamma Knife Program medical direction agreement. We also entered into staffing and management services agreements, practice guaranty agreements and practice guaranty loan agreements with Neurological Surgery Associates, P.C. (“NSA”), a professional corporation wholly owned by Dr. Swaid. In September 2004, we entered into a settlement agreement with Dr. Swaid and NSA pursuant to which certain outstanding amounts due under agreements with NSA were repaid by NSA. However, a portion of one practice guaranty agreement remains in dispute and we have filed a lawsuit to recover outstanding amounts. During the course of Dr. Swaid’s employment and association with HealthSouth, we paid Dr. Swaid and NSA compensation for services rendered under the above agreements and provided Dr. Swaid with consultant and employee stock options and health benefits. We have terminated all agreements with Dr. Swaid with the exception of the Gamma Knife Program Medical Direction Agreement pursuant to which Dr. Swaid serves as a co-medical director of the program. See Item 3, Legal Proceedings, “Other Litigation,” for a description of a lawsuit between us and NSA.

Indebtedness of Management

In the past we made loans to executive officers. The following chart contains information about loans to executive officers that were outstanding as of December 31, 2003 and December 31, 2002. We do not have information about the nature of this indebtedness. See Item 11, Executive Compensation, “1999 Executive Equity Loan Plan,” for information concerning loans to executive officers to purchase HealthSouth common stock, which are not included in the following chart. (See page 158 of 10K).

4/12/2002 Proxy Information

In December 1999, we acquired 6,390,583 shares of Series A Convertible Preferred Stock of MedCenterDirect.com, Inc., a development-stage healthcare e-procurement company, in a private placement for a purchase price of $0.3458 per share. Various persons affiliated or associated with us, including various of our Directors and executive officers, also purchased shares in the private placement. Under a Stockholders Agreement, we and the other holders of Series A Convertible Preferred Stock, substantially all of whom may be deemed to be our affiliates or associates, have the right to elect 50% of the directors of MedCenterDirect.com. During 2001, we paid $100,044,296 for the purchase of goods, supplies and related services through MedCenterDirect.com on terms we believe to be no less favorable than those we could have obtained from an unrelated vendor. In addition, we guaranteed up to $15,000,000 of MedCenterDirect.com's indebtedness to an outside lender.

In April 2001, we established Source Medical Solutions, Inc. and acquired 3,932,500 shares of common stock in Source Medical in a private placement for a purchase price of $0.10 per share. Various persons associated with us, including various of our executive officers, also purchased shares in the private placement. We established Source Medical for the purpose of allowing commercial exploitation of our wireless clinical documentation system, which was originally known as the HEALTHSOUTH Clinical Automation Program and is now marketed by Source Medical under the name "TherapySource". As of July 1, 2001, we sold the assets, including the intellectual property assets, associated with TherapySource to Source Medical for $25,000,000 and entered into an agreement to license TherapySource back from Source Medical. During 2001, we paid Source Medical approximately $2,513,813 for services under such license. We believe that those payments were on terms no less favorable than those we could have obtained from an unrelated vendor. In addition, at December 31, 2001, we had a receivable of approximately $82,000,000 from Source Medical relating to costs we have advanced during its start-up period and guaranteed up to $6,000,000 of its indebtedness to an outside lender.

At times, we have made loans to executive officers to assist them in meeting various financial obligations or for other purposes. At December 31, 2001, loans in the aggregate principal amount of $678,514 were outstanding to William T. Owens, President and Chief Operating Officer and a Director of the Corporation. These loans bear interest at the rate of 1 1/4% per annum below the prime rate of AmSouth Bank of Alabama, Birmingham, Alabama, and are payable on demand. See "Executive Compensation and Other Information -- 1999 Executive Equity Loan Plan", for information concerning loans to executive officers to purchase HEALTHSOUTH common stock.