Case 2:04-cv-04020-JCJ Document 141 Filed 11/14/2008 Page ...securities.stanford.edu/filings-documents/1038/SEM04_01/20081114… · account of its funds C 43 and GF 5, James Shaver,

Case 2:04-cv-04020-JCJ Document 141 Filed 11/14/2008 Page 1 of 4

UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF PENNSYLVANIA

::

CLIFFORD C. MARSDEN and MING XU, :

Individually And On Behalf Of All Others :

Similarly Situated,::

Plaintiffs,:CIVIL ACTION NO.

v. : 2:04-cv-4020 (JCJ)

SELECT MEDICAL CORP., MARTIN:

JACKSON, ROBERT A. ORTENZIO, ROCCO :ORTENZIO, AND PATRICIA RICE,

::

Defendants. ::

MOTION PURSUANT TO RULE 23(e) OF THE FEDERAL RULES OF CIVILPROCEDURE FOR PRELIMINARY APPROVAL OF SETTLEMENT

TO: ALL PARTIES AND THEIR ATTORNEYS OF RECORD

PLEASE TAKE NOTICE that, upon the accompanying memorandum of law, the

Stipulation and Agreement of Settlement (the “Stipulation”) and the exhibits thereto, and all

prior proceedings had herein, Lead Plaintiffs Capital Invest, die Kapitalanlagegesellschaft der

Bank Austria Creditanstalt Gruppe GmbH (now known as Pioneer Investments Austria) for

account of its funds C 43 and GF 5, James Shaver, and Frank C. Bagatta (the “Class

Representatives”), by and through their attorneys, hereby move the Court, the Honorable J.

Curtis Joyner, presiding, for an order granting preliminary approval of the proposed settlement of

this putative securities class action.

WHEREFORE, the Class Representatives respectfully request that the Court enter an

Order substantially in the form of the proposed Preliminary Order for Notice and Hearing In

- 1 -


Connection With Settlement Proceedings, annexed hereto as Exhibit 1. A copy of the Stipulation

and exhibits is annexed hereto as Exhibit 2.

The Class Representatives do not request oral argument. This motion has been discussed

with Defendants’ Counsel and they do not oppose this motion and are in full agreement with the

text of the proposed Order (which conforms with the proposed Order appended to the

Stipulation). A Memorandum in Support follows.

If the Court would like to discuss any of the terms of the Stipulation or the scheduling of

the remaining proceedings, we will be pleased to appear before the Court, in person or by

telephone, at the Court’s earliest convenience. Otherwise, the parties to the Stipulation jointly

respectfully request that the Court enter the proposed Preliminary Order for Notice and Hearing

In Connection With Settlement Proceedings.

DATED: November 14, 2008

KENNEY, EGAN, McCAFFERTY &YOUNG

By: /s/ Brian P. Kenney Brian P. [email protected]

3031C Walton RoadSuite 202Plymouth Meeting, Pennsylvania 19462Telephone: (610) 940-9099Facsimile: (610) 940-0284

Liaison Counsel for Plaintiffs

- 2 -


MILBERG LLPSanford P. [email protected] H. [email protected] G. [email protected] Stahnke [email protected]

One Pennsylvania PlazaNew York, New York 10119-0165Telephone: (212) 594-5300Facsimile: (212) 868-1229

Co-Lead Counsel for Plaintiffs

MOTLEY RICE LLCWilliam H. [email protected]

One Corporate Center20 Church Street17th FloorHartford, Connecticut 06103Telephone: (860) 882-1681Facsimile: (860) 882-1682


MOTLEY RICE LLCAnn K. [email protected] C. [email protected]

28 Bridgeside Blvd.P.O. Box 1792Mt. Pleasant, South Carolina 29465Telephone: (843) 216-9000Facsimile: (843) 216-9500


- 3 -


TO: DECHERT LLPMichael L. [email protected] V. Donnelly [email protected]

Cira Centre2929 Arch StreetPhiladelphia, Pennsylvania 19104-2808Telephone: (215) 994-4000Facsimile: (215) 994-2222

Counsel for Defendants

- 4 -

Case 2:04-cv-04020-JCJ Document 141-2 Filed 11/14/2008 Page 1 of 34


CLIFFORD C. MARSDEN and MING XU, :

Individually And On Behalf Of All Others :

Similarly Situated,::

Plaintiffs,:

v. CIVIL ACTION NO.:2:04-cv-4020 (JCJ)

:SELECT MEDICAL CORP., MARTIN

:JACKSON, ROBERT A. ORTENZIO, ROCCO

:ORTENZIO, AND PATRICIA RICE,

::

Defendants.

PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF MOTION FORPRELIMINARY APPROVAL OF SETTLEMENT

KENNEY, EGAN, McCAFFERTY & MILBERG LLPYOUNG Sanford P. Dumain

Brian P. Kenney Joshua H. Vinik3031C Walton Road Lori G. FeldmanSuite 202 Kristi Stahnke McGregorPlymouth Meeting, Pennsylvania 19462 One Pennsylvania PlazaTelephone: (610) 940-9099 New York, New York 10119-0165Facsimile: (610) 940-0284

Telephone: (212) 594-5300Facsimile: (212) 868-1229

Liaison Counsel for PlaintiffsCo-Lead Counsel for Plaintiffs

MOTLEY RICE LLC MOTLEY RICE LLCWilliam H. Narwold Ann K. Ritter

One Corporate Center Frederick C. Baker20 Church Street 28 Bridgeside Blvd.17th Floor P.O. Box 1792Hartford, Connecticut 06103 Mt. Pleasant, South Carolina 29465Telephone: (860) 882-1681 Telephone: (843) 216-9000Facsimile: (860) 882-1682 Facsimile: (843) 216-9500

Co-Lead Counsel for Plaintiffs Co-Lead Counsel for Plaintiffs


TABLE OF CONTENTS

Page

I. PRELIMINARY STATEMENT 1

II. OVERVIEW OF THE LITIGATION 4

III. THE PROPOSED SETTLEMENT MEETS THE CRITERIA NECESSARY FORTHIS COURT TO GRANT PRELIMINARY APPROVAL 4

A. The Court’s Role and the Factors to be Considered in the PreliminaryApproval of a Class Action Settlement 4

B. The Proposed Settlement is Presumed To Be Fair to the Class 5

C. No Grounds Exist to Doubt the Fairness of the Settlement, the SettlementFalls Within the Range of Possible Approval, and the Settlement wasNegotiated By Experienced Counsel at Arms’ Length 6

1. The Settlement Has No Obvious Deficiencies, Such as PreferentialTreatment of Class Representatives or Segments of the Class orExcessive Compensation for Attorneys 8

2. The Settlement Falls Within the Range of Possible Approval 8

3. The Settlement Resulted from Arm’s Length Negotiations byExperienced Counsel Before a Mediator 10

D. Even if Not Simply Presumed to be Fair, the Proposed Settlement is Fair,Reasonable, and Adequate and Should be Preliminarily Approved 11

1. Continued Pursuit of this Action Would Be Complex, Expensive,and Prolonged 12

2. The Stage of the Proceedings and the Amount of DiscoveryCompleted Supports Approval of the Settlement 12

3. The Class Faces Risks Establishing Liability and Damages 13

4. The Range of Reasonableness of the Settlement Fund In Light ofthe Best Possible Recovery and All the Attendant Risks ofLitigation Supports Approval of the Settlement 16

IV. THE PROPOSED PLAN OF ALLOCATION IS FAIR AND REASONABLEAND SHOULD BE PRELIMINARILY APPROVED 18

V. THE PROPOSED NOTICE, SUMMARY NOTICE AND PROOF OF CLAIMARE ADEQUATE AND THE PROPOSED NOTICE PROGRAM

i


CONSTITUTES THE BEST NOTICE PRACTICABLE UNDER THECIRCUMSTANCES AND CONSTITUTES DUE AND SUFFICIENT NOTICEUNDER RULE 23, DUE PROCESS, AND THE PSLRA 21

VI. PROPOSED SCHEDULE OF EVENTS 23

VII. CONCLUSION

24

ii


TABLE OF AUTHORITIES

FEDERAL CASES

In re AT&T Corp. Sec. Litig.,455 F.3d 160 (3d Cir. 2006) 16

AUSA Life Ins. Co. v. Ernst & Young,39 Fed. Appx. 667 (2d Cir. 2002) 18

In re Auto Refinishing Paint Antitrust Litig.,MDL Dkt. No. 1426, 2003 U.S. Dist. LEXIS 4681 (E.D. Pa. May 17, 2003) 6, 7

In re Auto Refinishing Paint Antitrust Litig.,MDL Dkt. No. 1426, 2004 U.S. Dist. LEXIS 29163 (E.D. Pa. May 10, 2004) 7

Backman v. Polaroid Corp.,910 F.2d 10 (1st Cir. 1990) 18

Bell Atl. Corp. v. Bolger,2 F.3d 1304 (3d Cir. 1993) 4

Bentley v. Legent Corp.,849 F. Supp. 429 (E.D. Va. 1994) 18

In re Biogen Sec. Litig.,179 F.R.D. 25 (D. Mass. 1997) 18

In re Broadcom Corp. Sec. Litig.,No.01-CV-275, 2005 U.S. Dist. LEXIS 41976 (C.D. Cal. Sept. 12, 2005) 19

In re Cendant Corp. Litig.,264 F.3d 201 (3d Cir. 2001) 13

City of Detroit v. Grinnell Corp.,495 F.2d at 455 12, 17

In re Computron Software, Inc.,6 F. Supp. 2d 313 (D.N.J. 1998) 15

Consol. Edison, Inc. v. Ne. Utils.,332 F. Supp. 2d 639 (S.D.N.Y. 2004) 23

In re Corel Corp. Inc. Sec. Litig.,293 F. Supp. 2d 484 (E.D. Pa. 2003) 20

iii


In re DVI Sec. Litig.,No. 03-5336, 2005 U.S. Dist. LEXIS 17286 (E.D. Pa. May 31, 2005) 13

Diamond Chem. Co. v. Akzo Nobel Chems. B. V.,205 F.R.D. 33 (D.D.C. 2001) 21

Dura Pharm., Inc. v. Broudo,544 U.S. 336 (2005) 16, 19

Fisher Bros. v. Phelps Dodge Indus., Inc.,604 F. Supp. 446 (E.D. Pa. 1985) 6

In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig.,55 F.3d 768 (3d Cir. 1995) 4, 12

Girsh v. Jepson,521 F.2d 153 (3d Cir. 1975) 11, 12

Gordon v. Hunt,117 F.R.D. 58 (S.D.N.Y. 1987) 22

Gottlieb v. Wiles,11 F.3d 1004 (10th Cir. 1993) 21

Greer v. Shapiro & Kreisman,No. 00-4647, 2001 U. S. Dist. LEXIS 21114 (E.D. Pa. Dec. 18, 2001) 7

In re Health Mgmt., Inc. Sec. Litig.,No. 96-CV-889, 1999 U.S. Dist. LEXIS 22729 (E.D.N.Y. Sept. 25, 1999) 18

Herman & MacLean v. Huddleston,459 U.S. 375 (1983) 13

Jamison v. Butcher & Sherrerd,68 F.R.D. 479 (E.D. Pa. 1975) 6

Klingensmith v. BP Prods. N. Am.,No. 07-1065, 2008 U.S. Dist. LEXIS 72540 (E.D. Pa. Sept. 23, 2008) 7

Krangel v. Golden Rule Res., Inc.,194 F.R.D. 501 (E.D. Pa. 2000) 15

Krinsk v. Fund Asset Mgmt., Inc.,715 F. Supp. 472 (S.D.N.Y. 1988) 18

iv


Landy v. Amsterdam,815 F.2d 925 (3d Cir. 1987) 18

In re Lucent Techs., Inc. Sec. Litig.,307 F. Supp. 2d 633 (D.N.J. 2004) 20

In re Mego Fin. Corp. Sec. Litig.,213 F.3d 454 (9th Cir. 2000) 9

Mehling v. N.Y. Life Ins. Co.,246 F.R.D. 467 (E.D. Pa. 2007) 7

In re NASDAQ Mkt.-Makers Antitrust Litig.,MDL No. 1023, 1997 U.S. Dist. LEXIS 20835 (S.D.N.Y. Dec. 31, 1997) 3

Neuberger v. Shapiro,110 F. Supp. 2d 373 (E.D. Pa. 2000) 12

Newman v. Stein,464 F.2d 689 (2d Cir. 1972) 9

In re Oracle Sec. Litig.,No. 90-0931, 1994 U.S. Dist. LEXIS 21593 (N.D. Cal. June 16, 1994) 19

In re PNC Fin. Servs. Group, Inc. Sec. Litig.,440 F. Supp. 2d 421 (W.D. Pa. 2006) 14, 15

Petrovic v. Amoco Oil Co.,200 F.3d 1140 (8th Cir. 1999) 21

Philadelphia Hous. Auth. v. Am. Radiator & Standard Sanitary Corp.,323 F. Supp. 364 (E.D. Pa. 1970) 7

In re Prudential Ins. Co. of Am. Sales Practice Litig.,148 F.3d 283 (3d Cir. 1998) 4

Radol v. Thomas,772 F.2d 244 (6th Cir. 1985) 18

In re Ravisent Tech., Inc. Sec. Litig.,No. 00-CV-1014, 2005 U.S. Dist. LEXIS 6680 (E.D. Pa. Apr. 18, 2005) 11, 14, 16

Robbins v. Koger Prop.,116 F.3d 1441 (11th Cir. 1997) 18

v


In re Safety Components Int’l, Inc. Sec. Litig.,166 F. Supp. 2d 72 (D.N.J. 2001) 12, 16

Schwartz v. TXU Corp.,No. 3:02-CV-2243, 2005 U.S. Dist. LEXIS 27077 (N.D. Tex. Nov. 8, 2005) 19

Spring Garden United Neighbors, Inc. v. City of Philadelphia,No. 85-3209, 1986 U.S. Dist. LEXIS 29688 (E.D. Pa. Feb. 4, 1986) 6

Teachers' Retirement Sys. v. A. C.L.N., Ltd.,No. 01-CV-11814, 2004 U.S. Dist. LEXIS 8608 (S.D.N.Y. May 14, 2004) 8

Tenuto v. Transworld Sys.,No. 99-4228, 2001 U.S. Dist. LEXIS 17694 (E.D. Pa. Oct. 31, 2001) 6, 7

Thomas v. NCO Fin. Sys.,No. 00-5118, 2002 U.S. Dist. LEXIS 14157 (E.D. Pa. July 31, 2002) 6, 7

In re Union Carbide Corp. Consumer Prods. Bus. Sec. Litig.,718 F. Supp. 1099 (S.D.N.Y. 1989) 9

United States v. 412.93 Acres of Land,455 F.2d 1242 (3d Cir. 1972) 15

In re Veritas Software Corp. Sec. Litig.,No. 03-0283, 2005 U.S. Dist. LEXIS 30880 (N.D. Cal. Nov. 15, 2005) 19

Walsh v. Great Atl. & Pac. Tea Co., Inc.,726 F.2d 956 (3d Cir. 1983) 11, 21

In re Warfarin Sodium Antitrust Litig.,391 F.3d 516 (3d Cir. 2004) 16

In re Warner Commc'ns Sec. Litig.,618 F. Supp. 735 (S.D.N.Y. 1985) 13, 15

Weinberger v. Kendrick,698 F.2d 61 (2d Cir. 1982) 23

Winkler v. NRD Mining, Ltd.,198 F.R.D. 355 (E.D.N.Y. 2000) 18

FEDERAL STATUTES

Fed. R. Civ. P. 23(c)(2)(B) 21

vi


Fed. R. Civ. P. 23(e) 4, 21

15 U.S.C. §§ 78j(b) 1

15 U.S.C. § 78u-4(e)(1)

20

MISCELLANEOUS

Manual for Complex Litigation (Fourth) (Federal Judicial Center 21

James Wm. Moore, Moore's Federal Practice (3d ed. 2008) 21

Herbert B. Newberg & Alba Conte, Newberg on Class Actions (4th ed. 2002) 5

Laura E. Simmons and Ellen M. Ryan, Securities Class Action Settlements, 2007Review and Analysis, (Cornerstone Research 2008) 9

Stephanie Plancich, Ph.D., Brian Saxton, and Svetlana Starykh, 2007 Year-EndUpdate, Recent Trends in Shareholder Class Actions: Filings Return to 2005Levels as Subprime Cases Take Off; Average Settlements Hit New High,(NERA Economic Consulting Dec. 21, 2007) 9

Stephanie Plancich, Ph.D., Svetlana Starykh, and Brian Saxton, 2008 Mid-YearUpdate, 2008 Trends: Subprime and Auction-Rate Cases continue to DriveFilings, and Large Settlements Keep Averages High, (NERA EconomicConsulting July 29, 2008) 9

vii


I. PRELIMINARY STATEMENT

Class Representatives Capital Invest, die Kapitalanlagegesellschaft der Bank Austria

Creditanstalt Gruppe GmbH (now known as Pioneer Investments Austria) for account of its

funds C 43 and GF 5, James Shaver, and Frank C. Bagatta submit this memorandum in support

of the plaintiffs’ unopposed motion for an order granting preliminary approval of the proposed

settlement of this previously certified, securities class action (the “Action”) for $5,000,000 in

cash.

The class, certified by the Court’s Memorandum and Order dated October 25, 2007,

consists of purchasers of Select Medical Corp. (“Select Medical”) securities between July 29,

2003 and May 11, 2004, inclusive (the “Class Period”), who allegedly were damaged thereby.

The Action involves claims against Defendants Select Medical and Individual Defendants Martin

Jackson, Robert A. Ortenzio, Rocco Ortenzio, and Patricia Rice (the “Defendants”), under

Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15

U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder.

The Class Representatives allege that Defendants issued materially false and misleading

press releases and other statements emphasizing Select Medical’s strong growth and financial

and operational performance even though they allegedly knew or recklessly disregarded that the

Centers for Medicare and Medicaid Services (“CMS”) was going to propose a regulatory change

which, if adopted, would have negatively impacted the company’s financial success and ability

to continue to grow as planned. The Class Representatives also claim that these purportedly

material false and misleading statements artificially inflated the prices of Select Medical

securities.

- 1 -


After extensive motion practice and completion of pretrial discovery, the parties, having

conducted arm’s length negotiations with the assistance of Michael Young of JAMS acting as a

mediator, have settled the Action on the terms provided under the Stipulation and Agreement of

Settlement (the “Stipulation”).

By this motion, the Class Representatives seek entry of an order providing:

(1) preliminary approval of the settlement of the Action;

(2) approval of the form of notice describing the terms of the

settlement; Class Members’ rights with respect thereto; the proposed release of claims

against the Released Parties; the proposed Plan of Allocation of settlement proceeds; the

request for an award of attorneys’ fees and reimbursement of expenses to Plaintiffs’

Counsel; and the procedures for submitting Proofs of Claim; and

(3) setting the date for the hearing to consider final approval of the

settlement and the foregoing matters.

The Class Representatives and Plaintiffs’ Co-Lead Counsel believe that the proposed $5

million cash settlement is a good result under the circumstances, as Defendants continued to

maintain that the Class Representatives would not be able to establish Defendants’ liability, that

Defendants were willing and able to vigorously defend the litigation, and that Defendants

believed that they had valid defenses to the claims alleged. For the Class Representatives, the

principal reasons for the settlement are the cash benefit to be provided to the Class now, and the

elimination of the risk that no greater recovery (and, perhaps, no recovery at all) might be

obtained after a contested trial and likely appeals, possibly years into the future.

The Class Representatives believe that the claims asserted in the Action have merit.

However, the Class Representatives and their counsel recognize and acknowledge the expense

- 2 -


and length of continued proceedings necessary to prosecute the Action against the Defendants

through trial and through appeals. Plaintiffs’ Counsel also have taken into account the uncertain

outcome and the risk of any litigation, especially in complex actions such as the Action, as well

as the difficulties and delays inherent in such litigation. Plaintiffs’ Counsel also are mindful of

the inherent problems of proof under, and possible defenses to, the federal securities law

violations alleged in the Action. Plaintiffs’ Counsel believe that the settlement set forth in the

Stipulation confers substantial benefits upon the Class. Based on their evaluation, Plaintiffs’

Counsel have determined that the settlement set forth in the Stipulation is in the best interests of

the Class Representatives and the Class.

For purposes of preliminary approval, the issue before the Court is whether the settlement

is within the range of what might be approved as fair, reasonable and adequate in order to justify

mailing and publishing notice of the settlement and scheduling a final hearing. “Where the

proposed settlement appears to be the product of serious, informed, non-collusive negotiations . .

. and falls within the range of possible approval, preliminary approval should be granted.” In re

NASDAQ Mkt.-Makers Antitrust Litig., MDL No. 1023, 1997 U.S. Dist. LEXIS 20835, at *22

(S.D.N.Y. Dec. 31, 1997). The Court is not required at this point to make a final determination

regarding the reasonableness of the settlement, and no Class Members’ substantive rights will be

prejudiced by preliminary approval.

Plaintiffs’ Counsel became fully conversant with the strengths and weaknesses of this

case, and thus could fairly evaluate the risks associated with the continued litigation, as well as

the fairness of its resolution at this time. The Class Representatives submit that, in light of these

strengths and weaknesses and risks, the proposed settlement is a good result for, and is in the

best interests of, the Class. The settlement was the result of arm’s-length negotiations conducted

- 3 -


by experienced counsel, and warrants preliminary approval for purposes of notifying Class

Members.

II. OVERVIEW OF THE LITIGATION

For the sake of brevity, Plaintiffs’ Co-Lead Counsel respectfully refer the Court to the

Stipulation for a description of the history of the litigation, the claims asserted, the related

motion practice, the investigation and discovery undertaken, the negotiations and substance of

the Settlement and the substantial risks and uncertainties presented by and overcome in this

litigation, all of which demonstrate that the proposed Settlement should be approved.

III. THE PROPOSED SETTLEMENT MEETS THE CRITERIA NECESSARYFOR THIS COURT TO GRANT PRELIMINARY APPROVAL

A. The Court’s Role and the Factors to be Considered in the PreliminaryApproval of a Class Action Settlement

Fed. R. Civ. P. 23(e) requires judicial approval for any compromise of claims brought on

a class basis. Approval of a proposed settlement is a matter within the discretion of the district

court. See, e.g., In re Prudential Ins. Co. of Am. Sales Practice Litig., 148 F.3d 283, 299 (3d Cir.

1998). In addition, the settlement of complex class action litigation is clearly favored by the

courts. See In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768,

784 (3d Cir. 1995) (“The law favors settlement, particularly in class actions and other complex

cases where substantial judicial resources can be conserved by avoiding formal litigation.”); Bell

Atl. Corp. v. Bolger, 2 F.3d 1304, 1314 n.16 (3d Cir. 1993) (where a settlement is reached on

terms agreeable to all parties, it is to be encouraged).

The approval of a class action settlement is a two-step process. The first step is

preliminary determination of whether the proposed settlement is within the range of possible

approval. Manual for Complex Litigation (Fourth) § 21.632, 320-21 (Federal Judicial Center,

- 4 -


2004) (“MCL (Fourth)”). This determination is not a final fairness determination; its purpose,

rather, is to ascertain whether there is any reason not to notify the class members of the proposed

settlement and proceed with a fairness hearing. Id.

B. The Proposed Settlement is Presumed To Be Fair to the Class

Settlements negotiated at arms-length by experienced class counsel are presumed to

warrant preliminary approval. As one distinguished commentator on class actions has noted:

There is usually an initial presumption of fairness when a proposedclass settlement, which was negotiated at arm’s length by counselfor the class, is presented for court approval.

* * *

The initial presumption of fairness of a class settlement may beestablished by showing that:

1. the settlement has been arrived at by arm’s-lengthbargaining;

2. sufficient discovery has been taken or investigationcompleted to enable counsel and the court to actintelligently; [and]

3. the proponents of the settlement are counsel experienced insimilar litigation.

Herbert B. Newberg & Alba Conte, Newberg on Class Actions § 11:41, 92-93 (4th ed. 2002).

Here, all three prerequisites to the presumption of preliminary fairness are satisfied.

First, the terms of the proposed Settlement were reached only through arm’s-length

negotiations, with the assistance of Michael Young of JAMS acting as a mediator. There was no

collusion among counsel, as the case was hard fought on every front.

Second, the Settlement was reached after the completion of discovery and extensive

motion practice concerning the viability of the plaintiffs’ claims and the class certification issue.

- 5 -


Given the procedural status of the case, the parties obviously have a solid grasp of the respective

strengths and weaknesses of their positions.

Third, the proponents of the proposed Settlement are highly experienced in securities

class action litigation. The opinion of experienced counsel, as here, supporting the settlement is

entitled to considerable weight. Fisher Bros. v. Phelps Dodge Indus., Inc., 604 F. Supp. 446, 452

(E.D. Pa. 1985) (“Though the Court must independently evaluate a proposed [class action]

settlement, the professional judgment of counsel involved in the litigation is entitled to

significant weight.”); Spring Garden United Neighbors, Inc. v. City of Philadelphia, No. 85-

3209, 1986 U.S. Dist. LEXIS 29688, at *9-10 (E.D. Pa. Feb. 4, 1986). “A court should refrain

from merely substituting its own judgment of the merits of a settlement for that of counsel

intimately associated with the litigation and consequently far more able to weigh its relative

strengths and weaknesses.” Jamison v. Butcher & Sherrerd, 68 F.R.D. 479, 481 (E.D. Pa. 1975).

In short, the proposed Settlement warrants a presumption of fairness sufficient for

preliminary approval and the issuance of class notice.

C. No Grounds Exist to Doubt the Fairness of the Settlement, theSettlement Falls Within the Range of Possible Approval, and theSettlement was Negotiated By Experienced Counsel at Arms’ Length

In evaluating a settlement for preliminary approval, the Court must determine “whether

the proposed settlement discloses grounds to doubt its fairness or other obvious deficiencies such

as unduly preferential treatment of class representatives or segments of the class, or excessive

compensation of attorneys, and whether it appears to fall within the range of possible approval.”

Tenuto v. Transworld Sys., No. 99-4228, 2001 U.S. Dist. LEXIS 17694, at *3 (E.D. Pa. Oct. 31,

2001); Thomas v. NCO Fin. Sys., No. 00-5118, 2002 U.S. Dist. LEXIS 14157, at *14 (E.D. Pa.

July 31, 2002); In re Auto Refinishing Paint Antitrust Litig., MDL Dkt. No. 1426, 2003 U.S.

- 6 -


Dist. LEXIS 4681, at *2-3 (E.D. Pa. May 17, 2003); In re Auto Refinishing Paint Antitrust Litig.,

MDL Dkt. No. 1426, 2004 U.S. Dist. LEXIS 29163, at *4 (E.D. Pa. May 10, 2004); Mehling v.

N.Y. Life Ins. Co., 246 F.R.D. 467, 472 (E.D. Pa. 2007); Klingensmith v. BP Prods. N. Amer.,

No. 07-1065, 2008 U.S. Dist. LEXIS 72540, at *12-13 (E.D. Pa. Sept. 23, 2008); see also Greer

v. Shapiro & Kreisman, No. 00-4647, 2001 U.S. Dist. Lexis 21114, at *7 (E.D. Pa. Dec. 18,

2001).

In making this determination, the Court should give deference to the recommendation of

experienced counsel who have engaged in arms-length settlement negotiations. Tenuto, 2001

U. S. Dist. LEXIS 17694, at *3; In re Auto Refinishing Paint Antitrust Litig., 2003 U. S. Dist.

LEXIS 4681, at *3; Mehling, 246 F.R.D. at 472. The trial court need not “reach any ultimate

conclusions on the issues of fact and law that underlie the merits of the dispute.” Thomas, 2002

U. S. Dist. LEXIS 14157, at * 14 (citation omitted); In re Auto Refinishing Paint Antitrust Litig.,

2004 U.S. Dist. LEXIS 29163, at *4; Mehling, 246 F.R.D. at 472. Furthermore, preliminary

approval does not require the district court to answer the ultimate question of whether a proposed

settlement is fair, reasonable, and adequate. That decision is made at the final approval stage,

after notice of the settlement has been given to class members and they have had an opportunity

to voice their views of the settlement. Preliminary approval is merely the prerequisite to giving

notice so that “the proposed settlement . . . may be submitted to members of the prospective

class for their acceptance or rejection.” Philadelphia Hous. Auth. v. Am. Radiator & Standard

Sanitary Corp., 323 F. Supp. 364, 372 (E.D. Pa. 1970). At the final approval hearing, the Court

will have before it extensive papers submitted in support of the proposed Settlement and will be

asked to make a final determination as to whether the Settlement is fair, reasonable and adequate

under all of the circumstances surrounding the Action. Here, however, the Class Representatives

- 7 -


request only that the Court grant preliminary approval in order to authorize notifying Class

Members of the terms of the Settlement, and of their opportunity to object to the Settlement or to

request to be excluded from the Class.

All of the circumstances of the proposed Settlement support this Court’s preliminary

approval.

1. The Settlement Has No Obvious Deficiencies, Such asPreferential Treatment of Class Representatives orSegments of the Class or Excessive Compensation forAttorneys

First, the proposed Settlement has no obvious deficiencies. No preferential treatment is

being provided to the Class Representatives, any other Class Member, or any segment of the

Class. The Class Representatives will receive distributions from the Settlement proceeds

calculated in the same manner as the distributions to all other Class Members. Any additional

monies they receive will only be to reimburse them for their time and expenses they may have

incurred in their roles as representatives of the class. The Stipulation provides for payment, on a

pro rata basis, of the Net Settlement Fund. The Plan of Allocation specifies the means by which

the claims of the Class Members will be calculated and the Net Settlement Fund distributed.

2. The Settlement Falls Within the Range of PossibleApproval

Second, the proposed Settlement falls within the range of possible approval, as the Class

will receive a substantial recovery. The Defendants will pay $5,000,000 in cash into escrow,

which will earn interest from the date deposited until distribution of the funds to all Authorized

Claimants.

A “reasonable” settlement is not susceptible to a mathematical equation yielding a

particularized sum. Rather, in any case “there is a ‘range of reasonableness with respect to a

settlement.’” Teachers’ Ret. Sys. v. A.C.L.N., Ltd., No. 01-CV-11814, 2004 U.S. Dist. LEXIS

- 8 -


8608, at * 15 (S.D.N.Y. May 14, 2004) (quoting Newman v. Stein, 464 F.2d 689, 693 (2d Cir.

1972)). The dollar amount of the settlement itself is not decisive in the fairness determination.

In re Union Carbide Corp. Consumer Prods. Bus. Sec. Litig., 718 F. Supp. 1099, 1103 (S.D.N.Y.

1989). Indeed, a settlement can be approved even when it amounts to only a small percentage of

the recovery sought. Teachers' Ret. Sys., 2004 U.S. Dist. LEXIS 8608, at *15; see also In re

Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 459 (9th Cir. 2000).

The proposed $5.0 million cash Settlement is a good result, within the range of

reasonableness, and deserves preliminary approval. The Class’ damages expert applied NERA’s

multi-trader model for determining aggregate damages and estimated that the aggregate damages

for the Class was approximately $191.5 million. Thus, the $5 million cash Settlement represents

approximately 2.6% of these damages. This is comparable with recoveries from other approved

settlements. In 2007, median recoveries were 2.4% of losses. See Stephanie Plancich, Ph.D.,

Brian Saxton, and Svetlana Starykh, 2007 Year-End Update, Recent Trends in Shareholder Class

Actions: Filings Return to 2005 Levels as Subprime Cases Take Off; Average Settlements Hit

New High, 14 (NERA Economic Consulting Dec. 21, 2007) (available at

http://www.nera.com/Publication.asp?p_ID=3364) . Through the first half of 2008, median

recoveries were 2.8% of losses. See Stephanie Plancich, Ph.D., Svetlana Starykh, and Brian

Saxton, 2008 Mid-Year Update, 2008 Trends: Subprime and Auction-Rate Cases continue to

Drive Filings, and Large Settlements Keep Averages High, 21 (NERA Economic Consulting July

29, 2008) (available at http://www.nera.com/Publication.asp?p_ID=3544) . Another recent

academic study found that the median securities class action settlement in 2007 recovered 2.9%

of plaintiffs’ estimated damages. See Laura E. Simmons and Ellen M. Ryan, Securities Class

- 9 -


Action Settlements, 2007 Review and Analysis, 6 (Cornerstone Research 2008) (available at

http://securities.cornerstone.com/Settlements/crsettlements.htm).

Thus the proposed Settlement here is comparable with the average recovery in cases of

this nature. Of course, at trial, damages could have been found to be a lot less than the Class’

expert’s estimate and could have been zero; the $5.0 million recovery is infinitely better than no

recovery.

3. The Settlement Resulted from Arm’s LengthNegotiations by Experienced Counsel Before a Mediator

Finally, this Settlement was negotiated at arm’s-length over an extended period of time,

by competent counsel who had adequate information regarding the strengths and weaknesses of

the plaintiffs’ case, and was mediated by Michael Young of JAMS, a very experienced mediator.

The Settlement was reached after the completion of discovery and extensive motion practice

concerning the viability of the plaintiffs’ claims and the class certification issue. Given the

procedural status of the case, the parties have a solid grasp of the respective strengths and

weaknesses of their positions. Moreover, Plaintiffs’ Counsel are highly experienced in securities

class action litigation and believe the Settlement to be fair, reasonable, and adequate, and in the

best interest of the Class. In reaching that conclusion, Plaintiffs’ Counsel considered the

weaknesses of their case, the risks posed by further litigation, the likely recovery at trial, and the

risks and delays of the inevitable appeals that would follow a trial. The opinion of experienced

counsel, as here, supporting the settlement is entitled to considerable weight. Therefore, this

Court should defer to Plaintiffs’ Co-Lead Counsel’s determination that this Settlement meets the

prerequisites for preliminary approval.

- 10 -


D. Even if Not Simply Presumed to be Fair, the Proposed Settlement isFair, Reasonable, and Adequate and Should be PreliminarilyApproved

Before approving a class action settlement, a court must determine that it is “fair,

adequate, and reasonable.” In re Ravisent Tech., Inc. Sec. Litig., No. 00-CV-1014, 2005 U.S.

Dist. LEXIS 6680, at *22 (E.D. Pa. Apr. 18, 2005) (quoting Federal Rule of Civil Procedure

23(e)); Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975). Settlements that are fair, reasonable

and adequate are entitled to court approval. Walsh v. Great Atl. & Pac. Tea Co., Inc., 726 F.2d

956, 965 (3d Cir. 1983) (court’s finding that class action settlement was fair, reasonable, and

adequate was proper). “To determine whether a proposed settlement is fair, reasonable, and

adequate, the court must examine whether the interests of the class are better served by the

settlement than by further litigation.” MCL (Fourth) § 21.61, 309.

In this Circuit, factors to be considered in granting final approval of a proposed class

settlement include:

1. the complexity, expense, and likely duration of thelitigation (Girsh factor 1);

2. the stage of the proceedings and the amount of discoverycompleted (Girsh factor 3);

3. the risks of establishing liability and damages ( Girshfactors 4 and 5); and

4. the range of recovery in light of the best possible recovery(Girsh factor 8) and all the attendant risks of litigation(Girsh factor 9).

Girsh, 521 F.2d at 156-157 (3d Cir. 1975). In this instance, these factors all weigh in favor of

preliminary approval of the proposed Settlement.

- 11 -


1. Continued Pursuit of this Action Would Be Complex,Expensive, and Prolonged

Courts have consistently recognized the complexity, expense and possibly lengthy

duration of litigation to be important factors in evaluating the reasonableness of a settlement.

Girsh, 521 F.2d at 157 (citing City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir.

1974)); In re Gen. Motors Corp., 55 F.3d at 812 (“by measuring the costs of continuing on the

adversarial path, a court can gauge the benefit of settling the claim amicably.”); see also

Neuberger v. Shapiro, 110 F. Supp. 2d 373, 378 (E.D. Pa. 2000) (“the prospect of complexity

and additional costs encourages settlement approval”).

Litigating the case to its conclusion is undeniably an expensive and time-consuming

process. Additional time and expense for interlocutory and other appeals would inevitably

follow rulings on various motions and any final judgment, all of which could prolong the case

for years. Approval of the Settlement, on the other hand, permits an immediate resolution of the

claims against the Defendants. A settlement at this juncture provides a substantial and tangible

present recovery, without the attendant risk and delay of complex, expensive and prolonged

litigation and trial. See In re Safety Components Int’l, Inc. Sec. Litig., 166 F. Supp. 2d 72, 85

(D.N.J. 200 1) (“even if the Plaintiff Class were to recover a larger judgment at trial, which is not

guaranteed, the additional delay caused by a trial, post-trial motions and the appellate process,

would delay recovery for years”).

2. The Stage of the Proceedings and the Amount ofDiscovery Completed Supports Approval of theSettlement

This factor “captures the degree of case development that class counsel have

accomplished prior to settlement. Through this lens, courts can determine whether counsel had

an adequate appreciation of the merits of the case before negotiating.” In re Gen. Motors Corp.,

- 12 -


55 F.3d at 813; In re Cendant Corp. Litig., 264 F.3d 201, 235 (3d Cir. 2001), cert. den. sub nom.,

Mark v. Cal. Pub. Employees’ Ret. Sys., 535 U.S. 929 (2002) (citing same).

The parties did not reach this proposed Settlement until the matter had progressed

through decisions on a motion to dismiss and on a motion to certify the class. Pretrial fact

discovery had been completed and the parties exchanged expert reports as part of pretrial expert

discovery. A summary judgment motion had been fully briefed by both sides. Unquestionably,

this litigation is sufficiently advanced to justify a resolution by settlement, such that “the parties

certainly have a clear view of the strengths and weaknesses of their cases.” In re Warner

Commc’ns Sec. Litig., 618 F. Supp. 735, 745 (S.D.N.Y. 1985), aff’d, 798 F.2d 35 (2d Cir. 1986).

3. The Class Faces Risks Establishing Liability andDamages

To succeed on claims for securities fraud under Section 1 0(b) of the Exchange Act, and

Rule 1 0b-5 promulgated thereunder, a plaintiff must show as to each defendant: (i) a

misstatement or omission; (ii) of a material fact; (iii) made with scienter; (iv) on which plaintiff

relied; and (v) that proximately caused the plaintiff’s injury. In re DVI Sec. Litig., No. 03-5336,

2005 U.S. Dist. LEXIS 17286, at *16 (E.D. Pa. May 31, 2005). Each of these elements must be

proven by a preponderance of the evidence. Herman & MacLean v. Huddleston, 459 U.S. 375,

387-91 (1983). Thus, to prevail on the Exchange Act claims, the Class Representatives would

have the burden of demonstrating, inter alia, that Defendants were responsible for material

misstatements or omissions of fact concerning the company; that Defendants knowingly or

recklessly misstated or omitted the alleged material facts; that the Class justifiably relied upon

the Defendants’ misrepresentations; and that the Class suffered damages as a result of

Defendants’ misconduct. Plaintiffs’ Co-Lead Counsel firmly believe – based on their

investigation and discovery – that the Class Representatives’ claims against Defendants have

- 13 -


merit, and that the Class could ultimately prevail in any trial against Defendants. However,

Plaintiffs’ Co-Lead Counsel also recognize that Defendants deny any wrongdoing and would

vigorously contest all liability issues and that establishing liability at trial would by no means be

guaranteed.

The Class would face significant risks in establishing Defendants’ liability. The Class

Representatives would face challenges from Defendants as to the materiality of any alleged

misstatements or omissions and as to whether the Class suffered damages as a result.

The Class Representatives would also undoubtedly face challenges that they have not met

their burden of demonstrating that Defendants acted with the requisite scienter. Undoubtedly,

Defendants would vigorously oppose any claim that they knew or were severely reckless in not

knowing that the statements made during the Class Period were false and misleading.

Should the Class Representatives succeed in establishing liability issues and overcome

Defendants’ numerous defenses and potential defenses, the Class Representatives still would

have to carry their burden to prove damages and causation. See Ravisent, 2005 U.S. Dist. LEXIS

6680, at *30 (recognizing difficulty of proving damages and causation in securities action).

Although damages and causation are inextricably linked, each issue involves its own distinct

problems, and at any trial, Defendants would likely take the opportunity to contest both.

The determination of damages, like the determination of liability, is a complicated and

uncertain process, typically involving conflicting expert opinions. In re PNC Fin. Servs. Group,

Inc. Sec. Litig., 440 F. Supp. 2d 421, 434-435 (W.D. Pa. 2006). Plaintiffs’ Co-Lead Counsel

recognize that substantial disagreement in the form of expert testimony would likely exist at trial

as to the critical issues of the value of the securities at each point in time that each security was

purchased. Although Plaintiffs’ Co-Lead Counsel believe the Class would be able to provide

- 14 -


convincing expert testimony to sustain their burden on damages issues, one cannot predict how a

jury will weigh competing experts’ testimony. The reaction of a jury to such complex expert

testimony is highly unpredictable and expert testimony about damages could rest on many

subjective assumptions, any of which could be rejected by a jury as speculative or unreliable.

Id.; see also Krangel v. Golden Rule Res., Inc., 194 F.R.D. 501, 508 (E.D. Pa. 2000) (“the

experts’ damage calculations would probably vary significantly and therefore generate a ‘battle

of the experts’”); see also In re Computron Software, Inc., 6 F. Supp. 2d 313, 320 (D.N.J. 1998).

Plaintiffs’ Co-Lead Counsel recognize the possibility that, in such a battle, a jury may be swayed

by Defendants’ experts who would seek to minimize or eliminate the amount of the Class’ losses

by showing that the losses were attributable to factors other than the alleged misstatements and

omissions. See United States v. 412.93 Acres of Land, 455 F.2d 1242, 1247 (3d Cir. 1972) (“The

jury . . . is under no obligation to accept as completely true the testimony of any expert witness.

It may adopt as much of the testimony as appears sound, reject all of it, or adopt all of it”);

accord In re Warner Comm’ns Sec. Litig., 618 F. Supp. 735, 744-45 (S.D.N.Y. 1985) (approving

settlement where “it is virtually impossible to predict with any certainty which testimony would

be credited, and ultimately, which damages would be found to have been caused by actionable,

rather than the myriad nonactionable factors such as general market conditions.”). Thus, a jury

could find that damages were only a fraction of the amount that the Class Representatives claim,

or even that neither the Class Representatives nor the Class have suffered any compensable

damages.

Finally, Defendants might attempt to defeat the Class’ claims by asserting that the Class

Representatives cannot prove that Defendants’ alleged misstatements proximately caused the

Class Representatives’ damage, i.e., the Class Representatives cannot prove loss causation. This

- 15 -


doctrine allows a securities fraud defendant to argue that a portion of the damages is attributable

to causes other than the fraud. In this regard, Defendants could presumably point to factors other

than Defendants’ alleged violations of the securities laws to argue that there were other, actual

causes of the decline in prices for Select Medical securities. See Dura Pharm., Inc. v. Broudo,

544 U.S. 336 (2005).

In short, the elements of a securities fraud claim, particularly scienter, are very difficult

to prove, and, thus, in this case the Class faced the possibility of no recovery at all. The creation

of a $5 million cash settlement fund is a favorable result, when compared to the risk of continued

litigation.

4. The Range of Reasonableness of the Settlement Fund InLight of the Best Possible Recovery and All theAttendant Risks of Litigation Supports Approval of theSettlement

These two Girsh factors look at “how the settlement compares to the best and worst case

scenarios” by “evaluat[ing] whether the settlement represents a good value for a weak case or a

poor value for a strong case.” Ravisent, 2005 U.S. Dist. LEXIS 6680, at *32; In re Warfarin

Sodium Antitrust Litig., 391 F.3d 516, 538 (3d Cir. 2004); see also Safety Components Int’l., 166

F. Supp. 2d at 92 (“[i]n conducting this evaluation, it is recognized ‘that settlement represents a

compromise in which the highest hopes for recovery are yielded in exchange for certainty and

resolution and [courts should] guard against demanding too large a settlement based on the

court’s view of the merits of the litigation’”).

In addition, courts have found that the determination of a reasonable settlement is not

susceptible to a mathematical equation yielding a particularized sum, and that a settlement can be

approved even when it amounts to only a small percentage of the recovery sought. See In re

AT&T Corp. Sec. Litig., 455 F.3d 160, 170 (3d Cir. 2006) (district court did not abuse discretion

- 16 -


in finding settlement was an “excellent” result in light of the risk of establishing liability and

damages despite the fact that settlement possibly represented only 4% of the total damages

claimed); Detroit v. Grinnell Corp., 495 F.2d at 455 n.2 (noting that there is no reason, at least in

theory, why a satisfactory settlement could not amount to a “hundredth or even a thousandth part

of a single percent of the potential recovery”).

Plaintiffs’ Co-Lead Counsel believe that the Settlement, which provides an immediate

recovery of $5.0 million in cash, plus interest earned thereon from the date of deposit, provides a

very good recovery for the Class Members. As set forth above, that belief is based on the

strengths and weaknesses of the claims asserted, the evidence developed through investigation

and discovery in connection with the mediation and the amount of the damages that might be

ascribed to Defendants and proven at trial.

Although the Complaint withstood Defendants’ motion to dismiss, the Class still faced

substantive risks to survive Defendants’ pending motion for summary judgment and, if so, in

proving their case at trial, and possibly thereafter on appeal. The proposed Settlement provides

an immediate benefit to the Class and avoids these risks that no recovery might be achieved and

collected after a contested trial and likely appeals, possibly years into the future.

While the Class Representatives believe that the documentary and testimonial evidence in

this Action would demonstrate that Defendants violated the federal securities laws, the Class

Representatives acknowledge that if this Action were to proceed against Defendants, the Class

Representatives and the Class would run the risk of obtaining no recovery or a significantly

smaller one than presented herein. Defendants would undoubtedly present a completely different

picture of the relevant facts and circumstances that led to this Action being filed. Indeed,

Defendants have vigorously defended the case and, absent the Settlement, would continue to do

- 17 -


so. Furthermore, Plaintiffs’ Co-Lead Counsel are mindful of the risks, inherent problems of

proof, possible defenses to the federal securities law violations asserted, and the difficulty of

establishing damages.

Further, many securities class actions brought under the Exchange Act have been lost at

trial, on post-trial motion, or on appeal. For example, in Robbins v. Koger Prop., 116 F.3d 1441

(11th Cir. 1997), the Eleventh Circuit overturned an $81 million jury verdict for the plaintiff

class on loss causation grounds and ordered the entire litigation dismissed. In another case, the

class won a $38 million jury verdict and a motion for judgment n.o.v. was denied, but, on appeal,

the judgment was reversed and the case dismissed, resulting in a total loss after ten years of

active litigation. Backman v. Polaroid Corp., 910 F.2d 10 (1st Cir. 1990). 1

While the Class Representatives believe that they could have overcome these hurdles, the

Settlement removes any uncertainty in this area.

IV. THE PROPOSED PLAN OF ALLOCATION IS FAIR AND REASONABLEAND SHOULD BE PRELIMINARILY APPROVED

The proposed Plan of Allocation (the “Plan”) is set forth in the Notice (see pages 19-22

of Exhibit 1 to Exhibit A of the Stipulation). It provides for a proportionate distribution of the

net settlement fund to Class Members who submit acceptable Proofs of Claim. The Plan

recognizes an amount of claim (called the “Recognized Claim”) based on the Class Member’s

1 See also Winkler v. NRD Mining, Ltd., 198 F.R.D. 355 (E.D.N.Y. 2000) (granting defendants’motion for judgment as a matter of law after jury verdict for plaintiffs); AUSA Life Ins. Co. v. Ernst &Young, 39 Fed. Appx. 667 (2d Cir. 2002) (affirming district court’s dismissal after a full bench trial andearlier appeal and remand); In re Health Mgmt., Inc. Sec. Litig., No. 96-CV-889, 1999 U.S. Dist. LEXIS22729 (E.D.N.Y. Sept. 25, 1999) (jury verdict for auditor in securities case); In re Biogen Sec. Litig., 179F.R.D. 25 (D. Mass. 1997) (jury verdict for defendants); Bentley v. Legent Corp., 849 F. Supp. 429 (E.D.Va. 1994), aff’d sub nom, Herman v. Legent Corp., 50 F.3d 6 (4th Cir. 1995) (directed verdict in favor ofdefendants after plaintiffs’ presentation of its case to the jury); Radol v. Thomas, 772 F.2d 244 (6th Cir.1985) (summary judgment and jury verdict in favor of defendants in action challenging Marathon/U.S.Steel merger); Landy v. Amsterdam, 815 F.2d 925 (3d Cir. 1987) (directed verdict for defendants afterfive years of litigation; affirmed on appeal); Krinsk v. Fund Asset Mgmt., Inc., 715 F. Supp. 472(S.D.N.Y. 1988), aff’d, 875 F.2d 404 (2d Cir. 1989) (verdict for defendants after trial).

- 18 -


purchases of the relevant Select Medical securities during the Class Period, that were still held at

the end of the Class Period, when a corrective disclosure caused the removal of the alleged

artificial inflation. The Plan is consistent with the methods of calculating damages under the

PSLRA and is in conformity with the United States Supreme Court’s decision in Dura

Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005).

If approved, the Plan will govern how the settlement proceeds will be distributed among

Class Members who submit acceptable Proofs of Claim. Approval of a plan of allocation of a

settlement fund in a class action is “governed by the same standards of review applicable to

approval of the settlement as a whole: the plan must be fair, reasonable and adequate.” In re

Oracle Sec. Litig., No. 90-0931, 1994 U.S. Dist. LEXIS 21593, at *3 (N.D. Cal. June 16, 1994).

This requirement is met.

“A plan of allocation that reimburses class members based on the extent of their injuries

is generally reasonable.” Id. “[A] class action settlement need not necessarily treat all class

members equally.” Schwartz v. TXU Corp., No. 3:02-CV-2243, 2005 U.S. Dist. LEXIS 27077,

at *78 (N.D. Tex. Nov. 8, 2005). “[T]he fact that some class members may recover more than

they would have recovered at trial does not necessarily render the plan of allocation unfair to the

class as a whole ... an allocation of settlement proceeds need not be based on a precise

calculation of the damages to which each class member is entitled, as long as the allocation plan

as a whole is fair and reasonable.” In re Veritas Software Corp. Sec. Litig., No. 03-0283, 2005

U.S. Dist. LEXIS 30880, at *34-35 (N.D. Cal. Nov. 15, 2005). “’An allocation formula need

only have a reasonable, rational basis, particularly if recommended by experienced and

competent counsel.’” In re Broadcom Corp. Sec. Litig., No. 0 1 -CV-275, 2005 U.S. Dist. LEXIS

41976, at *7 (C.D. Cal. Sept. 12, 2005) (citation omitted).

- 19 -


Here, the Plan was prepared by Plaintiffs’ Counsel in consultation with its damages

expert. The Plan reflects facts regarding the alleged artificial inflation caused by Defendants’

misrepresentations and omissions during the Class Period and the subsequent decline in the

trading prices of Select Medical common stock, 7.5% Notes due August 2013 (“7.5% Notes”)

and 9.5% Notes due June 2009 ( “9.5% Notes”) after disclosure of Select Medical’s true

condition was made.

The Plan attempts to return Class Members to the status they occupied before purchasing

Select Medical securities at allegedly inflated prices by treating the Settlement as a fund to

compensate Class Members for the difference between the purchase price they paid for the

relevant Select Medical securities and the trading prices following the alleged corrective

disclosure.

Here, the Plan is fair and reasonable because it calculates each Class Member’s

recognized loss depending on the relative strengths of the claims. See In re Lucent Techs., Inc.

Sec. Litig., 307 F. Supp. 2d 633, 649 (D.N.J. 2004) (“A plan of allocation that reimburses class

members based on the type and extent of their injuries is generally reasonable”); In re Corel

Corp. Inc. Sec. Litig., 293 F. Supp. 2d 484, 493 (E.D. Pa. 2003) (courts “generally consider plans

of allocation that reimburse class members based on the type and extent of their injuries to be

reasonable”).

Additionally, the Plan also comports with Section 21D of the PSLRA, 15 U.S.C. § 78u-

4(e)(1). The Plan treats Class Members in an equitable manner.

Because the Plan is fair and reasonable, Plaintiffs’ Counsel respectfully submits that it

should be preliminarily approved by the Court.

- 20 -


V. THE PROPOSED NOTICE, SUMMARY NOTICE AND PROOF OFCLAIM ARE ADEQUATE AND THE PROPOSED NOTICE PROGRAMCONSTITUTES THE BEST NOTICE PRACTICABLE UNDER THECIRCUMSTANCES AND CONSTITUTES DUE AND SUFFICIENTNOTICE UNDER RULE 23, DUE PROCESS, AND THE PSLRA

Rule 23(e) governs notice requirements for settlements in class actions. The Rule

provides that a class action shall not be dismissed or compromised without the approval of the

court and notice of the proposed dismissal or compromise shall be given to all members of the

class in such manner as the court directs. Fed. R. Civ. P. 23(e). Here the parties propose to mail

individual copies of the Notice of Pendency of Class Action and Proposed Settlement, Motion

for Attorneys’ Fees and Settlement Fairness Hearing (the “Notice”) and Proof of Claim and

Release (the “Proof of Claim”) to all Class Members who can be identified from Select

Medical’s transfer records, and will publish a Summary Notice of Pendency of Class Action,

Proposed Settlement and Settlement Hearing (the “Summary Notice”) in Investor’s Business

Daily and transmit the text of the Summary Notice as a press release over Business Wire.

Courts have found that notice substantially equivalent to that provided for in the instant

Settlement constituted the “best notice practicable under the circumstances,” satisfying the

requirements of Fed. R. Civ. P. 23(c)(2)(B). Diamond Chem. Co. v. Akzo Nobel Chems. B. V.,

205 F.R.D. 33, 34 (D.D.C. 2001); see generally, MCL (Fourth) § 21.633, at 321-22; 5 James

Wm. Moore, Moore’s Federal Practice § 23.102, 23-433 - 38 (3d ed. 2008). Trial courts are

given substantial latitude to determine fair and expedient procedures. See, e.g., Petrovic v.

Amoco Oil Co., 200 F.3d 1140, 1153 (8th Cir. 1999); Gottlieb v. Wiles, 11 F.3d 1004, 1013 (10th

Cir. 1993) (finding the content and form of notices are left to the court’s discretion); Walsh, 726

F.2d at 962 (although some post-settlement notice is required, form of notice is discretionary).

The generally accepted method to provide notice to class members is by direct mail and

publication in newspapers. Diamond Chem., 205 F.R.D. at 33 (approving of such notice plan);

- 21 -


see also Gordon v. Hunt, 117 F.R.D. 58, 63 (S.D.N.Y. 1987) (combination of mailed and

published notice is “long-accepted norm in large class actions”); See also, 5 James Wm. Moore,

Moore’s Federal Practice § 23.102[3][a] and [b], 23-435 - 37 (3d ed. 2008).

The parties have carefully drafted the notice provisions of the Settlement to provide the

best notice practicable to the Class and respectfully submit that the proposed notices, the Notice

(based in part on the illustrative notice of proposed class action certification and settlement

developed by the Federal Judicial Center at the request of the Subcommittee on Class Actions of

the U.S. judicial branch’s Advisory Committee on the Federal Rules of Civil Procedure) and the

Summary Notice, which are annexed as Exhibits 1 and 3 to the proposed Preliminary Order for

Notice and Hearing In Connection With Settlement Proceedings (the “Preliminary Order”),

submitted herewith, are adequate. See generally, 5 James Wm. Moore, Moore’s Federal

Practice § 23.104[1][b], 23-445 (3d ed. 2008).

If approved by the Court, the Notice, substantially in the form of Exhibit 1 to the

proposed Preliminary Order, along with the Proof of Claim substantially in the form of Exhibit 2

to the proposed Preliminary Order, will be sent by first-class mail to each Class Member

identified from Select Medical’s transfer records as purchasers of the securities of Select Medical

between July 29, 2003 and May 11, 2004, inclusive, as well as to brokerage firms and other

nominees who regularly act as nominees for beneficial purchasers of securities.

In addition, a summary notice substantially in the form of Exhibit 3 to the proposed

Preliminary Order will be published in Investor’s Business Daily and over Business Wire within

ten (10) days of the mailing of the Notice.

As required by Federal Rule of Civil Procedure 23(c)(2), the notices will inform Class

Members of the claims alleged in the action, the terms of the proposed settlement and their rights

- 22 -


as Class Members to opt out or object to the $5.0 million cash settlement, or otherwise object to

the Plan of Allocation and/or the proposed attorneys’ fees and expenses. See Consol. Edison,

Inc. v. Ne. Utils., 332 F. Supp. 2d 639, 652 (S.D.N.Y. 2004) (“Due process requires that the

notice to class members ‘fairly apprise the . . . members of the class of the terms of the proposed

settlement and of the options that are open to them in connection with [the] proceedings.’”)

(citations omitted); Weinberger v. Kendrick, 698 F.2d 61, 70 (2d Cir. 1982); see generally, MCL

(Fourth) § 21.312, 294-95; 5 James Wm. Moore, Moore’s Federal Practice § 23.104, 23-444 -

51 (3d ed. 2008).

Lastly, as part of the preliminary approval of the settlement, the Class Representatives

also respectfully request the appointment of Gilardi & Co. LLC (“Gilardi”) as Claims

Administrator. As Claims Administrator, Gilardi will be responsible for, among other things,

mailing the Notice to the Class Members, reviewing claims submitted by Class Members, and

compiling a distribution schedule to Class Members. Gilardi has extensive experience in

settlement administration and will adequately fulfill its duties in this case.

The proposed form of notice takes into account the identity and location of the Class

Members and specifies the most practicable method of providing notice to them. The traditional

methods of providing notice proposed in this case are precisely those recognized as reasonably

calculated to notify class members of a proposed settlement under Rule 23(e). See MCL

(Fourth), § 21.312, 294.

VI. PROPOSED SCHEDULE OF EVENTS

The Court’s entry of the proposed Preliminary Order would, among other things, (i)

direct notice of the Settlement to all members of the Class and (ii) schedule a hearing to consider

whether the Settlement should be approved as being fair, reasonable, and adequate (the

- 23 -


“Settlement Fairness Hearing”). As such, the Preliminary Order sets certain deadlines, which the

parties recommend for insertion into the Preliminary Order as follows:

Notice Mailed to Class Members (Preliminary 30 days after entry of Preliminary OrderOrder, paragraph 5)

Summary Notice published (Preliminary within 10 days of mailing of notice to the ClassOrder, paragraph 6)

Deadline for requesting exclusion from the 60 days after mailing of notice to the ClassSettlement (Preliminary Order, paragraph 9)or objecting to the Settlement, the proposedPlan of Allocation, and the request forattorneys’ fees and expenses (PreliminaryOrder, paragraph 11)

Settlement Fairness Hearing (Preliminary At the Court’s convenience, on or after 81 daysOrder, paragraph 3) after mailing of notice to the Class [at least 21

days after the exclusion/objection deadline]

Deadline for submitting Proof of Claim forms 30 days after the Settlement Fairness Hearing(Preliminary Order, paragraph 8(a))

VII. CONCLUSION

Counsel for the parties have reached this proposed Settlement following extensive

discussions and arm’s-length negotiations. The Court need not determine at this stage whether

the Settlement is fair, reasonable and adequate. The Court is merely being asked to permit notice

of the terms of the Settlement be sent to the Class Members and to schedule a final hearing to

consider the fairness of the Settlement, entry of a proposed final judgment and counsel’s request

for an award of fees and reimbursement of expenses. The Class Representatives respectfully

request that the Court grant approval of the unopposed motion for an order preliminarily

approving the proposed Settlement and enter the proposed Preliminary Order for Notice and

Hearing In Connection With Settlement Proceedings, submitted herewith.

- 24 -



KENNEY, EGAN, McCAFFERTY &YOUNG

By: /s/ Brian P. Kenney Brian P. [email protected]


Liaison Counsel for Plaintiffs

MILBERG LLPSanford P. [email protected] H. [email protected] G. [email protected] Stahnke [email protected]



- 25 -


MOTLEY RICE LLCWilliam H. [email protected]

One Corporate Center20 Church Street17th FloorHartford, Connecticut 06103Telephone: (860) 882-1681Facsimile: (860) 882-1682


MOTLEY RICE LLCAnn K. [email protected] C. [email protected]



- 26 -



CLIFFORD C. MARSDEN and MING XU,Individually And On Behalf Of All OthersSimilarly Situated,

Plaintiffs,

CIVIL ACTION NO.V. 2:04-cv-4020 (JCJ)

SELECT MEDICAL CORP., MARTINJACKSON, ROBERT A. ORTENZIO, ROCCOORTENZIO, AND PATRICIA RICE,

Defendants.

PRELIMINARY ORDER FOR NOTICE AND HEARING IN CONNECTIONWITH SETTLEMENT PROCEEDINGS

WHEREAS, on November 5, 2008, the parties to the above-entitled action (the "Action")

entered into a Stipulation and Agreement of Settlement (the "Stipulation") which is subject to

review under Rule 23 of the Federal Rules of Civil Procedure and which, together with the

exhibits thereto, sets forth the terms and conditions for the proposed settlement of the claims

alleged in the Complaint on the merits and with prejudice; and

WHEREAS, pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure, this

Action was previously certified as a class action on behalf of all persons who purchased the

securities of Select Medical Corp. between July 29, 2003 and May 11, 2004, inclusive, and who

were damaged thereby. Excluded from the Class are the Defendants, the officers and directors

of Select Medical Corporation at all relevant times, members of their immediate families and

their legal representatives, heirs, successors or assigns and any entity in which Defendants have

or had a controlling interest; and


WHEREAS, the Court having read and considered the Stipulation and the accompanying

documents; and the parties to the Stipulation having consented to the entry of this Order; and all

capitalized terms used herein having the meanings defined in the Stipulation;

NOW, THEREFORE, IT IS HEREBY ORDERED, this day of

2008 that:

1. The Court does hereby preliminarily approve the Stipulation and the Settlement

set forth therein, subject to further consideration at the Settlement Fairness Hearing described

below.

2. A hearing (the "Settlement Fairness Hearing") pursuant to Rule 23(e) of the

Federal Rules of Civil Procedure is hereby scheduled to be held before the Court on

, 2009, at _.m. for the following purposes:

(a) to finally determine whether this Action satisfies the applicable

prerequisites for class action treatment under Rules 23(a) and (b) of the Federal Rules of Civil

Procedure;

(b) to determine whether the proposed Settlement is fair, reasonable, and

adequate, and should be approved by the Court;

(c) to determine whether the Order and Final Judgment as provided under the

Stipulation should be entered, dismissing the Complaint filed herein, on the merits and with

prejudice, and to determine whether the release by the Class of the Settled Claims, as set forth in

the Stipulation, should be provided to the Released Parties;

2


(d) to determine whether the proposed Plan of Allocation for the proceeds of

the Settlement is fair and reasonable, and should be approved by the Court;

(e) to consider Plaintiffs' Counsel's application for an award of attorneys'

fees and expenses; and

(f) to rule upon such other matters as the Court may deem appropriate.

3. The Court reserves the right to approve the Settlement with or without

modification and with or without further notice of any kind. The Court further reserves the right

to enter its Order and Final Judgment approving the Stipulation and dismissing the Complaint on

the merits and with prejudice regardless of whether it has approved the Plan of Allocation or

awarded attorneys' fees and expenses.

4. The Court approves the form, substance and requirements of the Notice of

Pendency of Class Action and Proposed Settlement, Motion for Attorneys' Fees and Settlement

Fairness Hearing (the "Notice") and the Proof of Claim form, annexed hereto as Exhibits 1 and 2

respectively.

5. The Court approves the appointment of Gilardi & Co. LLC as the Claims

Administrator. The Claims Administrator shall cause the Notice and the Proof of Claim,

substantially in the forms annexed hereto, to be mailed, by first class mail, postage prepaid, on or

before , 2009, to all Class Members who can be identified with reasonable

effort. Pursuant to the terms of the Stipulation, the Defendants shall cause Select Medical's

transfer records and shareholder information to be made available to the Claims Administrator

for the purpose of identifying and giving notice to the Class. The Claims Administrator shall use

3


reasonable efforts to give notice to nominee purchasers such as brokerage firms and other

persons or entities who purchased Select Medical securities during the Class Period as record

owners but not as beneficial owners. Such nominee purchasers are directed, within seven (7)

days of their receipt of the Notice, to either forward copies of the Notice and Proof of Claim to

their beneficial owners, or to provide the Claims Administrator with lists of the names and

addresses of the beneficial owners, and the Claims Administrator is ordered to send the Notice

and Proof of Claim promptly to such identified beneficial owners. Nominee purchasers who

elect to send the Notice and Proof of Claim to their beneficial owners shall send a statement to

the Claims Administrator confirming that the mailing was made as directed. Additional copies

of the Notice shall be made available to any record holder requesting such for the purpose of

distribution to beneficial owners, and such record holders shall be reimbursed from the Gross

Settlement Fund, upon receipt by the Claims Administrator of proper documentation, for the

reasonable expense of sending the Notices and Proofs of Claim to beneficial owners. Plaintiffs'

Co-Lead Counsel shall, at or before the Settlement Fairness Hearing, file with the Court proof of

mailing of the Notice and Proof of Claim.

6. The Court approves the form of Publication Notice of the pendency of this class

action and the proposed settlement in substantially the form and content annexed hereto as

Exhibit 3 and directs that Plaintiffs' Co-Lead Counsel shall cause the Publication Notice to be

published in Investor's Business Daily and transmitted over Business Wire within ten days of the

mailing of the Notice. Plaintiffs' Co-Lead Counsel shall, at or before the Settlement Fairness

Hearing, file with the Court proof of publication of the published notice.

7. The form and content of the Notice, and the method set forth herein of notifying

the Class of the Settlement and its terms and conditions, meet the requirements of Rule 23 of the

4


Federal Rules of Civil Procedure, Section 211)(a)(7) of the Securities Exchange Act of 1934, 15

U.S.C. § 78u-4(a)(7) as amended by the Private Securities Litigation Reform Act of 1995, and

due process, constitute the best notice practicable under the circumstances, and shall constitute

due and sufficient notice to all persons and entities entitled thereto.

8. In order to be entitled to participate in the Net Settlement Fund, in the event the

Settlement is effected in accordance with the terms and conditions set forth in the Stipulation,

each Class Member shall take the following actions and be subject to the following conditions:

(a) A properly executed Proof of Claim (the "Proof of Claim"), substantially

in the form attached hereto as Exhibit 2, must be submitted to the Claims Administrator, at the

Post Office Box indicated in the Notice, postmarked not later than , 2009.

Such deadline may be further extended by Court Order. Each Proof of Claim shall be deemed to

have been submitted when postmarked (if properly addressed and mailed by first class mail,

postage prepaid) provided such Proof of Claim is actually received prior to the motion for an

order of the Court approving distribution of the Net Settlement Fund. Any Proof of Claim

submitted in any other manner shall be deemed to have been submitted when it was actually

received at the address designated in the Notice.

(b) The Proof of Claim submitted by each Class Member must satisfy the

following conditions: (i) it must be properly completed, signed and submitted in a timely

manner in accordance with the provisions of the preceding subparagraph; (ii) it must be

accompanied by adequate supporting documentation for the transactions reported therein, in the

form of broker confirmation slips, broker account statements, an authorized statement from the

broker containing the transactional information found in a broker confirmation slip, or such other

5


documentation as may be deemed adequate by the Claims Administrator; (iii) if the person

executing the Proof of Claim is acting in a representative capacity, a certification of his current

authority to act on behalf of the Class Member must be included in the Proof of Claim; and (iv)

the Proof of Claim must be complete and contain no material deletions or modifications of any of

the printed matter contained therein and must be signed under penalty of perjury.

(c) As part of the Proof of Claim, each Class Member shall submit to the

jurisdiction of the Court with respect to the claim submitted, and shall (subject to effectuation of

the Settlement) release all Settled Claims as provided in the Stipulation.

9. Class Members shall be bound by all determinations and judgments in this

Action, whether favorable or unfavorable, unless such persons request exclusion from the Class

in a timely and proper manner, as hereinafter provided. A Class Member wishing to make such

request shall mail the request in written form by first class mail postmarked no later than

, 2009, to the address designated in the Notice. Such request for exclusion

shall clearly indicate the name, address and telephone number of the person seeking exclusion,

that the sender requests to be excluded from the Class in the Select Medical Securities Litigation,

and must be signed by such person. Such persons requesting exclusion are also directed to state:

the date(s), price(s), and the type(s) and amount(s) of all purchases and sales of Select Medical

securities during the Class Period. The request for exclusion shall not be effective unless it

provides the required information and is made within the time stated above, or the exclusion is

otherwise accepted by the Court.

10. Class Members requesting exclusion from the Class shall not be entitled to

receive any payment out of the Net Settlement Fund as described in the Stipulation and Notice.

6


11. The Court will consider comments and/or objections to the Settlement, the Plan of

Allocation, or the award of attorneys' fees and reimbursement of expenses only if such

comments or objections and any supporting papers are filed in writing with the Clerk of the

Court, United States District Court, James A. Byrne United States Courthouse, 601 Market

Street, Philadelphia, Pennsylvania 19106-1797, and copies of all such papers are served, on or

before , 2009, upon each of the following: William H. Narwold, Esq., Motley

Rice LLC, One Corporate Center, 20 Church Street, 17th Floor, Hartford, Connecticut 06103

and Sanford P. Dumain, Esq., Milberg LLP, One Pennsylvania Plaza, New York, New York

10119-0165, on behalf of the Class Representatives and the Class; and Michael L. Kichline,

Esq., Dechert LLP, Cira Centre, 2929 Arch Street, Philadelphia, Pennsylvania 19104-2808 on

behalf of the Defendants. Attendance at the hearing is not necessary; however, persons wishing

to be heard orally in opposition to the approval of the Settlement, the Plan of Allocation, and/or

the request for attorneys' fees are required to indicate in their written objection their intention to

appear at the hearing. Persons who intend to object to the Settlement, the Plan of Allocation,

and/or counsel's application for an award of attorneys' fees and expenses and desire to present

evidence at the Settlement Fairness Hearing must include in their written objections the identity

of any witnesses they may call to testify and exhibits they intend to introduce into evidence at the

Settlement Fairness Hearing. Class Members do not need to appear at the hearing or take any

other action to indicate their approval.

12. Pending final determination of whether the Settlement should be approved, the

Class Representatives, all Class Members, and each of them, and anyone who acts or purports to

act on their behalf, shall not institute, commence or prosecute any action which asserts any of the

Settled Claims against any Released Party.

7


13. As provided in the Stipulation, Plaintiffs' Co-Lead Counsel may pay the Claims

Administrator the reasonable fees and costs associated with giving notice to the Class and the

review of claims and administration of the Settlement out of the Gross Settlement Fund without

further order of the Court.

14. If: (a) the Settlement is terminated by Defendants pursuant to paragraph 22 of the

Stipulation; or (b) any specified condition to the Settlement set forth in the Stipulation is not

satisfied and Defendants or the Class Representatives elect to terminate the Settlement as

provided in paragraph 24 of the Stipulation, then, in any such event, the Stipulation, including

any amendment(s) thereof, and this Preliminary Order shall be null and void, of no further force

or effect, and without prejudice to any party, and may not be introduced as evidence or referred

to in any actions or proceedings by any person or entity, and each party shall be restored to his,

her or its respective position immediately prior to the execution of the Stipulation.

15. The Court retains exclusive jurisdiction over the Action to consider all further

matters arising out of or connected with the Settlement.

Dated: Philadelphia, Pennsylvania 2008

Honorable J. Curtis JoynerUNITED STATES DISTRICT JUDGE

8




Plaintiffs,

CIVIL ACTION NO.V • 2:04-cv-4020 (JCJ)


Defendants.

STIPULATION AND AGREEMENT OF SETTLEMENT

This Stipulation and Agreement of Settlement (the "Stipulation") is submitted pursuant to

Rule 23(e) of the Federal Rules of Civil Procedure. Subject to the approval of the Court, this

Stipulation is entered into among Lead Plaintiffs Capital Invest, die Kapitalanlagegesellschaft

der Bank Austria Creditanstalt Gruppe GmbH (now known as Pioneer Investments Austria) for

account of its funds C 43 and GF 5, James Shaver, and Frank C. Bagatta (the "Class

Representatives") on behalf of themselves and the Class (as hereinafter defined) and Defendants

Select Medical Corp. ("Select Medical"), Martin Jackson, Robert A. Ortenzio, Rocco Ortenzio,

and Patricia Rice (the "Defendants"), by and through their respective counsel.

WHEREAS:

A. On August 24, 2004, this securities fraud class action was filed against Select

Medical Corp. and Individual Defendants Martin Jackson, Robert A. Ortenzio, Rocco Ortenzio,

and Patricia Rice on behalf of all allegedly injured investors who purchased Select Medical

Corporation securities between July 29, 2003 and May 11, 2004, inclusive. The action alleged


violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange

Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and Rule l Ob-5 promulgated thereunder, 17 C.F.R. §

240. l Ob-5;

B. Capital Invest, die Kapitalanlagegesellschaft der Bank Austria Creditanstalt

Gruppe GmbH (now known as Pioneer Investments Austria) for account of its funds C 43 and

GF 5, James Shaver, and Frank C. Bagatta were designated Lead Plaintiffs pursuant to the

Private Securities Litigation Reform Act of 1995 ("PSLRA") by Order of the Court on February

16, 2005;

C. By Order of the Court dated February 16, 2005, Milberg Weiss Bershad &

Schulman LLP (now known as Milberg LLP) was appointed as Lead Counsel for the Class and

Kenney Lennon & Egan PC (now known as Kenney, Egan, McCafferty, & Young PC) as

Liaison Counsel. On September 11, 2006, Lead Plaintiffs moved to add Motley Rice LLC as

Co-Lead Counsel for the Class. The Court granted that motion on October 5, 2006;

D. On April 19, 2005, Lead Plaintiffs filed their Amended Complaint for Violations

of the Federal Securities Laws (the "Complaint"). The Complaint alleges, among other things,

that Select Medical and the Individual Defendants, who the Complaint alleged were controlling

officers and/or directors of Select Medical, made materially false and misleading statements and

omissions in Select Medical's public reports and documents disseminated to the investing public

during the Class Period, thereby artificially inflating the price of the securities of Select Medical

and damaging members of the Class;

E. In particular, the Complaint alleges that Defendants misled investors during the

Class Period by emphasizing Select Medical's strong growth and financial and operational

performance even though they allegedly knew or recklessly disregarded that the Centers for

2


Medicare and Medicaid Services ("CMS") was going to propose a change to Medicare

reimbursement regulations that would negatively impact the company's financial success and

ability to continue to grow as planned. Plaintiffs also claimed that Select Medical had engaged

in improper revenue generating practices that masked otherwise declining revenues and a

deteriorating financial condition. More specifically, the Complaint alleged that Defendants had

used a "hospital-within-hospital" ("HIH") model to "improperly influence `host hospitals"' to

refer patients to Select Medical's hospitals, which the Complaint contended "resulted in

substantial increases in the company's Medicare reimbursements and strong growth and financial

and operational performance reported to Select Medical's public shareholders." Plaintiffs

alleged further that Defendants made materially misleading statements and omitted material

information regarding the regulatory change proposed by CMS on May 11, 2004 that would

seriously curtail that practice, the means by which revenue was being generated, and the

adequacy of internal accounting controls;

F. On June 13, 2005, Defendants moved to dismiss the Complaint pursuant to Rule

12(b)(6) of the Federal Rules of Civil Procedure and to strike various allegations of the

Complaint pursuant to Rule 12(f) of the Federal Rules of Civil Procedure. By Memorandum and

Order dated April 6, 2006, the Court granted in part and denied in part Defendants' motion to

dismiss, and denied Defendants' motion to strike. The Court granted the portion of Defendants'

motion to dismiss concerning the claims that were based on the adequacy of internal controls for

failure to state a claim under Section 10(b) of the Exchange Act, dismissing those claims from

this litigation;

3


G. On May 19, 2006, Defendants answered the Complaint. The Defendants denied

Plaintiffs' claims and asserted several defenses. In doing so, Defendants assert that they are not

liable to Plaintiffs and have done nothing wrong or improper;

H. On September 20, 2006, Defendants filed a motion seeking a certificate of

appealability under 28 U.S.C. § 1292(b) of the Court's April 6, 2006 Memorandum and Order

denying in part and granting in part Defendants' motion to dismiss. Plaintiffs filed their

opposition papers on October 27, 2006. Defendants replied on November 17, 2006. By

Memorandum and Order dated February 12, 2007, the Court vacated in part its April 6, 2006

decision and granted Defendants' motion to dismiss Plaintiffs' securities fraud claims premised

on alleged improper revenue practices for failure to allege the necessary loss causation under

Section 10(b) of the Exchange Act, dismissing those claims from this litigation. Only Plaintiffs'

claim for securities fraud based on alleged misrepresentations and omissions related to the

regulatory change proposed by CMS on May 11, 2004 remains;

I. On December 8, 2006, Lead Plaintiffs moved the Court for an order certifying the

Class pursuant to Rule 23 of the Federal Rules of Civil Procedure. Select Medical and the

Individual Defendants opposed the motion on April 3, 2007. Plaintiffs replied on July 9, 2007.

By Memorandum and Order dated October 25, 2007, the Court granted Plaintiffs' motion for

class certification. The Court's Order also certified Lead Plaintiffs Pioneer Investments Austria,

James Shaver, and Frank C. Bagatta as Class Representatives and appointed Co-Lead Counsel

and Liaison Counsel as class counsel;

J. On February 21, 2007, Plaintiffs moved for reconsideration and clarification of

the Court's February 12, 2007 Memorandum and Order dismissing Plaintiffs' securities fraud

claims premised on alleged improper revenue practices for failure to allege the necessary loss

4


causation. Defendants responded on March 7, 2007. Plaintiffs replied on March 21, 2007. By

Memorandum and Order dated June 12, 2007, the Court denied Plaintiffs' motion for

reconsideration and clarification of the February 12, 2007 Memorandum and Order;

K. On November 9, 2007, Defendants petitioned the United States Court of Appeals

for the Third Circuit (the "Third Circuit Court of Appeals") pursuant to Rule 23(f) of the Federal

Rules of Civil Procedure for leave to appeal the Court's October 25, 2007 order certifying the

Class. On November 21, 2007, Plaintiffs filed a Response in Opposition to Defendants' Petition

for Leave to Appeal Pursuant to Rule 23(f) of the Federal Rules of Civil Procedure from Order

Granting Class Certification and on November 30, 2007 Defendants filed a Reply in Support of

Leave to Appeal Pursuant to Rule 23(f) of the Federal Rules of Civil Procedure from Order dated

October 25, 2007. On March 6, 2008, the Third Circuit Court of Appeals denied Defendants'

petition for leave to appeal;

L. Pretrial fact discovery closed on February 15, 2008. During pretrial fact

discovery, the parties conducted depositions and collected and reviewed documents from the

parties and third parties. Defendants deposed the Lead Plaintiffs and initial plaintiffs Marsden

and Xu, as well as certain former Select Medical employees identified in Plaintiffs' initial

disclosures. Plaintiffs deposed the Individual Defendants, as well as numerous current and

former Select Medical employees and third party witnesses. The parties exchanged expert

reports as part of pretrial expert discovery. Plaintiffs provided an expert report on the Medicare

regulatory process and a separate expert report on damages. Defendants provided an expert

report on damages;

M. Defendants filed a motion for summary judgment with accompanying

memorandum of law and appendix of exhibits on March 28, 2008. Plaintiffs filed their

5


memorandum of law in opposition to Defendants' motion for summary judgment, together with

an appendix of exhibits, on May 28, 2008. Defendants filed a reply memorandum of law and

appendix of additional exhibits on June 26, 2008;

N. The parties participated in a mediation conference on July 3, 2008 and at that

conference the parties agreed to the settlement described herein;

O. The Defendants deny any fault, liability, or wrongdoing whatsoever. No fault,

liability, or wrongdoing has been proven, and this Stipulation shall in no event be construed or

deemed to be evidence of or an admission or concession on the part of any Defendant with

respect to any claim or of any fault or liability or wrongdoing or damage whatsoever, or any

infirmity in the defenses that the Defendants have asserted. The parties to this Stipulation

recognize, however, that the litigation has been filed by Plaintiffs and defended by Defendants in

good faith and in accordance with applicable standards under Federal Rule of Civil Procedure

11, that the litigation is being voluntarily settled after advice of counsel, and that the terms of the

settlement are fair, adequate and reasonable. This Stipulation shall not be construed or deemed

to be a concession by any Plaintiff of any infirmity in the claims asserted in the Action;

P. Plaintiffs' Co-Lead Counsel have conducted an investigation relating to the

claims and the underlying events and transactions alleged in the Complaint. Plaintiffs' Co-Lead

Counsel have analyzed the evidence adduced during pretrial discovery and have researched the

applicable law with respect to the claims of the Class Representatives and the Class against the

Defendants and the potential defenses thereto;

Q. With the assistance of Michael Young of JAMS acting as a mediator, the Class

Representatives, by their counsel, have conducted discussions and arm's length negotiations with

counsel for Defendants with respect to a compromise and settlement of the Action with a view to

6


settling the issues in dispute and achieving the best relief possible consistent with the interests of

the Class; and

R. Based upon their investigation and pretrial discovery as set forth above, Plaintiffs'

Co-Lead Counsel and the Class Representatives have concluded that the terms and conditions of

this Stipulation are fair, reasonable and adequate to the Class Representatives and the Class, and

in their best interests, and the Class Representatives have agreed to settle the claims raised in the

Action pursuant to the terms and provisions of this Stipulation, after considering (a) the

substantial benefits that the Class Representatives and the members of the Class will receive

from settlement of the Action, (b) the attendant risks of litigation, and (c) the desirability of

permitting the Settlement to be consummated as provided by the terms of this Stipulation.

NOW THEREFORE, without any admission or concession on the part of the Class

Representatives of any lack of merit of the Action whatsoever, and without any admission or

concession of any fault, liability or wrongdoing or lack of merit in the defenses whatsoever by

the Defendants, it is hereby STIPULATED AND AGREED, by and among the parties to this

Stipulation, through their respective attorneys, subject to approval of the Court pursuant to Rule

23(e) of the Federal Rules of Civil Procedure, in consideration of the benefits flowing to the

parties hereto from the Settlement, that all Settled Claims (as hereinafter defined) as against the

Released Parties (as hereinafter defined) and all Settled Defendants' Claims (as hereinafter

defined) shall be compromised, settled, released and dismissed with prejudice, upon and subject

to the following terms and conditions:

CERTAIN DEFINITIONS

1. As used in this Stipulation, the following terms shall have the following

meanings:

7


(a) "Authorized Claimant" means a Class Member who submits a timely and

valid Proof of Claim form to the Claims Administrator.

(b) "Cash Settlement Amount" means the amount specified in paragraph 4

hereof.

(c) "Claims Administrator" means the firm of Gilardi & Co. LLC, which shall

administer the Settlement.

(d) "Class" means all persons who purchased the securities of Select Medical

Corp. between July 29, 2003 and May 11, 2004, inclusive, and who were damaged thereby.

Excluded from the Class are the Defendants, the officers and directors of Select Medical

Corporation at all relevant times, members of their immediate families and their legal

representatives, heirs, successors or assigns and any entity in which Defendants have or had a

controlling interest. Also excluded from the Class are any putative Class Members who exclude

themselves by filing a request for exclusion in accordance with the requirements set forth in the

Notice. "Class Member" means a member of the Class.

(e) "Class Period" means the period of time between July 29, 2003 and May

11, 2004, inclusive.

(f) "Defendants" means Select Medical Corporation and the Individual

Defendants Martin Jackson, Robert A. Ortenzio, Rocco Ortenzio, and Patricia Rice.

(g) "Defendants' Counsel" means the law firm of Dechert LLP.

(h) "Effective Date" means the date upon which the Settlement contemplated

by this Stipulation shall become effective, as set forth in paragraph 23 hereof.

(i) "Final," when describing an order of the Court, means an order as to

which there is no pending appeal, stay, motion for reconsideration or motion to vacate or similar

8


request for relief, and as to which the period of time for a party to seek any such appeal, stay,

motion for reconsideration or motion to vacate or similar request for relief has expired.

0) "Gross Settlement Fund" means the Cash Settlement Amount plus any

income or interest earned thereon following payment into escrow pursuant to paragraph 4 hereof.

(k) "Net Settlement Fund" has the meaning defined in paragraph 5 hereof.

(1) "Notice" means the Notice of Pendency of Class Action and Proposed

Settlement, Motion for Attorneys' Fees and Settlement Fairness Hearing, which is to be sent to

members of the Class substantially in the form proposed and attached hereto as Exhibit 1 to

Exhibit A.

(m) "Order and Final Judgment" means the order to be entered approving the

Settlement substantially in the form proposed and attached hereto as Exhibit B.

(n) "Order for Notice and Hearing" means the order preliminarily approving

the Settlement and directing notice thereof to the Class substantially in the form proposed and

attached hereto as Exhibit A.

(o) "Plaintiffs' Counsel" means Plaintiffs' Co-Lead Counsel and all other

counsel representing other plaintiffs in the Action.

(p) "Plaintiffs' Co-Lead Counsel" means the law firms of Milberg LLP and

Motley Rice LLC.

(q) "Publication Notice" means the summary notice of proposed Settlement

and hearing for publication substantially in the form attached as Exhibit 3 to Exhibit A.

(r) "Released Parties" means any and all of the Defendants, the past or

present subsidiaries, parents, successors, predecessors, officers, directors, agents, employees,

attorneys, advisors, investment advisors, insurers, auditors, and accountants of any of the

9


Defendants or any of their subsidiaries, any person, firm, trust, corporation, officer, director or

other individual or entity in which any of the Defendants has a controlling interest or which is

related to or affiliated with any of the Defendants, and the legal representatives, heirs, executors,

trustees, successors in interest or assigns of any of the Defendants.

(s) "Settled Claims" means any and all claims, debts, demands, rights or

causes of action or liabilities whatsoever (including, but not limited to, any claims for damages,

interest, attorneys' fees, expert or consulting fees, and any other costs, expenses or liability

whatsoever), whether based on federal, state, local, statutory or common law or any other law,

rule or regulation, whether fixed or contingent, accrued or un-accrued, liquidated or un-

liquidated, at law or in equity, matured or un-matured, whether class or individual in nature,

including both known claims and Unknown Claims, (i) that have been asserted in this Action by

the Class Members or any of them against any of the Released Parties, or (ii) that could have

been asserted in any forum by the Class Members or any of them against any of the Released

Parties which arise out of or are based upon the allegations, transactions, facts, matters or

occurrences, representations or omissions involved, set forth, or referred to in the Complaint and

which relate to the purchase of Select Medical securities during the Class Period. "Settled

Claims" does not mean or include claims, if any, against the Released Parties arising under the

Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. ("ERISA"), if such

claims are not common to all Class Members.

(t) "Settled Defendants' Claims" means any and all claims, rights or causes of

action or liabilities whatsoever, whether based on federal, state, local, statutory or common law

or any other law, rule or regulation, including both known claims and Unknown Claims, that

have been or could have been asserted in the Action or any forum by the Defendants or any of

10


them or the successors and assigns of any of them against any of the Class Representatives, Class

Members or their attorneys, which arise out of or relate in any way to the institution, prosecution,

or settlement of the Action (except for claims to enforce the Settlement).

(u) "Settlement" means the settlement contemplated by this Stipulation.

(v) "Unknown Claims" means any and all Settled Claims which any Class

Representative or Class Member does not know or suspect to exist in his, her or its favor at the

time of the release of the Released Parties, and any Settled Defendants' Claims which any

Defendant does not know or suspect to exist in his, her or its favor, which if known by him, her

or it might have affected his, her or its decision(s) with respect to the Settlement. With respect to

any and all Settled Claims and Settled Defendants' Claims, the parties stipulate and agree that

upon the Effective Date, the Class Representatives and the Defendants shall expressly waive, and

each Class Member shall be deemed to have waived, and by operation of the Judgment shall

have expressly waived, any and all provisions, rights and benefits conferred by any law of any

state or territory of the United States, or principle of common law, which is similar, comparable,

or equivalent to Cal. Civ. Code § 1542, which provides:

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

The Class Representatives and Defendants acknowledge, and Class Members by operation of

law shall be deemed to have acknowledged, that the inclusion of "Unknown Claims" in the

definition of Settled Claims and Settled Defendants' Claims was separately bargained for and

was a key element of the Settlement.

11


SCOPE AND EFFECT OF SETTLEMENT

2. The obligations incurred pursuant to this Stipulation shall be in full and final

disposition of the Action and any and all Settled Claims as against all Released Parties and any

and all Settled Defendants' Claims.

3. (a) Upon the Effective Date of this Settlement, the Class Representatives and

members of the Class on behalf of themselves and on behalf of their past or present subsidiaries,

parents, successors, predecessors, officers, partners, directors, agents, employees, attorneys,

advisors, investment advisors, insurers, auditors, and accountants, legal representatives, heirs,

executors, trustees, administrators, and assigns (but only in those persons' and entities' capacities

as such to the Class Member, not by those persons and entities as themselves independent of

their relationship to a Class Member), shall, with respect to each and every Settled Claim, release

and forever discharge, and shall forever be enjoined from prosecuting, any Settled Claims

against any of the Released Parties.

(b) Upon the Effective Date of this Settlement, each of the Defendants, on

behalf of themselves and the Released Parties, shall release and forever discharge each and every

of the Settled Defendants' Claims, and shall forever be enjoined from prosecuting the Settled

Defendants' Claims against the Class Representatives, all Class Members and their counsel.

THE SETTLEMENT CONSIDERATION

4. Within ten (10) business days from the date of the Court's entry of the Order for

Notice and Hearing, Defendant Select Medical shall pay or cause to be paid a total of $5,000,000

(Five Million U.S. Dollars) in cash into escrow for the benefit of Plaintiffs and the Class.

5. (a) The Gross Settlement Fund, net of any Taxes (as hereinafter defined) on

the income thereof, shall be used to pay (i) the notice and administration costs referred to in

12


paragraph 7 hereof, (ii) the attorneys' fee and expense award, if any, referred to in paragraph 8

hereof, and (iii) the remaining administration expenses referred to in paragraph 9 hereof. The

balance of the Gross Settlement Fund after the above payments shall be the "Net Settlement

Fund." The Net Settlement Fund shall be distributed to the Authorized Claimants as provided in

paragraphs 10-12 hereof. Any sums required to be held in escrow hereunder prior to the

Effective Date shall be held by Plaintiffs' Co-Lead Counsel and Dechert LLP as Escrow Agents

for the Gross Settlement Fund. All funds held by the Escrow Agents shall be deemed to be in the

custody of the Court and shall remain subject to the jurisdiction of the Court until such time as

the funds shall be distributed or returned to the persons paying the same pursuant to this

Stipulation and/or further order of the Court. The Escrow Agents shall invest any funds in

excess of $100,000 in short term United States Agency or Treasury Securities (or a mutual fund

invested solely in such instruments), and shall collect and reinvest all interest accrued thereon.

Any funds held in escrow in an amount of less than $100,000 may be held in a bank account

insured by the FDIC. The parties hereto agree that the Gross Settlement Fund is intended to be a

Qualified Settlement Fund within the meaning of Treasury Regulation § 1.468B-1 and that

Plaintiffs' Co-Lead Counsel, as administrator of the Settlement Fund within the meaning of

Treasury Regulation § 1.468B-2(k)(3), shall be responsible for filing tax returns for the Gross

Settlement Fund and paying from the Gross Settlement Fund any Taxes owed with respect to the

Gross Settlement Fund. The parties hereto agree that the Gross Settlement Fund shall be treated

as a Qualified Settlement Fund from the earliest date possible, and agree to any relation-back

election required to treat the Gross Settlement Fund as a Qualified Settlement Fund from the

earliest date possible. After the Effective Date, Dechert LLP shall resign as an Escrow Agent

and Plaintiffs' Co-Lead Counsel shall act as Escrow Agents.

13


(b) All (i) taxes on the income of the Gross Settlement Fund and (ii) expenses

and costs incurred in connection with the taxation of the Gross Settlement Fund (including,

without limitation, expenses of tax attorneys and accountants) (collectively "Taxes") shall be

paid out of the Gross Settlement Fund, shall be considered to be a cost of administration of the

settlement and shall be timely paid by the Escrow Agents without prior Order of the Court.

ADMINISTRATION

6. The Claims Administrator shall administer the Settlement subject to the

jurisdiction of the Court. Except as stated in paragraph 14 hereof, the Released Parties shall have

no responsibility for or role in the administration or distribution of the Settlement and shall have

no liability to the Class in connection with such administration or distribution.

7. Plaintiffs' Co-Lead Counsel may pay from the Gross Settlement Fund, without

further approval from the Defendants, the reasonable costs and expenses associated with

identifying members of the Class and effecting mail Notice and Publication Notice to the Class,

and the administration of the Settlement, including without limitation, the actual costs of

publication, printing and mailing the Notice, reimbursements to nominee owners for forwarding

notice to their beneficial owners, and the administrative expenses incurred and fees charged by

the Claims Administrator in connection with providing notice and processing the submitted

claims. Under no circumstances are the Released Parties liable for any amount greater than the

Cash Settlement Amount.

ATTORNEYS' FEES AND EXPENSES

8. Plaintiffs' Co-Lead Counsel will apply to the Court for an award from the Gross

Settlement Fund of attorneys' fees and reimbursement of expenses. Such amounts as are

awarded by the Court shall be payable from the Gross Settlement Fund to Plaintiffs' Co-Lead

14


Counsel immediately upon award, notwithstanding the existence of any timely filed objections

thereto, or potential for appeal therefrom, or collateral attack on the settlement or any part

thereof, subject to Plaintiffs' Co-Lead Counsel's obligation to make appropriate refunds or

repayments to the Gross Settlement Fund plus accrued interest at the same net rate as is earned

by the Gross Settlement Fund, if and when, as a result of any appeal and/or further proceedings

on remand, or successful collateral attack, the fee or cost award is reduced or reversed. Under no

circumstances are the Released Parties liable for any amount greater than the Cash Settlement

Amount. An award of attorneys' fees and expenses is not a necessary term of this Stipulation,

and it is not a condition of this Stipulation that any amount of attorneys' fees and/or expenses be

awarded. Any order, or any objection to or appeal from any order, approving attorneys' fees

and/or expenses shall in no way disturb or affect the Order and Final Judgment and shall be

considered separately from the Settlement and will not affect the validity or finality of the

Settlement.

ADMINISTRATION EXPENSES

9. The Class Representatives will apply to the Court, on notice to Defendants'

Counsel, for an order (the "Class Distribution Order") approving the Claims Administrator's

administrative determinations concerning the acceptance and rejection of the claims submitted

herein and approving any fees and expenses not previously applied for, including the fees and

expenses of the Claims Administrator, from the Gross Settlement Fund and, if the Effective Date

has occurred, directing payment of the Net Settlement Fund to Authorized Claimants.

DISTRIBUTION TO AUTHORIZED CLAIMANTS

10. The Claims Administrator shall determine each Authorized Claimant's Pro rata

share of the Net Settlement Fund based upon each Authorized Claimant's Recognized Claim (as

15


defined in the Plan of Allocation described in the Notice annexed hereto as Exhibit 1 to Exhibit

A, or in such other Plan of Allocation as the Court approves).

11. The Plan of Allocation proposed in the Notice is not a necessary term of this

Stipulation and it is not a condition of this Stipulation that any particular Plan of Allocation be

approved. Any order, or any objection to or appeal from any order, approving the Plan of

Allocation shall in no way disturb or affect the Order and Final Judgment and shall be considered

separately from the Settlement and will not affect the validity or finality of the Settlement.

12. Each Authorized Claimant shall be allocated a pro rata share of the Net

Settlement Fund based on his or her Recognized Claim compared to the total Recognized Claims

of all accepted claimants. The entire Net Settlement Fund shall be distributed to the Authorized

Claimants. This is not a claims-made settlement. The Released Parties shall not be entitled to

get back any of the settlement monies after the Effective Date. The Released Parties shall have

no involvement in reviewing or challenging claims.

ADMINISTRATION OF THE SETTLEMENT

13. Any member of the Class who does not submit a valid Proof of Claim will not be

entitled to receive any of the proceeds from the Net Settlement Fund but otherwise will be bound

by all of the terms of this Stipulation and the Settlement, including the terms of the Order and

Final Judgment to be entered in the Action and the releases provided for herein, and will be

barred from bringing any action against the Released Parties concerning the Settled Claims.

14. The Claims Administrator shall process the Proofs of Claim and, after entry of the

Class Distribution Order, distribute the Net Settlement Fund to the Authorized Claimants.

Except for their obligation to pay the Cash Settlement Amount, and to provide information from

Select Medical's shareholder transfer records concerning the identity of Class Members and their

16


transactions, the Released Parties shall have no liability, obligation or responsibility for the

administration of the Settlement or disbursement of the Net Settlement Fund. Plaintiffs' Co-

Lead Counsel shall have the right, but not the obligation, to advise the Claims Administrator to

waive what Plaintiffs' Co-Lead Counsel deem to be formal or technical defects in any Proofs of

Claim submitted in the interests of achieving substantial justice.

15. For purposes of determining the extent, if any, to which a Class Member shall be

entitled to be treated as an "Authorized Claimant", the following conditions shall apply:

(a) Each Class Member shall be required to submit a Proof of Claim (see

attached Exhibit 2 to Exhibit A), supported by such documents as are designated therein,

including proof of the transactions claimed and the losses incurred thereon, or such other

documents or proof as the Claims Administrator, in its discretion, may deem acceptable;

(b) All Proofs of Claim must be submitted by the date specified in the Notice,

unless such period is extended by Order of the Court. Any Class Member who fails to submit a

Proof of Claim by such date shall be forever barred from receiving any payment pursuant to this

Stipulation (unless, by Order of the Court, a later submitted Proof of Claim by such Class

Member is approved), but shall in all other respects be bound by all of the terms of this

Stipulation and the Settlement, including the terms of the Order and Final Judgment to be entered

in the Action and the releases provided for herein, and will be barred from bringing any action

against the Released Parties concerning the Settled Claims. Provided that it is received before

the motion for the Class Distribution Order is filed, a Proof of Claim shall be deemed to have

been submitted when posted, if received with a postmark indicated on the envelope and if mailed

by first-class mail and addressed in accordance with the instructions thereon. In all other cases,

17


the Proof of Claim shall be deemed to have been submitted when actually received by the Claims

Administrator;

(c) Each Proof of Claim shall be submitted to and reviewed by the Claims

Administrator, who shall determine in accordance with this Stipulation and the approved Plan of

Allocation the extent, if any, to which each claim shall be allowed, subject to review by the

Court pursuant to subparagraph (e) below;

(d) Proofs of Claim that do not meet the submission requirements may be

rejected. Prior to rejection of a Proof of Claim, the Claims Administrator shall communicate

with the Claimant in order to attempt to remedy the curable deficiencies in the Proofs of Claim

submitted. The Claims Administrator shall notify, in a timely fashion and in writing, each

Claimant whose Proofs of Claim they propose to reject in whole or in part, setting forth the

reasons therefor, and shall indicate in such notice that the Claimant whose claim is to be rejected

has the right to a review by the Court if the Claimant so desires and complies with the

requirements of subparagraph (e) below;

(e) If any Claimant whose claim has been rejected in whole or in part desires

to contest such rejection, the Claimant must, within twenty (20) days after the date of mailing of

the notice required in subparagraph (d) hereof, serve upon the Claims Administrator a notice and

statement of reasons indicating the Claimant's grounds for contesting the rejection along with

any supporting documentation, and requesting a review thereof by the Court. If a dispute

concerning a claim cannot be otherwise resolved, Plaintiffs' Co-Lead Counsel shall thereafter

present the request for review to the Court; and

18


(f) The administrative determinations of the Claims Administrator accepting

and rejecting claims shall be presented to the Court, on notice to Defendants' Counsel, for

approval by the Court in the Class Distribution Order.

16. Each Claimant shall be deemed to have submitted to the jurisdiction of the Court

with respect to the Claimant's claim, and the claim will be subject to investigation and discovery

under the Federal Rules of Civil Procedure, provided that such investigation and discovery shall

be limited to that Claimant's status as a Class Member and the validity and amount of the

Claimant's claim. No discovery shall be allowed on the merits of the Action or Settlement in

connection with processing of the Proofs of Claim.

17. Payment pursuant to this Stipulation shall be deemed final and conclusive against

all Class Members. All Class Members whose claims are not approved by the Court shall be

barred from participating in distributions from the Net Settlement Fund, but otherwise shall be

bound by all of the terms of this Stipulation and the Settlement, including the terms of the Order

and Final Judgment to be entered in the Action and the releases provided for herein, and will be

barred from bringing any action against the Released Parties concerning the Settled Claims.

18. All proceedings with respect to the administration, processing and determination

of claims described by paragraph 15 of this Stipulation and the determination of all controversies

relating thereto, including disputed questions of law and fact with respect to the validity of

claims, shall be subject to the jurisdiction of the Court.

19. The Net Settlement Fund shall be distributed to Authorized Claimants by the

Claims Administrator only after the Effective Date and only after all of the following have

occurred: (i) all Claims have been processed, and all Claimants whose Claims have been

rejected or disallowed, in whole or in part, have been notified and provided the opportunity to be

19


heard concerning such rejection or disallowance; (ii) all objections with respect to all rejected or

disallowed claims have been resolved by the Court, and all appeals therefrom have been resolved

or the time therefor has expired; (iii) all matters with respect to attorneys' fees, costs, and

disbursements have been resolved by the Court, all appeals therefrom have been resolved or the

time therefor has expired; (iv) all costs of administration have been paid; and (v) the Class

Distribution Order becomes a Final Order.

TERMS OF ORDER FOR NOTICE AND HEARING

20. Promptly after this Stipulation has been fully executed, the Class Representatives

and Defendants jointly shall apply to the Court for entry of an Order for Notice and Hearing,

substantially in the form annexed hereto as Exhibit A.

TERMS OF ORDER AND FINAL JUDGMENT

21. If the Settlement contemplated by this Stipulation is approved by the Court,

counsel for the parties shall request that the Court enter an Order and Final Judgment

substantially in the form annexed hereto as Exhibit B.

SUPPLEMENTAL AGREEMENT

22. Simultaneously herewith, the Class Representatives and Defendants, by and

through their respective counsel, are executing a "Supplemental Agreement" pursuant to which

this Settlement may be terminated by Defendants if potential Class Members exclude themselves

from the Class. Unless otherwise directed by the Court, the Supplemental Agreement may be

filed with the "Opt-Out Threshold" provided for therein redacted, or after the deadline for

submitting requests for exclusion has passed. Notwithstanding the foregoing, the Opt-Out

Threshold may be disclosed to the Court for purposes of preliminary approval of the Settlement,

as may be required by the Court, but such disclosure shall be carried out to the fullest extent

20


allowed so as to maintain the Opt-Out Threshold as confidential. In the event of a termination of

this Settlement pursuant to the Supplemental Agreement, this Stipulation shall become null and

void and of no further force and effect and the provisions of paragraph 25 hereof shall apply.

Notwithstanding the foregoing, the Stipulation shall not become null and void as a result of the

election by Defendants to exercise their option to withdraw from the Stipulation pursuant to the

Supplemental Agreement until any terms and conditions of the Supplemental Agreement have

been satisfied.

EFFECTIVE DATE OF SETTLEMENT, WAIVER OR TERMINATION

23. The "Effective Date" of Settlement shall be the date when all the following shall

have occurred:

(a) approval by the Court of the Settlement, following notice to the Class and

a hearing, as prescribed by Rule 23(e) of the Federal Rules of Civil Procedure; and

(b) entry by the Court of an Order and Final Judgment, substantially in the

form set forth in Exhibit B annexed hereto, which has become a Final Order as defined herein,

or, in the event that the Court enters an order and final judgment in a form other than that

provided above ("Alternative Judgment") and none of the parties hereto elect to terminate this

Settlement pursuant to paragraph 24 hereof, the date that such Alternative Judgment becomes

Final.

24. Defendants and Class Representatives, by and through their respective counsel,

shall have the right to terminate the Settlement and this Stipulation by providing written notice of

their election to do so ("Termination Notice") to all other parties hereto within thirty (30) days

of (a) the Court's declining to enter the Order for Notice and Hearing in any respect affecting

any party's rights or obligations hereunder; (b) the Court's refusal to approve this Stipulation or

21


any part of it affecting any party's rights or obligations hereunder; (c) the Court's declining to

enter the Order and Final Judgment in any respect affecting any party's rights or obligations

hereunder, including entering an Alternative Judgment; (d) the date upon which the Order and

Final Judgment is modified or reversed in any respect affecting any party's rights or obligations

hereunder by the United States Court of Appeals or the United States Supreme Court; or (e) in

the event that none of the parties hereto elected to terminate this Settlement upon the entry of an

Alternative Judgment, the date upon which that Alternative Judgment is modified or reversed in

any respect affecting any party's rights or obligations hereunder by the United States Court of

Appeals or the United States Supreme Court.

25. Except as otherwise provided herein, in the event the Settlement is terminated,

then the parties to this Stipulation shall be deemed to have reverted to their respective status in

the Action immediately prior to the execution of this Stipulation and, except as otherwise

expressly provided, the parties shall proceed in all respects as if this Stipulation and any related

orders had not been entered, and any portion of the Cash Settlement Amount previously paid by

or on behalf of Defendants, together with any interest earned thereon, less any Taxes due with

respect to such income, and less costs of administration and notice actually incurred and paid or

payable from the Gross Settlement Fund, shall be returned to the persons paying the same.

NO ADMISSION OF WRONGDOING

26. This Stipulation, whether or not consummated, its contents, any and all

statements, negotiations, documents and discussions associated with the Stipulation and the

Settlement, and any proceedings taken pursuant to the Stipulation:

(a) shall not be offered or received against any of the Defendants as evidence

of or construed as or deemed to be evidence of any presumption, concession, or admission by

22


any of the Defendants with respect to the truth of any fact alleged by any of the Plaintiffs or the

validity of any claim that has been or could have been asserted in the Action or in any litigation,

or the deficiency of any defense that has been or could have been asserted in the Action or in any

litigation, or of any liability, negligence, fault, or wrongdoing of the Defendants;

(b) shall not be offered or received against any of the Defendants as evidence

of a presumption, concession or admission of any fault, misrepresentation or omission with

respect to any statement or written document approved or made by any Defendant;

(c) shall not be offered or received against any of the Defendants as evidence

of a presumption, concession or admission with respect to any liability, negligence, fault or

wrongdoing, or in any way referred to for any other reason as against any of the Defendants, in

any other civil, criminal or administrative action or proceeding, other than such proceedings as

may be necessary to effectuate the provisions of this Stipulation; provided, however, that if this

Stipulation is approved by the Court, any of the Defendants may refer to it to effectuate the

liability protection granted them hereunder;

(d) shall not be construed against the Defendants as an admission or

concession that the consideration to be given hereunder represents the amount which could be or

would have been recovered after trial; and

(e) shall not be construed as or received in evidence as an admission,

concession or presumption against the Class Representatives or any of the Class Members that

any of their claims are without merit, or that any defenses asserted by the Defendants have any

merit, or that damages recoverable under the Complaint would not have exceeded the Gross

Settlement Fund.

23


MISCELLANEOUS PROVISIONS

27. All of the exhibits attached hereto are hereby incorporated by reference as though

fully set forth herein.

28. Each Defendant contributing to the Cash Settlement Amount warrants as to

himself, herself or itself that, as to the payments made by or on behalf of him, her or it, at the

time of such payment that the Defendant made or caused to be made pursuant to paragraph 4

hereof, he, she or it was not insolvent, nor did nor will the payment required to be made by or on

behalf of him, her or it render such Defendant insolvent, within the meaning of and/or for the

purposes of the United States Bankruptcy Code, including §§ 101 and 547 thereof. This

warranty is made by each such Defendant and not by such Defendant's Counsel.

29. If a case is commenced in respect of any Defendant contributing to the Cash

Settlement Amount (or any insurer contributing funds to the Cash Settlement Amount on behalf

of any Defendant) under Title 11 of the United States Code (Bankruptcy), or a trustee, receiver,

conservator, or other fiduciary is appointed under any similar law, and in the event of the entry

of a final order of a court of competent jurisdiction determining the transfer of money to the

Gross Settlement Fund or any portion thereof by or on behalf of such Defendant to be a

preference, voidable transfer, fraudulent transfer or similar transaction and any portion thereof is

required to be returned, and such amount is not promptly deposited to the Gross Settlement Fund

by others, then, at the election of Plaintiffs' Co-Lead Counsel, the parties shall jointly move the

Court to vacate and set aside the releases given and Judgment entered in favor of the Defendants

pursuant to this Stipulation, which releases and Judgment shall be null and void, and the parties

shall be restored to their respective positions in the litigation immediately prior to the execution

24


of this Stipulation and the Gross Settlement Fund shall be returned as provided in paragraph 25

hereof.

30. The parties to this Stipulation intend the Settlement to be a final and complete

resolution of all disputes asserted or which could be asserted by the Class Members against the

Released Parties with respect to the Settled Claims. Accordingly, the Class Representatives and

Defendants agree not to assert in any forum that the litigation was brought by Plaintiffs or

defended by Defendants in bad faith or without a reasonable basis. The parties hereto shall

assert no claims of any violation of Rule 11 of the Federal Rules of Civil Procedure relating to

the prosecution, defense, or settlement of the Action. The parties agree that the amount paid and

the other terms of the Settlement were negotiated at arm's length in good faith by the parties, and

reflect a settlement that was reached voluntarily after consultation with experienced legal

counsel.

31. This Stipulation may not be modified or amended, nor may any of its provisions

be waived except by a writing signed by all parties hereto or their successors-in-interest.

32. The headings herein are used for the purpose of convenience only and are not

meant to have legal effect.

33. The administration and consummation of the Settlement as embodied in this

Stipulation shall be under the authority of the Court and the Court shall retain jurisdiction for the

purpose of entering orders providing for awards of attorneys' fees and expenses to Plaintiffs'

Counsel and enforcing the terms of this Stipulation.

34. The waiver by one party of any breach of this Stipulation by any other party shall

not be deemed a waiver of any other prior or subsequent breach of this Stipulation.

25


35. This Stipulation and its exhibits and the Supplemental Agreement constitute the

entire agreement among the parties hereto concerning the Settlement of the Action, and no

representations, warranties, or inducements have been made by any party hereto concerning this

Stipulation and its exhibits and the Supplemental Agreement other than those contained and

memorialized in such documents.

36. This Stipulation may be executed in one or more counterparts. All executed

counterparts and each of them shall be deemed to be one and the same instrument. The executed

counterparts may be exchanged via facsimile or other similar manner and shall remain binding in

all respects.

37. This Stipulation shall be binding upon, and inure to the benefit of the parties

hereto and their past or present subsidiaries, parents, successors, predecessors, officers, directors,

agents, employees, attorneys, advisors, investment advisors, insurers, auditors, and accountants,

legal representatives, heirs, executors, trustees, administrators, and assigns (but only in those

persons' and entities' capacities as such to the parties, not by those persons and entities as

themselves independent of their relationship to a party).

38. The construction, interpretation, operation, effect and validity of this Stipulation,

and all documents necessary to effectuate it, shall be governed by the internal laws of the

Commonwealth of Pennsylvania without regard to conflicts of laws, except to the extent that

federal law requires that federal law governs. The parties agree that the United States District

Court for the Eastern District of Pennsylvania shall retain exclusive jurisdiction over the parties,

the Class, and the Class Members for all matters relating to this Action, including the

administration, interpretation, effectuation or enforcement of the Stipulation and its terms.

26


39. This Stipulation shall not be construed more strictly against one party than

another merely by virtue of the fact that it, or any part of it, may have been prepared by counsel

for one of the parties, it being recognized that it is the result of arm's-length negotiations

between the parties and all parties have contributed substantially and materially to the

preparation of this Stipulation.

40. All counsel and any other person executing this Stipulation and any of the

exhibits hereto, or any related settlement documents, warrant and represent that they have the full

authority to do so and that they have the authority to take appropriate action required or

permitted to be taken pursuant to the Stipulation to effectuate its terms.

41. The Class Representatives and Defendants agree to cooperate fully with one

another in seeking Court approval of the Order for Notice and Hearing, the Stipulation and the

Settlement, and to promptly agree upon and execute all such other documentation as may be

reasonably required to obtain final approval by the District Court of the Settlement.


27


MILBE

I

' G LLP

By. d

. anford P. [email protected] H. [email protected] G. [email protected] Stahnke [email protected]



MOTLEY RICE LLC

By: William H. [email protected]

One Corporate Center20 Church Streetl7th FloorHartford, Connecticut 06103Telephone: (860) 882-1681Facsimile: (860) 882-1682


28


ii

r

I

MILBERG LLPI

r

By:

Sanford P. [email protected] H [email protected] jLori G. [email protected] Stahnke [email protected]

One Pennsylvania PlazaNew York, New York 10119-0165Telephone: (212) 594-5300—Facsimile: (212) 868-1229

Co-Lead Counsel for Plaintiffsi

MOTLEY RICE LLC 9

b

By: William H. [email protected]

One Corporate Center20 Church Street E

17th FloorHartford, Connecticut 06103 fTelephone: (860) 882-1681Facsimile: (860) 882-1682 i

i

Co-Lead Counsel for Plaintiffs}t

tf

t

f

28

iI

iI


MOTLEY RICE LLCAnn K [email protected] C. [email protected]



KENNEY, EGAN, McCAFFERTY & YOUNGBrian P. [email protected]


ILiaison Counsel for Plaintiffs

DECHERT T.^.

By: ' Michael L. Kichline

[email protected] V. Donnelly [email protected]

Cira Centre2929 Arch StreetPhiladelphia, Pennsylvania 19104-2808Telephone: (215) 9944000Facsimile: (215) 9942222

Counsel for Defendants

29


EXHIBIT A




Plaintiffs,



Defendants.

PRELIMINARY ORDER FOR NOTICE AND HEARING IN CONNECTIONWITH SETTLEMENT PROCEEDINGS

WHEREAS, on November 5, 2008, the parties to the above-entitled action (the "Action")

entered into a Stipulation and Agreement of Settlement (the "Stipulation") which is subject to

review under Rule 23 of the Federal Rules of Civil Procedure and which, together with the

exhibits thereto, sets forth the terms and conditions for the proposed settlement of the claims

alleged in the Complaint on the merits and with prejudice; and

WHEREAS, pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure, this

Action was previously certified as a class action on behalf of all persons who purchased the

securities of Select Medical Corp. between July 29, 2003 and May 11, 2004, inclusive, and who

were damaged thereby. Excluded from the Class are the Defendants, the officers and directors

of Select Medical Corporation at all relevant times, members of their immediate families and

their legal representatives, heirs, successors or assigns and any entity in which Defendants have

or had a controlling interest; and


WHEREAS, the Court having read and considered the Stipulation and the accompanying

documents; and the parties to the Stipulation having consented to the entry of this Order; and all

capitalized terms used herein having the meanings defined in the Stipulation;

NOW, THEREFORE, IT IS HEREBY ORDERED, this day of

2008 that:

1. The Court does hereby preliminarily approve the Stipulation and the Settlement

set forth therein, subject to further consideration at the Settlement Fairness Hearing described

below.

2. A hearing (the "Settlement Fairness Hearing") pursuant to Rule 23(e) of the

Federal Rules of Civil Procedure is hereby scheduled to be held before the Court on

, 2009, at _.m. for the following purposes:

(a) to finally determine whether this Action satisfies the applicable

prerequisites for class action treatment under Rules 23(a) and (b) of the Federal Rules of Civil

Procedure;

(b) to determine whether the proposed Settlement is fair, reasonable, and

adequate, and should be approved by the Court;

(c) to determine whether the Order and Final Judgment as provided under the

Stipulation should be entered, dismissing the Complaint filed herein, on the merits and with

prejudice, and to determine whether the release by the Class of the Settled Claims, as set forth in

the Stipulation, should be provided to the Released Parties;

2


(d) to determine whether the proposed Plan of Allocation for the proceeds of

the Settlement is fair and reasonable, and should be approved by the Court;

(e) to consider Plaintiffs' Counsel's application for an award of attorneys'

fees and expenses; and

(f) to rule upon such other matters as the Court may deem appropriate.

3. The Court reserves the right to approve the Settlement with or without

modification and with or without further notice of any kind. The Court further reserves the right

to enter its Order and Final Judgment approving the Stipulation and dismissing the Complaint on

the merits and with prejudice regardless of whether it has approved the Plan of Allocation or

awarded attorneys' fees and expenses.

4. The Court approves the form, substance and requirements of the Notice of

Pendency of Class Action and Proposed Settlement, Motion for Attorneys' Fees and Settlement

Fairness Hearing (the "Notice") and the Proof of Claim form, annexed hereto as Exhibits 1 and 2

respectively.

5. The Court approves the appointment of Gilardi & Co. LLC as the Claims

Administrator. The Claims Administrator shall cause the Notice and the Proof of Claim,

substantially in the forms annexed hereto, to be mailed, by first class mail, postage prepaid, on or

before , 2009, to all Class Members who can be identified with reasonable

effort. Pursuant to the terms of the Stipulation, the Defendants shall cause Select Medical's

transfer records and shareholder information to be made available to the Claims Administrator

for the purpose of identifying and giving notice to the Class. The Claims Administrator shall use

3


reasonable efforts to give notice to nominee purchasers such as brokerage firms and other

persons or entities who purchased Select Medical securities during the Class Period as record

owners but not as beneficial owners. Such nominee purchasers are directed, within seven (7)

days of their receipt of the Notice, to either forward copies of the Notice and Proof of Claim to

their beneficial owners, or to provide the Claims Administrator with lists of the names and

addresses of the beneficial owners, and the Claims Administrator is ordered to send the Notice

and Proof of Claim promptly to such identified beneficial owners. Nominee purchasers who

elect to send the Notice and Proof of Claim to their beneficial owners shall send a statement to

the Claims Administrator confirming that the mailing was made as directed. Additional copies

of the Notice shall be made available to any record holder requesting such for the purpose of

distribution to beneficial owners, and such record holders shall be reimbursed from the Gross

Settlement Fund, upon receipt by the Claims Administrator of proper documentation, for the

reasonable expense of sending the Notices and Proofs of Claim to beneficial owners. Plaintiffs'

Co-Lead Counsel shall, at or before the Settlement Fairness Hearing, file with the Court proof of

mailing of the Notice and Proof of Claim.

6. The Court approves the form of Publication Notice of the pendency of this class

action and the proposed settlement in substantially the form and content annexed hereto as

Exhibit 3 and directs that Plaintiffs' Co-Lead Counsel shall cause the Publication Notice to be

published in Investor's Business Daily and transmitted over Business Wire within ten days of the

mailing of the Notice. Plaintiffs' Co-Lead Counsel shall, at or before the Settlement Fairness

Hearing, file with the Court proof of publication of the published notice.

7. The form and content of the Notice, and the method set forth herein of notifying

the Class of the Settlement and its terms and conditions, meet the requirements of Rule 23 of the

4


Federal Rules of Civil Procedure, Section 2113(a)(7) of the Securities Exchange Act of 1934, 15

U.S.C. § 78u-4(a)(7) as amended by the Private Securities Litigation Reform Act of 1995, and

due process, constitute the best notice practicable under the circumstances, and shall constitute

due and sufficient notice to all persons and entities entitled thereto.

8. In order to be entitled to participate in the Net Settlement Fund, in the event the

Settlement is effected in accordance with the terms and conditions set forth in the Stipulation,

each Class Member shall take the following actions and be subject to the following conditions:

(a) A properly executed Proof of Claim (the "Proof of Claim"), substantially

in the form attached hereto as Exhibit 2, must be submitted to the Claims Administrator, at the

Post Office Box indicated in the Notice, postmarked not later than , 2009.

Such deadline may be further extended by Court Order. Each Proof of Claim shall be deemed to

have been submitted when postmarked (if properly addressed and mailed by first class mail,

postage prepaid) provided such Proof of Claim is actually received prior to the motion for an

order of the Court approving distribution of the Net Settlement Fund. Any Proof of Claim

submitted in any other manner shall be deemed to have been submitted when it was actually

received at the address designated in the Notice.

(b) The Proof of Claim submitted by each Class Member must satisfy the

following conditions: (i) it must be properly completed, signed and submitted in a timely

manner in accordance with the provisions of the preceding subparagraph; (ii) it must be

accompanied by adequate supporting documentation for the transactions reported therein, in the

form of broker confirmation slips, broker account statements, an authorized statement from the

broker containing the transactional information found in a broker confirmation slip, or such other

5


documentation as may be deemed adequate by the Claims Administrator; (iii) if the person

executing the Proof of Claim is acting in a representative capacity, a certification of his current

authority to act on behalf of the Class Member must be included in the Proof of Claim; and (iv)

the Proof of Claim must be complete and contain no material deletions or modifications of any of

the printed matter contained therein and must be signed under penalty of perjury.

(c) As part of the Proof of Claim, each Class Member shall submit to the

jurisdiction of the Court with respect to the claim submitted, and shall (subject to effectuation of

the Settlement) release all Settled Claims as provided in the Stipulation.

9. Class Members shall be bound by all determinations and judgments in this

Action, whether favorable or unfavorable, unless such persons request exclusion from the Class

in a timely and proper manner, as hereinafter provided. A Class Member wishing to make such

request shall mail the request in written form by first class mail postmarked no later than

, 2009, to the address designated in the Notice. Such request for exclusion

shall clearly indicate the name, address and telephone number of the person seeking exclusion,

that the sender requests to be excluded from the Class in the Select Medical Securities Litigation,

and must be signed by such person. Such persons requesting exclusion are also directed to state:

the date(s), price(s), and the type(s) and amount(s) of all purchases and sales of Select Medical

securities during the Class Period. The request for exclusion shall not be effective unless it

provides the required information and is made within the time stated above, or the exclusion is

otherwise accepted by the Court.

10. Class Members requesting exclusion from the Class shall not be entitled to

receive any payment out of the Net Settlement Fund as described in the Stipulation and Notice.

6


11. The Court will consider comments and/or objections to the Settlement, the Plan of

Allocation, or the award of attorneys' fees and reimbursement of expenses only if such

comments or objections and any supporting papers are filed in writing with the Clerk of the

Court, United States District Court, James A. Byrne United States Courthouse, 601 Market

Street, Philadelphia, Pennsylvania 19106-1797, and copies of all such papers are served, on or

before , 2009, upon each of the following: William H. Narwold, Esq., Motley

Rice LLC, One Corporate Center, 20 Church Street, 17th Floor, Hartford, Connecticut 06103

and Sanford P. Dumain, Esq., Milberg LLP, One Pennsylvania Plaza, New York, New York

10119-0165, on behalf of the Class Representatives and the Class; and Michael L. Kichline,

Esq., Dechert LLP, Cira Centre, 2929 Arch Street, Philadelphia, Pennsylvania 19104-2808 on

behalf of the Defendants. Attendance at the hearing is not necessary; however, persons wishing

to be heard orally in opposition to the approval of the Settlement, the Plan of Allocation, and/or

the request for attorneys' fees are required to indicate in their written objection their intention to

appear at the hearing. Persons who intend to object to the Settlement, the Plan of Allocation,

and/or counsel's application for an award of attorneys' fees and expenses and desire to present

evidence at the Settlement Fairness Hearing must include in their written objections the identity

of any witnesses they may call to testify and exhibits they intend to introduce into evidence at the

Settlement Fairness Hearing. Class Members do not need to appear at the hearing or take any

other action to indicate their approval.

12. Pending final determination of whether the Settlement should be approved, the

Class Representatives, all Class Members, and each of them, and anyone who acts or purports to

act on their behalf, shall not institute, commence or prosecute any action which asserts any of the

Settled Claims against any Released Party.

7


13. As provided in the Stipulation, Plaintiffs' Co-Lead Counsel may pay the Claims

Administrator the reasonable fees and costs associated with giving notice to the Class and the

review of claims and administration of the Settlement out of the Gross Settlement Fund without

further order of the Court.

14. If: (a) the Settlement is terminated by Defendants pursuant to paragraph 22 of the

Stipulation; or (b) any specified condition to the Settlement set forth in the Stipulation is not

satisfied and Defendants or the Class Representatives elect to terminate the Settlement as

provided in paragraph 24 of the Stipulation, then, in any such event, the Stipulation, including

any amendment(s) thereof, and this Preliminary Order shall be null and void, of no further force

or effect, and without prejudice to any party, and may not be introduced as evidence or referred

to in any actions or proceedings by any person or entity, and each party shall be restored to his,

her or its respective position immediately prior to the execution of the Stipulation.

15. The Court retains exclusive jurisdiction over the Action to consider all further

matters arising out of or connected with the Settlement.



8


EXHIBIT 1 TO EXHIBIT A




Plaintiffs,



Defendants.

NOTICE OF PENDENCY OF CLASS ACTION AND PROPOSED SETTLEMENT.,MOTION FOR ATTORNEYS' FEES AND SETTLEMENT FAIRNESS HEARING

If you purchased Select Medical Corporation ("Select Medical") securities between July 29,2003 and May 11, 2004, inclusive (the "Class Period"), and were allegedly damaged

thereby, then you could get a payment from a class action settlement.

A federal court authorized this notice. This is not a solicitation from a lawyer.

• The settlement will provide a $5 million (Five Million U.S. Dollars) cash settlement fundfor the benefit of investors who purchased Select Medical securities between July 29,2003 and May 11, 2004, inclusive, and who were allegedly damaged thereby.

• The settlement resolves a lawsuit over whether Select Medical misled investors about aproposed regulatory change announced by the Centers for Medicare and MedicaidServices ("CMS") on May 11, 2004 which, if adopted, would have negatively impactedthe company's financial success and ability to continue to grow as planned.

• Your legal rights are affected whether you act or do not act. Read this notice carefully.

YOUR LEGAL RIGHTS AND OPTIONS IN THIS SETTLEMENT:

SUBMIT A CLAIM The only way to get a payment.FORM BY

, 2009

EXCLUDE YOURSELF Get no payment. This is the only option that allows you to


EXCLUDE YOURSELF Get no payment. This is the only option that allows you toBY , 2009 ever be part of any other lawsuit against the Defendants and

the other Released Parties about the Settled Claims.

OBJECT BY Write to the Court about why you do not like the settlement.92009

GO TO A HEARING ON Ask to speak in Court about the settlement., 2009

DO NOTHING Get no payment. Give up rights.

• These rights and options - and the deadlines to exercise them - are explained in thisnotice.

• The Court in charge of this case still has to decide whether to approve the settlement.Payments will be made if the Court approves the settlement and after appeals areresolved. Please be patient.

SUMMARY NOTICE

Statement of Plaintiff Recovery

Pursuant to the settlement described herein, a settlement fund consisting of $5,000,000 (FiveMillion U.S. Dollars) in cash, plus any interest earned on that amount after it is deposited, hasbeen established. Plaintiffs estimate that there were approximately 60.1 million shares of SelectMedical common stock traded during the Class Period which may have been damaged. Plaintiffsestimate that the average recovery per allegedly damaged share of Select Medical common stockunder the settlement is approximately 8.3¢ per damaged share before deduction of Court-awarded attorneys' fees and expenses.' A Class Member's actual recovery will be a proportionof the Net Settlement Fund determined by that claimant's Recognized Claim as compared to thetotal Recognized Claims of all Class Members who submit acceptable Proofs of Claim.Depending on the number of claims submitted, when during the Class Period a Class Memberpurchased Select Medical common stock and whether those shares were held at the end of theClass Period or sold during the Class Period, and, if sold, when they were sold and the amountreceived, an individual Class Member may receive more or less than this average amount. Seethe Plan of Allocation beginning on page r I for more information on your Recognized Claim.

' An allegedly damaged share might have been traded more than once during the Class Period, andthe indicated average recovery would be the total for all purchasers of that share. During the ClassPeriod, Select Medical also had issued and outstanding 7.5% Notes due August 2013 and 9.5% Notes dueJune 2009. Limited trading of these notes makes it impossible to estimate any recovery per note. See thePlan of Allocation beginning on page r I for more information on the notes.

2


Statement of Potential Outcome of Case

The parties disagree on both liability and damages and do not agree on the average amounts ofdamages (if any) per share and note that would be recoverable if Plaintiffs were to have prevailedon each claim alleged. The issues on which the parties disagree include (a) whether Defendantsmade any misstatements or omissions; (b) the appropriate economic model for determining theamounts by which Select Medical securities were allegedly artificially inflated (if at all) duringthe Class Period; (c) the amounts by which Select Medical securities were allegedly artificiallyinflated (if at all) during the Class Period; (d) the effect of various market forces influencing thetrading prices of Select Medical securities at various times during the Class Period; (e) the extentto which external factors, such as general market and industry conditions, influenced the tradingprices of Select Medical securities at various times during the Class Period; (f) the extent towhich the various matters that Plaintiffs alleged were materially false or misleading influenced(if at all) the trading prices of Select Medical securities at various times during the Class Period;(g) the extent to which the various allegedly adverse material facts that Plaintiffs alleged wereomitted influenced (if at all) the trading prices of Select Medical securities at various timesduring the Class Period; and (h) whether the statements made or facts allegedly omitted werematerial or otherwise actionable under the federal securities laws. Defendants deny any fault,liability, or wrongdoing, deny that they are liable to Plaintiffs or the Class and deny thatPlaintiffs or the Class have suffered any damages.

Statement of Attorneys' Fees and Costs Sought

Plaintiffs' Counsel are moving the Court to award them an amount for both attorneys' fees andlitigation expenses incurred in connection with the prosecution of this Action, limited to a totalof forty percent (40%) of the Gross Settlement Fund. The expenses incurred by Plaintiffs'Counsel are estimated at approximately $550,000 or about 11% of the Gross Settlement Fund.The remaining amount of the requested award would provide Plaintiffs' Counsel with attorneys'fees of approximately $1,450,000 or about 29% of the Gross Settlement Fund. The requestedattorneys' fees represent less than the amount Plaintiffs' Counsel's billable hourly fees, had thecase not been pursued on a contingent-fee basis. The requested fees and expenses would amountto an average of 3.3 ¢ per allegedly damaged share in total for fees and expenses. Plaintiffs'Counsel have expended considerable time and effort in the prosecution of this litigation on acontingent fee basis, and have advanced the expenses of the litigation, in the expectation that ifthey were successful in obtaining a recovery for the Class they would be paid from suchrecovery. In this type of litigation it is customary for counsel to be awarded a percentage of thecommon fund recovery as their attorneys' fees.

Further Information

Further information regarding the Action and this Notice may be obtained by contactingPlaintiffs' Co-Lead Counsel: William H. Narwold, Esq., Motley Rice LLC, One CorporateCenter, 20 Church Street, 17th Floor, Hartford, Connecticut 06103, Telephone (860) 882-1681;or Sanford P. Dumain, Esq., Milberg LLP, One Pennsylvania Plaza, New York, New York10119-0165, Telephone (212) 594-5300.

3


Reasons for the Settlement

For Plaintiffs, the principal reason for the settlement is the benefit to be provided to the Classnow. This benefit must be compared to the risk that no recovery might be achieved after acontested trial and likely appeals, possibly years into the future.

For Defendants, who deny all allegations of fault, liability, or wrongdoing whatsoever, theprincipal reason for the settlement is to eliminate the expense, risks, and uncertain outcome ofthe litigation.

[END OF COVER PAGE]

WHAT THIS NOTICE CONTAINS

Table of Contents

Page

SUMMARY NOTICE 2

Statement of Plaintiff Recovery 2

Statement of Potential Outcome of Case 3

Statement of Attorneys' Fees and Costs Sought 3

Further Information 3

Reasons for the Settlement 4

BASIC INFORMATION 7

1. Why did I get this notice package? 7

2. What is this lawsuit about? 7

3. Why is this a class action? 9

4. Why is there a settlement? 9

WHO IS IN THE SETTLEMENT 11

5. How do I know if I am part of the settlement? 11

6. Are there exceptions to being included? 11

7. What if I am still not sure if I am included? 11

4


THE SETTLEMENT BENEFITS — WHAT YOU GET 12

8. What does the settlement provide? 12

9. How much will my payment be? 12

HOW YOU GET A PAYMENT — SUBMITTING A PROOF OF CLAIM FORM 12

10. How can I get a payment? 12

11. When would I get my payment? 12

12. What am I giving up to get a payment or stay in the Class? 13

EXCLUDING YOURSELF FROM THE SETTLEMENT 13

13. How do I get out of the proposed settlement? 14

14. If I do not exclude myself, can I sue the Defendants and the otherReleased Parties for the same thing later? 14

15. If I exclude myself, can I get money from the proposed settlement? 14

THE LAWYERS REPRESENTING YOU 14

16. Do I have a lawyer in this case? 14

17. How will the lawyers be paid? 15

OBJECTING TO THE SETTLEMENT 15

18. How do I tell the Court that I do not like the proposed settlement? 15

19. What is the difference between objecting and excluding? 16

THE COURT'S SETTLEMENT FAIRNESS HEARING 16

20. When and where will the Court decide whether to approve theproposed settlement? 16

21. Do I have to come to the hearing? 17

22. May I speak at the hearing? 17

IF YOU DO NOTHING 18

23. What happens if I do nothing at all? 18

GETTING MORE INFORMATION 18

5


24. Are there more details about the proposed settlement? 18

25. How do I get more information? 18

PLAN OF ALLOCATION OF NET SETTLEMENT FUND AMONG CLASSMEMBERS 18

SPECIAL NOTICE TO SECURITIES BROKERS AND OTHER NOMINEES 22

6


BASIC INFORMATION

1. Why did I get this notice package?

You or someone in your family may have purchased Select Medical securities between July 29,2003 and May 11, 2004, inclusive (the "Class Period"), and may have been damaged thereby.

The Court directed that this Notice be sent to Class Members because they have a right to knowabout a proposed settlement of a class action lawsuit, and about all of their options, before theCourt decides whether to approve the settlement. If the Court approves the settlement, and afterobjections and appeals are resolved, an administrator appointed by the Court will make thepayments that the settlement allows.

This package explains the lawsuit, the settlement, Class Members' legal rights, what benefits areavailable, who is eligible for them, and how to get them.

The Court in charge of the case is the United States District Court for the Eastern District ofPennsylvania, and the case is known as Marsden v. Select Medical Corp., et al., Civil Action No.04-cv-4020. This case was assigned to United States District Judge J. Curtis Joyner. The peoplewho sued are called Plaintiffs, and the company and the persons they sued are called Defendants.

The Defendants are Select Medical Corporation ("Select Medical") and certain of its executiveofficers and directors during the Class Period: Martin Jackson (Select Medical's Chief FinancialOfficer throughout the Class Period), Robert A. Ortenzio (a co-founder of Select Medical and itsChief Executive Officer, President, and a director throughout the Class Period), Rocco Ortenzio(a co-founder of Select Medical and Chairman of its Board of Directors throughout the ClassPeriod), and Patricia Rice (Select Medical's Chief Operating Officer throughout the ClassPeriod).

2. What is this lawsuit about?

Select Medical is a Delaware corporation and its principal executive offices are located inMechanicsburg, Pennsylvania. As of December 2003, it operated specialty and outpatientrehabilitation facilities in the United States and Canada. At that time, Select Medical operatedapproximately 79 long-term acute-care hospitals and four outpatient rehabilitation clinicscertified under the federal Medicare program.

On July 28, 2003, after the close of trading, Defendants issued a press release over thePRNewswire in which they announced the company's "strong" performance and financial resultsfor the second quarter ended June 30, 2003. Plaintiffs contend that this was materially false andmisleading and omitted risks known to Select Medical. Plaintiffs further contend that as a resultof materially false and misleading statements and omissions, Select Medical securities traded atartificially inflated prices from July 29, 2003 until May 11, 2004, when Select Medical issued a

7


press release announcing that the Centers for Medicare and Medicaid Services ("CMS") hadissued a proposed regulatory change, which, if adopted, would have reduced the amount thatMedicare would reimburse a long-term acute-care hospital that operates as a "hospital-within-a-hospital" if the hospital-within-a-hospital received more than 25% of its Medicare patients fromits host hospital. In that same press release, Select Medical stated that "most of ' the company'slong-term acute-care hospitals currently "could not meet the proposed requirement and thereforewould be subject to lower levels of reimbursement" and that the company believed thadopted, the proposed rule would have a material adverse effect on the company's resWs ofoperations.

On August 24, 2004, this securities fraud class action was filed against Select Medical andIndividual Defendants Martin Jackson, Robert A. Ortenzio, Rocco Ortenzio, and Patricia Rice onbehalf of all allegedly injured investors who purchased Select Medical securities between July29, 2003 and May 11, 2004, inclusive. The action alleged violations of Sections 10(b) and 20(a)of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a),and Rule l Ob-5 promulgated thereunder, 17 C.F.R. § 240.1 Ob-5.

Capital Invest, die Kapitalanlagegesellschaft der Bank Austria Creditanstalt Gruppe GmbH (nowknown as Pioneer Investments Austria) for account of its funds C 43 and GF 5, James Shaver,and Frank C. Bagatta were designated Lead Plaintiffs pursuant to the Private SecuritiesLitigation Reform Act of 1995 ("PSLRA") by Order of the Court on February 16, 2005.

By Order of the Court dated February 16, 2005, Milberg Weiss Bershad & Schulman LLP (nowknown as Milberg LLP) was appointed as Lead Counsel for the Class and Kenney Lennon &Egan PC (now known as Kenney, Egan, McCafferty, & Young PC) as Liaison Counsel. OnSeptember 11, 2006, Lead Plaintiffs moved to add Motley Rice LLC as Co-Lead Counsel for theClass. The Court granted that motion on October 5, 2006.

On April 19, 2005, Lead Plaintiffs filed their Amended Complaint for Violations of the FederalSecurities Laws (the "Complaint"). The Complaint alleges, among other things, that SelectMedical and the Individual Defendants, who the Complaint alleges were controlling officersand/or directors of Select Medical, made materially false and misleading statements andomissions in Select Medical's public reports and documents disseminated to the investing publicduring the Class Period, thereby artificially inflating the price of the securities of Select Medicaland damaging members of the Class.

In particular, the Complaint alleges that Defendants misled investors during the Class Period byemphasizing Select Medical's strong growth and financial and operational performance eventhough they allegedly knew or recklessly disregarded that the Centers for Medicare andMedicaid Services ("CMS") was going to propose a change to Medicare reimbursementregulations that would negatively impact the company's financial success and ability to continueto grow as planned. Plaintiffs also claimed that Select Medical had engaged in improper revenuegenerating practices that masked otherwise declining revenues and a deteriorating financialcondition. More specifically, the Complaint alleged that Defendants had used a "hospital-within-hospital" ("HIH") model to "improperly influence `host hospitals"' to refer patients to SelectMedical's hospitals, which the Complaint contended "resulted in substantial increases in thecompany's Medicare reimbursements and strong growth and financial and operational

8


performance reported to Select Medical's public shareholders." Plaintiffs alleged further thatDefendants made materially misleading statements and omitted material information regardingthe regulatory change proposed by CMS on May 11, 2004 that would seriously curtail thatpractice, the means by which revenue was being generated, and the adequacy of internalaccounting controls.

The lawsuit seeks money damages against Defendants for alleged violations of the federalsecurities laws. Defendants deny all allegations of misconduct contained in the Complaint, anddeny having engaged in any wrongdoing whatsoever.

3. Why is this a class action?

In a class action, one or more people called class representatives (in this case, the ClassRepresentatives are Lead Plaintiffs Capital Invest, die Kapitalanlagegesellschaft der BankAustria Creditanstalt Gruppe GmbH (now known as Pioneer Investments Austria) for account ofits funds C 43 and GF 5, James Shaver, and Frank C. Bagatta), sue on behalf of people who havesimilar claims. All these people are a class or class members. Bringing a case, such as this one,as a class action allows adjudication of many similar claims of persons and entities that might beeconomically too small to bring in individual actions. One court resolves the issues for all classmembers, except for those who exclude themselves from the class.

4. Why is there a settlement?

On June 13, 2005, Defendants moved to dismiss the Complaint pursuant to Rule 12(b)(6) of theFederal Rules of Civil Procedure and to strike various allegations of the Complaint pursuant toRule 12(f) of the Federal Rules of Civil Procedure. By Memorandum and Order dated April 6,2006, the Court granted in part and denied in part Defendants' motion to dismiss, and denied theDefendants' motion to strike. The Court granted the portion of Defendants' motion to dismissconcerning the claims that were based on the adequacy of internal controls for failure to state aclaim under Section 10(b) of the Exchange Act, dismissing those claims from this litigation.

On May 19, 2006, Defendants answered the Complaint. The Defendants denied Plaintiffs'claims and asserted several defenses. In doing so, Defendants assert that they are not liable toPlaintiffs and have done nothing wrong or improper.

On September 20, 2006, Defendants filed a motion seeking a certificate of appealability under 28U.S.C. § 1292(b) of the Court's April 6, 2006 Memorandum and Order denying in part andgranting in part Defendants' motion to dismiss. Plaintiffs filed their opposition papers onOctober 27, 2006. Defendants replied on November 17, 2006. By Memorandum and Orderdated February 12, 2007, the Court vacated in part its April 6, 2006 decision and grantedDefendants' motion to dismiss Plaintiffs' securities fraud claims premised on alleged improperrevenue practices for failure to allege the necessary loss causation under Section 10(b) of theExchange Act, dismissing those claims from this litigation. Only Plaintiffs' claim for securities

9


fraud based on alleged misrepresentations and omissions related to the regulatory changeproposed by CMS on May 11, 2004 remains.

On December 8, 2006, Lead Plaintiffs moved the Court for an order certifying the Class pursuantto Rule 23 of the Federal Rules of Civil Procedure. Select Medical and the IndividualDefendants opposed the motion on April 3, 2007. Plaintiffs replied on July 9, 2007. ByMemorandum and Order dated October 25, 2007, the Court granted Plaintiffs' motion for classcertification. The Court's Order also certified Lead Plaintiffs Pioneer Investments Austria,James Shaver, and Frank C. Bagatta as Class Representatives and appointed Co-Lead Counseland Liaison Counsel as class counsel.

On February 21, 2007, Plaintiffs moved for reconsideration and clarification of the Court'sFebruary 12, 2007 Memorandum and Order dismissing Plaintiffs' securities fraud claimspremised on alleged improper revenue practices for failure to allege the necessary loss causation.Defendants responded on March 7, 2007. Plaintiffs replied on March 21, 2007. ByMemorandum and Order dated June 12, 2007, the Court denied Plaintiffs' motion forreconsideration and clarification of the February 12, 2007 Memorandum and Order.

On November 9, 2007, Defendants petitioned the United States Court of Appeals for the ThirdCircuit (the "Third Circuit Court of Appeals") pursuant to Rule 23(f) of the Federal Rules ofCivil Procedure for leave to appeal the Court's October 25, 2007 order certifying the Class. OnNovember 21, 2007, Plaintiffs filed a Response in Opposition to Defendants' Petition for Leaveto Appeal Pursuant to Rule 23(f) of the Federal Rules of Civil Procedure from Order GrantingClass Certification and on November 30, 2007 Defendants filed a Reply in Support of Leave toAppeal Pursuant to Rule 23(f) of the Federal Rules of Civil Procedure from Order dated October25, 2007. On March 6, 2008, the Third Circuit Court of Appeals denied Defendants' petition forleave to appeal.

Pretrial fact discovery closed on February 15, 2008. During pretrial fact discovery, the partiesconducted depositions and collected and reviewed documents from the parties and third parties.Defendants deposed the Lead Plaintiffs and initial plaintiffs Marsden and Xu, as well as certainformer Select Medical employees identified in Plaintiffs' initial disclosures. Plaintiffs deposedthe Individual Defendants, as well as numerous current and former Select Medical employeesand third party witnesses. The parties exchanged expert reports as part of pretrial expertdiscovery. Plaintiffs provided an expert report on the Medicare regulatory process and a separateexpert report on damages. Defendants provided an expert report on damages.

Defendants filed a motion for summary judgment with accompanying memorandum of law andappendix of exhibits on March 28, 2008. Plaintiffs filed their memorandum of law in oppositionto Defendants' motion for summary judgment, together with an appendix of exhibits, on May 28,2008. Defendants filed a reply memorandum of law and appendix of additional exhibits on June26, 2008

Having completed discovery and engaged in extensive motion practice concerning the viabilityof Plaintiffs' claims and the class certification issue, the parties participated in a mediationconference on July 3, 2008; and, at that conference, the parties agreed to the settlement describedherein.

10


The Court did not finally decide in favor of Plaintiffs or Defendants. Instead, both sides, withthe assistance of Michael Young of JAMS acting as a mediator, agreed to a settlement. Thatway, they avoid the risks and cost of a trial, and the Class Members will receive compensation.The Class Representatives and their attorneys think the settlement is best for the Class.

WHO IS IN THE SETTLEMENT

To see if you will get money from this settlement, you first have to determine whether you are aClass Member.

5. How do I know if I am part of the settlement?

The Court decided that everyone who fits this description is a Class Member: all persons whopurchased the securities of Select Medical Corp. between July 29, 2003 and May 11, 2004,inclusive, and who were damaged thereby.

6. Are there exceptions to being included?

Excluded from the Class are the Defendants, the officers and directors of Select MedicalCorporation at all relevant times, members of their immediate families and their legalrepresentatives, heirs, successors or assigns and any entity in which Defendants have or had acontrolling interest.

If one of your mutual funds purchased Select Medical securities during the Class Period, thatalone does not make you a Class Member. You are a Class Member only if you directlypurchased Select Medical securities during the Class Period. Check your investment records orcontact your broker to see if you purchased Select Medical securities during the Class Period.

If you sold Select Medical securities during the Class Period, that alone does not make you aClass Member. You are a Class Member only if you purchased Select Medical securities duringthe Class Period.

7. What if I am still not sure if I am included?

If you are still not sure whether you are included, you can ask for free help. You can call 1-877-581-3299 or visit www.gilardi.com/SelectMedical for more information. Or you can fill outand return the Proof of Claim form described on page r 1, in question 10, to see if you qualify.

11


THE SETTLEMENT BENEFITS — WHAT YOU GET

8. What does the settlement provide?

In exchange for the Settlement and dismissal of the Action, Defendants agreed to create a $5million (Five Million U.S. Dollars) fund to be divided, after fees and expenses, among all ClassMembers who send in valid Proof of Claim forms.

9. How much will my payment be?

Your share of the fund will depend on the total Recognized Claims represented by the validProof of Claim forms that Class Members send in, the type and amounts of Select Medicalsecurities you bought, how much you paid for them, and when you bought and whether or whenyou sold them, and if so for how much you sold them.

You can calculate your Recognized Claim in accordance with the formula shown below in thePlan of Allocation. It is unlikely that you will get a payment for the entire value of yourRecognized Claim. After all Class Members have sent in their Proof of Claim forms, thepayment you get will be a part of the Net Settlement Fund equal to your Recognized Claimdivided by the total of everyone's Recognized Claims. See the Plan of Allocation beginning onpage r I for more information on your Recognized Claim.

HOW YOU GET A PAYMENT — SUBMITTING A PROOF OF CLAIM FORM

10. How can I get a payment?

To qualify for a payment, you must send in a Proof of Claim form. A Proof of Claim form isbeing circulated with this Notice. You may also get a Proof of Claim form on the Internet atwww.gilardi.com/SelectMedical. Read the instructions carefully, fill out the Proof of Claimform, include all the documents the form asks for, sign it, and mail it postmarked no later than , 2009.

11. When would I get my payment?

The Court will hold a hearing on , 2009, to decide whether to approve thesettlement. If the Court approves the settlement after that, there may be appeals. It is alwaysuncertain whether these appeals can be resolved, and resolving them can take time, perhaps morethan a year. It also takes time for all the Proofs of Claim to be processed. Please be patient.

12


12. What am I giving up to get a payment or stay in the Class?

Unless you exclude yourself, you are staying in the Class, and that means that, upon the"Effective Date," you will release all "Settled Claims" (as defined below) against the "ReleasedParties" (as defined below).

"Settled Claims" means any and all claims, debts, demands, rights or causes of action orliabilities whatsoever (including, but not limited to, any claims for damages, interest, attorneys'fees, expert or consulting fees, and any other costs, expenses or liability whatsoever), whetherbased on federal, state, local, statutory or common law or any other law, rule or regulation,whether fixed or contingent, accrued or un-accrued, liquidated or un-liquidated, at law or inequity, matured or un-matured, whether class or individual in nature, including both knownclaims and Unknown Claims, (i) that have been asserted in this Action by the Class Members orany of them against any of the Released Parties, or (ii) that could have been asserted in anyforum by the Class Members or any of them against any of the Released Parties which arise outof or are based upon the allegations, transactions, facts, matters or occurrences, representationsor omissions involved, set forth, or referred to in the Complaint and which relate to the purchaseof Select Medical securities during the Class Period. "Settled Claims" does not mean or includeclaims, if any, against the Released Parties arising under the Employee Retirement IncomeSecurity Act of 1974, 29 U.S.C. § 1001, et seq. (" ERISA"), if such claims are not common to allClass Members.

"Released Parties" means any and all of the Defendants, the past or present subsidiaries, parents,successors, predecessors, officers, directors, agents, employees, attorneys, advisors, investmentadvisors, insurers, auditors, and accountants of any of the Defendants or any of their subsidiaries,any person, firm, trust, corporation, officer, director or other individual or entity in which any ofthe Defendants has a controlling interest or which is related to or affiliated with any of theDefendants, and the legal representatives, heirs, executors, trustees, successors in interest orassigns of any of the Defendants.

The "Effective Date" will occur when an Order entered by the Court approving the Settlementbecomes final and not subject to appeal.

If you remain a member of the Class, all of the Court's orders will apply to you and legally bindyou.

EXCLUDING YOURSELF FROM THE SETTLEMENT

If you do not want a payment from this settlement, but you want to keep any right you may haveto sue or continue to sue the Defendants and the other Released Parties, on your own, about theSettled Claims, then you must take steps to get out. This is called excluding yourself — or issometimes referred to as "opting out" of the settlement class. Select Medical may withdrawfrom and terminate the Settlement if putative Class Members who purchased in excess of acertain amount of Select Medical securities exclude themselves from the Class.

13


13. How do I get out of the proposed settlement?

To exclude yourself from the Class, you must send a signed letter by mail stating that you"request exclusion from the Class in Marsden v. Select Medical Corp., et al., Civil Action No.04-cv-4020." Your letter should also state the date(s), price(s), and the type(s) and amount(s) ofall your purchases and sales of Select Medical securities during the Class Period. In addition, besure to include your name, address, telephone number, and your signature. You must mail yourexclusion request postmarked no later than , 2009 to:

Select Medical Corporation Securities Litigation EXCLUSIONSc/o Gilardi & Co. LLC, Claims Administrator

Post Office Box 990Corte Madera, CA 94976-0990

You cannot exclude yourself by telephone or by e-mail. If you ask to be excluded, you will notget any settlement payment, and you cannot object to the settlement. You will not be legallybound by anything that happens in this lawsuit, and you may be able to sue (or continue to sue)the Defendants and the other Released Parties in the future.

14. If I do not exclude myself, can I sue the Defendants and the other Released Parties forthe same thing later?

No. Unless you exclude yourself, you give up any rights to sue the Defendants and the otherReleased Parties for any and all Settled Claims. If you have a pending lawsuit speak to yourlawyer in that case immediately. You must exclude yourself from this Class to continue yourown lawsuit. Remember, the exclusion deadline is , 2009.

15. If I exclude myself, can I get money from the proposed settlement?

No. If you exclude yourself, do not send in a Proof of Claim form to ask for any money. Butyou may exercise any right you may have to sue, continue to sue, or be part of a different lawsuitagainst the Defendants and the other Released Parties concerning the Settled Claims.

THE LAWYERS REPRESENTING THE CLASS

16. Do I have a lawyer in this case?

The Court ordered that the law firm of Motley Rice LLC in Hartford, CT and Mt. Pleasant, SCand the law firm of Milberg Weiss Bershad Hynes & Lerach LLP, now known as Milberg LLP,in New York, NY will represent the Class. These lawyers are called Plaintiffs' Co-Lead

14


Counsel. You will not be separately charged for these lawyers. The Court will determine theamount of Plaintiffs' Co-Lead Counsel's fees and expenses, which will be paid from the GrossSettlement Fund. If you want to be represented by your own lawyer, you may hire one at yourown expense.

17. How will the lawyers be paid?

Plaintiffs' Counsel are moving the Court to award them an amount for both attorneys' fees andlitigation expenses incurred in connection with the prosecution of this Action, limited to a totalof forty percent (40%) of the Gross Settlement Fund. The expenses incurred by Plaintiffs'Counsel are estimated at approximately $550,000 or about 11 % of the Gross Settlement Fund.The remaining amount of the requested award would provide Plaintiffs' Counsel with attorneys'fees of approximately $1,450,000 or about 29% of the Gross Settlement Fund. The requestedattorneys' fees represent less than the amount Plaintiffs' Counsel's billable hourly fees, had thecase not been pursued on a contingent-fee basis.

The motion for attorneys' fees is submitted on behalf of Plaintiffs' Co-Lead Counsel andKenney, Egan, McCafferty & Young, 3031 C Walton Road, Suite 202, Plymouth Meeting,Pennsylvania 19462 and Sturman LLC, 112 Madison Ave, 7th Floor, New York, New York10016-7416..

Plaintiffs' Co-Lead Counsel, without further notice to the Class, will subsequently apply to theCourt for payment of the Claims Administrator's fees and expenses incurred in connection withgiving notice, administering the settlement and distributing the settlement proceeds to themembers of the Class.

OBJECTING TO THE SETTLEMENT

You can tell the Court that you do not agree with the settlement or some part of it.

18. How do I tell the Court that I do not like the proposed settlement?

If you are a Class Member you can object to the Settlement or any of its terms, the proposed Planof Allocation and/or the application by Plaintiffs' Co-Lead Counsel for an award of fees andexpenses. You may write to the Court setting out your objection. You may give reasons whyyou think the Court should not approve any or all of the Settlement terms or arrangements. TheCourt will consider your views if you file a proper objection within the deadline identified, andaccording to the following procedures. The Court may approve this settlement even if youobject.

To object, you must send a signed letter stating that you object to the proposed settlement inMarsden v. Select Medical Corp., et al., Civil Action No. 04-cv-4020. Be sure to include yourname, address, telephone number, and your signature, identify the date(s), price(s), and the

15


type(s) and amount(s) of all purchases and sales of Select Medical securities you made duringthe Class Period, and state the reasons why you object to the Settlement. Your objection must befiled with the Court and served on all the following counsel on or before 2009:

COURT PLAINTIFFS' CO-LEAD DEFENDANTS' COUNSELCOUNSEL

Clerk of the Court Sanford P. Dumain, Esq. Michael L. Kichline, Esq.United States District Court Milberg LLP Dechert LLPfor the Eastern District of One Pennsylvania Plaza Cira CentrePennsylvania New York, NY 10119-0165 2929 Arch StreetJames A. Byrne United Philadelphia, PA 19104-2808States Courthouse William H. Narwold601 Market Street Motley Rice LLCPhiladelphia, PA 19106- One Corporate Center1797 20 Church Street, 17th Floor

Hartford, CT 06103

You do not need to go to the Settlement Fairness Hearing to have your written objectionconsidered by the Court. At the Settlement Fairness Hearing, any Class Member who has notpreviously submitted a request for exclusion from the Class and who has complied with theprocedures set out in this question 18 and question 22 below for filing with the Court andproviding to the counsel for Plaintiffs and Defendants a statement of an intention to appear at theSettlement Fairness Hearing may also appear and be heard, to the extent allowed by the Court, tostate any objection to the Settlement, the Plan of Allocation or Plaintiffs' Co-Lead Counsel'smotion for an award of attorneys' fees and reimbursement of expenses. Any such objector mayappear in person or arrange, at that objector's expense, for a lawyer to represent the objector atthe Settlement Fairness Hearing.

19. What is the difference between objecting and excluding?

Objecting is simply telling the Court that you do not like something about the proposedsettlement. You can object only if you stay in the Class. Excluding yourself is telling the Courtthat you do not want to be part of the Class. If you exclude yourself, you have no basis to objectbecause the case no longer affects you.

THE COURT'S SETTLEMENT FAIRNESS HEARING

The Court will hold a hearing to decide whether to approve the proposed settlement. You mayattend and you may ask to speak, but you do not have to.

16


20. When and where will the Court decide whether to approve the proposed settlement?

The Court will hold a Settlement Fairness Hearing at _:_ _.m. on day, , 2009, at the United States District Court for the Eastern District ofPennsylvania, James A. Byrne United States Courthouse, 601 Market Street, Philadelphia, PA19106-1797. At this hearing the Court will consider whether the settlement is fair, reasonableand adequate. At the Settlement Fairness Hearing, the Court also will consider the proposed Planof Allocation for the proceeds of the Settlement and the application of Plaintiffs' Co-LeadCounsel for attorneys' fees and reimbursement of expenses. The Court will take intoconsideration any written objections filed in accordance with the instructions at question 18. TheCourt also may listen to people who have properly indicated, within the deadline identifiedabove, an intention to speak at the hearing; but decisions regarding the conduct of the hearingwill be made by the Court. See question 22 for more information about speaking at the hearing.The Court may also decide how much to pay to Plaintiffs' Counsel. After the hearing, the Courtwill decide whether to approve the settlement. We do not know how long these decisions willtake.

You should be aware that the Court may change the date and time of the Settlement FairnessHearing. Thus, if you want to come to the hearing, you should check with Plaintiffs' Co-LeadCounsel before coming to be sure that the date and/or time has not changed.

21. Do I have to come to the hearing?

No. Plaintiffs' Counsel will answer any questions the Court may have. But, you are welcome tocome at your own expense. If you send an objection, you do not have to come to Court to talkabout it. As long as you filed your written objection on time, the Court will consider it. Youmay also pay your own lawyer to attend, but it is not necessary for your lawyer to attend. ClassMembers do not need to appear at the hearing or take any other action to indicate their approval.

22. May I speak at the hearing?

If you object to the Settlement, you may ask the Court for permission to speak at the SettlementFairness Hearing. To do so, you must include with your objection (see question 18 above) astatement stating that it is your "Notice of Intention to Appear in Marsden v. Select MedicalCorp., et al., Civil Action No. 04-cv-4020." Persons who intend to object to the Settlement, thePlan of Allocation, and/or counsel's application for an award of attorneys' fees and expenses andwho desire to present evidence at the Settlement Fairness Hearing must include in their writtenobjections the identity of any witnesses they may call to testify and exhibits they intend tointroduce into evidence at the Settlement Fairness Hearing. You cannot speak at the hearing ifyou excluded yourself from the Class or if you have not provided written notice of your intention

17


to speak at the Settlement Fairness Hearing by the deadline identified, and in accordance with theprocedures described in questions 18 and 20 above.

IF YOU DO NOTHING

23. What happens if I do nothing at all?

If you do nothing, you will get no money from this settlement and you will be precluded fromstarting a lawsuit, continuing with a lawsuit, or being part of any other lawsuit againstDefendants and the other Released Parties about the Settled Claims in this case, ever again. Toshare in the Net Settlement Fund you must submit a Proof of Claim form (see question 10). Tostart, continue or be a part of any other lawsuit against the Defendants and the other ReleasedParties about the Settled Claims in this case you must exclude yourself from this Class (seequestion 13).

GETTING MORE INFORMATION

24. Are there more details about the proposed settlement?

This notice summarizes the proposed settlement. More details are in a Stipulation andAgreement of Settlement dated November 5, 2008 (the "Stipulation"). You can get a copy of theStipulation by writing to Sanford P. Dumain, Esq., Milberg LLP, One Pennsylvania Plaza, NewYork, NY 10119-0165, or by visiting www.gilardi.com/SelectMedical.

You also can call the Claims Administrator at 1-877-581-3299 toll free; write to Select MedicalCorporation Securities Litigation, c/o Gilardi & Co. LLC, Claims Administrator, Post Office Box990, Corte Madera, CA 94976-0990; or visit the website at www.gilardi.com/SelectMedical,where you will find answers to common questions about the settlement, a Proof of Claim form,plus other information to help you determine whether you are a Class Member and whether youare eligible for a payment.

25. How do I get more information?

For even more detailed information concerning the matters involved in this Action, you mayrefer to the pleadings, to the Stipulation, to the Orders entered by the Court and to the otherpapers filed in the Action, which may be inspected at the Office of the Clerk of the United StatesDistrict Court for the Eastern District of Pennsylvania, James A. Byrne United StatesCourthouse, 601 Market Street, Philadelphia, PA 19106-1797, during regular business hours.

18


PLAN OF ALLOCATION OF NET SETTLEMENT FUND AMONG CLASS MEMBERS

The $5,000,000 (Five Million U.S. Dollars) Cash Settlement Amount and the interest earnedthereon shall be the Gross Settlement Fund. The Gross Settlement Fund, less all taxes, approvedcosts, fees and expenses (the "Net Settlement Fund") shall be distributed to members of the Classwho submit acceptable Proofs of Claim ("Authorized Claimants").

The Claims Administrator shall determine each Authorized Claimant's pro rata share of the NetSettlement Fund based upon each Authorized Claimant's "Recognized Claim." The RecognizedClaim formula is not intended to be an estimate of the amount of what a Class Member mighthave been able to recover after a trial; nor is it an estimate of the amount that will be paid toAuthorized Claimants pursuant to the settlement. The Recognized Claim formula is the basisupon which the Net Settlement Fund will be proportionately allocated to the AuthorizedClaimants.

The following proposed Plan of Allocation reflects the proposition alleged in the Complaint,namely that the prices of Select Medical securities were artificially inflated during the ClassPeriod -- July 29, 2003 through May 11, 2004 -- by reason of the allegedly false and misleadingstatements made by Defendants or omitted from the Defendants' statements.

The Complaint alleges that during the Class Period -- July 29, 2003 through May 11, 2004 --Defendants had represented Select Medical to have a good business model with excellentprospects for growth. On May 11, 2004, the Centers for Medicare and Medicaid Services("CMS"), the agency responsible for administering Medicare, issued a press release summarizinga proposed rule ("Proposed Rule") that, if adopted, would reduce the Medicare reimbursementpaid to a hospital-within-a-hospital ("HIH") for Medicare patients referred to the HIH from itshost hospital, who exceeded 25% of the HIH's total population of Medicare patients. SelectMedical was one of the largest operators of long-term acute care hospitals ("LTCHs") in theUnited States and the majority of Select Medical's LTCHs were HIHs. Because few of SelectMedical's HIHs complied with the Proposed Rule, if adopted, the Proposed Rule would havenegatively impacted Select Medical's business model. After the Proposed Rule was announced,Select Medical's common stock price fell.

Common Stock: Plaintiffs' damages expert opined that Select Medical's common stock washeavily traded in a developed and efficient market during the Class Period, and that the marketprice of its common stock was artificially inflated by reason of the alleged false and misleadingstatements and omissions by approximately 23% during the Class Period. Class Members whopurchased the common stock during the Class Period, and still held those shares as of the closeof trading on May 10, 2004, could potentially claim damages as the lower of 23% of theirpurchase price, or the difference between their purchase price paid, and (i) if they sold the sharesin the 90 days from May 11, 2004 through August 11, 2004, the sales price they received, or (ii)if they continued to own the shares at the close of trading on August 11, 2004, $13.39 per share.

Credit Notes: During the Class Period, Select Medical had issued and outstanding 7.5% Notesdue August 2013 ("7.5% Notes") and 9.5% Notes due June 2009 ("9.5% Notes") but these debtinstruments were thinly-traded at best and were indirectly affected by Select Medical'sfluctuating prospects. Plaintiffs' damages expert did not find that the 7.5% Notes or 9.5% Notes

19


were traded in a developed and efficient market during the Class Period. Accordingly, it wouldbe difficult to prove that the price of these notes was artificially inflated as a result of theDefendants' allegedly false and misleading statements or omissions. The 9.5% Notes tradedsomewhat more heavily than the 7.5% Notes but the price of the 9.5% Notes remained virtuallyunchanged in the 90 day period after the end of the Class Period as compared to their prices priorto the end of the Class period, and Plaintiffs' damage expert did not find that any damages couldbe attributed to the purchasers of these 9.5% Notes. The 7.5% Notes were traded even less thanthe 9.5% Notes during the Class Period and, while they did trade at somewhat lower prices in the90 day period following the Class Period, they were trading at virtually 100% of face value at theend of the 90 day period. Ultimately both the 7.5% Notes and the 9.5% Notes were re-purchasedby the company in February 2005 in accordance with their contractual terms. The proposed Planof Allocation for Class Members who purchased 7.5% Notes or 9.5% Notes during the ClassPeriod, and who sold them in the 90 days from May 11, 2004 through August 11, 2004 for lessthan par value (100% of face value), provides for a Recognized Claim limited to 23% of thedifference between par value (100% of face value) and the Sales Proceeds Received (excludinginterest). No Recognized Claim is allowed with respect to Notes purchased during the ClassPeriod that were not sold in the 90 days from May 11, 2004 through August 11, 2004 for lessthan par value (100% of face value).

For purposes of calculating claims, the following terms shall have the indicated meanings:

"PPP" means the purchase price paid for a security, and it includes the purchase price and anybrokerage commissions or other charges incurred on the purchase.

"SPR" means the sales proceeds received and it is the net amount received for the security soldafter deduction of brokerage commissions and other sales charges incurred on the sale.

"Recognized Claims" will be calculated for purposes of the Settlement as follows:

PURCHASES OF SELECT MEDICAL COMMON STOCK (CUSIP: 816196109):

For shares of Select Medical common stock purchased during the Class Period, "RecognizedClaims" will be calculated for purposes of the Settlement as follows:

(1) If the shares purchased during the Class Period were sold on or before the close oftrading on May 10, 2004, then an Authorized Claimant's "Recognized Claim" on such sharesshall be zero ($0.00).

(2) If the shares purchased during the Class Period were sold at a loss' during theperiod May 11, 2004 through and including the close of trading on August 11, 2004, then anAuthorized Claimant's "Recognized Claim" from such shares shall mean the least of (a) 23%of the PPP; or (b) the PPP minus the SPR; or (c) the PPP less $13.39 per share.

The Recognized Claim for shares purchased during the Class Period and sold for a gain (or no`Voss) shall be zero ($0.00).

20


(3) If the shares purchased during the Class Period were still held as of the close oftrading on August 11, 2004, then an Authorized Claimant's "Recognized Claim" from suchshares shall mean the lesser of (a) 23% of the PPP; or (b) the PPP less $13.39 per share.

PURCHASES OF SELECT MEDICAL 7.5% NOTES (CUSIP: 816196af6), or 9.5% NOTES (CUSIP: 816196ac3):

For Select Medical Notes purchased during the Class Period, "Recognized Claims" will becalculated for purposes of the Settlement as follows:

(1) If the Notes purchased during the Class Period were sold at a loss on or before theclose of trading on May 10, 2004, then an Authorized Claimant's "Recognized Claim" from suchNotes shall be zero ($0.00).

(2) If the Notes purchased during the Class Period were sold for less than Face Value, and at a loss, during the period May 11, 2004 through the close of trading on August 11, 2004, inclusive, then an Authorized Claimant's "Recognized Claim" shall mean 23% of the differencebetween the Face Value of the Notes minus the SPR (excluding any accrued interest received onthe sale).

(3) If the Notes purchased during the Class Period were sill held at the close oftrading on August 11, 2004, then an Authorized Claimant's "Recognized Claim" from suchNotes shall be zero ($0.00).

In the event a Class Member has more than one purchase or sale of Select Medical commonstock and/or Notes, all purchases and sales shall be matched on a First In First Out ("FIFO")basis, Class Period sales will be matched first against any Select Medical shares and/or Notesheld at the beginning of the Class Period and then against purchases in chronological order. Apurchase or sale of Select Medical common stock and Notes shall be deemed to have occurred onthe "contract" or "trade" date as opposed to the "settlement" or "payment" date. The receipt orgrant by gift, devise or operation of law of Select Medical common stock and/or Notes duringthe Class Period shall not be deemed a purchase or sale of Select Medical common stock and/orNotes for the calculation of an Authorized Claimant's Recognized Claim nor shall it be deemedan assignment of any claim relating to the purchase of such Select Medical common stock and/orNotes unless specifically provided in the instrument of gift or assignment.

To the extent a Claimant had a gain from his, her or its overall transactions in Select Medicalcommon stock and Notes during the Class Period and in the following 90 day period, the valueof the Recognized Claim will be zero. To the extent that a Claimant suffered an overall loss onhis, her or its overall transactions in Select Medical common stock and Notes during the ClassPeriod and in the following 90 day period, but that loss was less than the Recognized Claimcalculated above, then the Recognized Claim shall be limited to the amount of the actual loss.

For purposes of determining whether a Claimant had a gain from his, her or its overalltransactions in Select Medical common stock and Notes during the Class Period and in thefollowing 90 day period, or suffered a loss, the Claims Administrator shall: (i) total the amountpaid for all Select Medical common stock and Notes purchased during the Class Period by theClaimant (the "Total Purchase Amount"); (ii) match any sales of Select Medical common stock

21


and Notes during the Class Period and in the following 90 day period, first against theClaimant's opening positions in the stock and Notes (the proceeds of those sales will not beconsidered for purposes of calculating gains or losses); (iii) total the amount received for sales ofthe remaining Select Medical common stock and Notes sold during the Class Period and in thefollowing 90 day period (the "Sales Proceeds"); and (iv) ascribe a $13.39 per common share, andthe full Face Value for all 7.5% Notes or 9.5% Notes holding value for the Select Medicalcommon stock and Notes purchased during the Class Period and still held at the close of tradingon August 11, 2004 (the "Holding Value"). The difference between (x) the Total PurchaseAmount ((i) above) and (y) the sum of the Sales Proceeds ((iii) above) and the Holding Value((iv) above) will be deemed a Claimant's gain or loss on his, her or its overall transactions inSelect Medical common stock and Notes common stock during the Class Period.

Each Authorized Claimant shall be allocated a pro rata share of the Net Settlement Fund basedon his, her or its Recognized Claim as compared to the total Recognized Claims of allAuthorized Claimants. The minimum distribution amount to an Authorized Claimant with avalid Recognized Claim shall be $10.00.

Class Members who do not submit acceptable Proofs of Claim will not share in the settlementproceeds. Class Members who do not submit acceptable Proofs of Claim will nevertheless bebound by the settlement and the Order and Final Judgment of the Court dismissing this Action.

Distributions will be made to Authorized Claimants after all claims have been processed andafter the Court has finally approved the settlement. If any funds remain in the Net SettlementFund by reason of un-cashed distributions or otherwise, then, after the Claims Administrator hasmade reasonable and diligent efforts to have Class Members who are entitled to participate in thedistribution of the Net Settlement Fund cash their distributions, any balance remaining in the NetSettlement Fund one (1) year after the initial distribution of such funds shall be re-distributed toClass Members who have cashed their initial distributions and who would receive at least $10.00from such re-distribution, after payment of any unpaid costs or fees incurred in administering theNet Settlement Fund for such re-distribution. If after six months after such re-distribution anyfunds shall remain in the Net Settlement Fund, then such balance shall be contributed to non-sectarian, not-for-profit, 501(c)(3) organization(s) designated by Plaintiffs' Co-Lead Counsel.

SPECIAL NOTICE TO SECURITIES BROKERS AND OTHER NOMINEES

If you purchased Select Medical Corp. common stock (NYSE ticker: SEM; CUSIP:816196109) 3 , 7.5% Notes due August 2013 (CUSIP: 816196AF6), or 9.5% Notes due June 2009(CUSIP: 816196AC3) between July 29, 2003 and May 11, 2004, inclusive, for the beneficialinterest of a person or organization other than yourself, the Court has directed that, WITHINSEVEN (7) DAYS OF YOUR RECEIPT OF THIS NOTICE, you either (a) provide to theClaims Administrator the name and last known address of each person or organization for whom

3 During the Class Period, on December 5, 2003, Select conducted a 2-for-1 stock split of itscommon stock. Select Medical ceased to be a publicly-traded company on February 24, 2005 when itbecame a privately held company.

22


or which you purchased those Select Medical shares or notes during such time period or (b)request additional copies of this Notice and the Proof of Claim form, which will be provided toyou free of charge, and within seven (7) days mail the Notice and Proof of Claim form directly tothe beneficial owners of those Select Medical shares or notes. If you choose to follow alternativeprocedure (b), the Court has directed that, upon such mailing, you send a statement to the ClaimsAdministrator confirming that the mailing was made as directed. You are entitled toreimbursement from the Settlement Fund of your reasonable expenses actually incurred inconnection with the foregoing, including reimbursement of postage expense and the cost ofascertaining the names and addresses of beneficial owners. Those expenses will be paid uponrequest and submission of appropriate supporting documentation. All communicationsconcerning the foregoing should be addressed to the Claims Administrator:

Select Medical Corporation Securities Litigationc/o Gilardi & Co. LLCClaims AdministratorPost Office Box 990

Corte Madera, CA 94976-0990(877) 581-3299


By Order of the CourtCLERK OF THE COURT

23






Plaintiffs,



Defendants.

PROOF OF CLAIM AND RELEASE

DEADLINE FOR SUBMISSION: , 2009.

IF YOU PURCHASED THE SECURITIES OF SELECT MEDICAL CORPORATIONBETWEEN JULY 29, 2003 AND MAY 11, 2004, INCLUSIVE ("CLASS PERIOD"),YOU ARE A "CLASS MEMBER" AND YOU MAY BE ENTITLED TO SHARE INTHE SETTLEMENT PROCEEDS.

Excluded from the Class are the Defendants, the officers and directors of Select MedicalCorporation at all relevant times, members of their immediate families and their legalrepresentatives, heirs, successors or assigns and any entity in which Defendants have orhad a controlling interest.

IF YOU ARE A CLASS MEMBER, YOU MUST COMPLETE AND SUBMIT THISFORM IN ORDER TO BE ELIGIBLE FOR ANY SETTLEMENT BENEFITS.

YOU MUST COMPLETE AND SIGN THIS PROOF OF CLAIM AND MAIL IT BY

FIRST CLASS MAIL, POSTMARKED NO LATER THAN , 2009 TOTHE FOLLOWING ADDRESS:


Corte Madera, CA 94976-0990


YOUR FAILURE TO SUBMIT YOUR CLAIM BY , 2009 WILLSUBJECT YOUR CLAIM TO REJECTION AND PRECLUDE YOUR RECEIVINGANY MONEY IN CONNECTION WITH THE SETTLEMENT OF THISLITIGATION. DO NOT MAIL OR DELIVER YOUR CLAIM TO THE COURT ORTO ANY OF THE PARTIES OR THEIR COUNSEL AS ANY SUCH CLAIM WILLBE DEEMED NOT TO HAVE BEEN SUBMITTED. SUBMIT YOUR CLAIM ONLYTO THE CLAIMS ADMINISTRATOR.

CLAIMANT'S STATEMENT

1. I affirm that I purchased Select Medical common stock, 7.5% Notes due August

2013, or 9.5% Notes due June 2009 between July 29, 2003 and May 11, 2004, inclusive. (Do not

submit this Proof of Claim if you did not purchase Select Medical common stock, 7.5% Notes

due August 2013, or 9.5% Notes due June 2009 during this period).

2. By submitting this Proof of Claim, I state that I believe in good faith that I may be

a Class Member as defined above and in the Notice of Pendency of Class Action and Proposed

Settlement, Motion for Attorneys' Fees and Settlement Fairness Hearing (the "Notice"), or am

acting for such person; that I am not a Defendant in the litigation that is the subject matter of this

settlement or anyone excluded from the Class; that I have read and understand the Notice; that I

believe that I am entitled to receive a share of the Net Settlement Fund; that I elect to participate

in the proposed Settlement described in the Notice; and that I have not filed a request for

exclusion. (If you are acting in a representative capacity on behalf of a Class Member (e.g., as

an executor, administrator, trustee, or other representative), you must submit evidence of your

current authority to act on behalf of that Class Member. Such evidence would include, for

example, letters testamentary, letters of administration, or a copy of the trust documents.)

3. I consent to the jurisdiction of the Court with respect to all questions concerning

the validity of this Proof of Claim. I understand and agree that my claim may be subject to

investigation and discovery under the Federal Rules of Civil Procedure, provided that such

2


investigation and discovery shall be limited to my status as a Class Member and the validity and

amount of my claim. No discovery shall be allowed on the merits of the Action or Settlement in

connection with processing of the Proofs of Claim.

4. I have set forth where requested below all relevant information with respect to

each purchase of Select Medical common stock, 7.5% Notes due August 2013, and 9.5% Notes

due June 2009 during the Class Period, and each sale, if any, of such stock and notes. I agree to

furnish additional information (including transactions in other Select Medical securities) to the

Claims Administrator to support this claim if requested to do so.

5. I have enclosed photocopies of the stockbroker's confirmation slips, stockbroker's

statements, or other documents evidencing each purchase, sale or retention of Select Medical

common stock, 7.5% Notes due August 2013, and 9.5% Notes due June 2009 listed below in

support of my claim. (IF ANY SUCH DOCUMENTS ARE NOT IN YOUR POSSESSION,

PLEASE OBTAIN A COPY OR EQUIVALENT DOCUMENTS FROM YOUR BROKER

BECAUSE THESE DOCUMENTS ARE NECESSARY TO PROVE AND PROCESS YOUR

CLAIM.)

6. I understand that the information contained in this Proof of Claim is subject to

such verification as the Claims Administrator may request or as the Court may direct, and I agree

to cooperate in any such verification. (The information requested herein is designed to provide

the minimum amount of information necessary to process most simple claims. The Claims

Administrator may request additional information as required to efficiently and reliably calculate

your Recognized Claim. In some cases the Claims Administrator may condition acceptance of

3


the claim based upon the production of additional information, including, where applicable,

information concerning transactions in any derivatives of the subject securities such as options.)

7. Upon the occurrence of the Effective Date, by operatio of law, I on behalf of

myself and on behalf of my past or present subsidiaries, parents, successors, predecessors,

officers, partners, directors, agents, employees, attorneys, advisors, investment advisors, insurers,

auditors, and accountants, legal representatives, heirs, executors, trustees, administrators, and

assigns (but only in those persons' and entities' capacities as such to me, not by those persons

and entities as themselves independent of their relationship to me), shall fully and completely

release, remise and discharge each of the "Released Parties" of all "Settled Claims," as defined

in the Notice.

8. NOTICE REGARDING ELECTRONIC FILES • Certain claimants with large

numbers of transactions may request, or may be requested, to submit information regarding their

transactions in electronic files. All Claimants MUST submit a manually signed paper Proof of

Claim form listing all their transactions whether or not they also submit electronic copies. If you

wish to file your claim electronically, you must contact the Claims Administrator at 1-877-581-

3599 or visit their website at www.gilardicom/SelectMedical to obtain the required file layout.

No electronic files will be considered to have been properly submitted unless the Claims

Administrator issues to the Claimant a written acknowledgment of receipt and acceptance of

electronically submitted data.

9. Statement of Claim

4


CLAIMANT IDENTIFICATION

Beneficial Owner's Name (First, Middle, Last) / Joint Owner's Name

Street Address

City State Zip Code

Foreign Province Foreign Country

(Daytime)Area Code Telephone Number

(Evening)Area Code Telephone Number

Check appropriate box (check only one box):

q Individual/Sole Proprietor q Joint Owners q Pension Planq Corporation q Partnership q Trustq IRA q Other (describe: )

NOTE: Separate Proofs of Claim should be submitted for each separate legal entity (forexample, a claim from Joint Owners should not include separate transactions of just one of theJoint Owners, an Individual should not combine his or her IRA transactions with transactionsmade solely in the Individual's name). Conversely, a single Proof of Claim should be submittedon behalf of one legal entity including all transactions made by that entity no matter how manyseparate accounts that entity has (for example, a Corporation with multiple brokerage accountsshould include all transactions made in Select Medical securities during the Class Period on oneProof of Claim, no matter how many accounts the transactions were made in.)

Social Security Number or Taxpayer Identification Number

Record Owner's Name (if different from beneficial owner listed above)

FOR SELECT MEDICAL COMMON STOCK (CUSIP: 816196109):

5


10. At the close of business on July 28, 2003, I owned shares of Select

Medical common stock. (If none, write "zero' or "0." If other than zero, must be documented.)

11. I made the following purchases of Select Medical common stock between July 29,

2003 and May 11, 2004, inclusive. (Persons who received Select Medical common stock during

the Class Period other than by purchase are not eligible to submit claims for those transactions)

(All purchases must be documented.):

Date(s) of Number of Shares of Purchase Price Per Aggregate CostPurchase (List Common Stock Share of Common (includingChronologically) Purchased Stock commissions, taxes,(Month/Day/Year) and fees)

12. Between May 12, 2004 and August 11, 2004, inclusive, I purchased a total of

shares of Select Medical common stock (If none, write "zero' or "0." If other than

zero, must be documented.).

13. I made the following sales of Select Medical common stock between July 29,

2003 and August 11, 2004, inclusive (If none, write "zero' or "0." If other than zero, must be

documented.):

Date(s) of Sale Number of Shares of Sale Price Per Share Amount Received(List Common Stock Sold of Common Stock (net of commissions,Chronologically) taxes, and fees)(Month/Day/Year)

6


14. At the close of business on August 11, 2004, I owned shares of

Select Medical common stock. (If none, write "zero' or "0." If other than zero, must be

documented.)

FOR SELECT MEDICAL 7.5% NOTES DUE AUGUST 2013 (CUSIP: 816196AF6):

15. I made the following purchases of Select Medical 7.5% Notes due August 2013

between July 29, 2003 and May 11, 2004, inclusive. (Persons who received Select Medical 7.5%

Notes due August 2013 during the Class Period other than by purchase are not eligible to submit

claims for those transactions) (All purchases must be documented.):

Date(s) of Purchase Face Amount of Select Medical 7.5% Aggregate Cost (including(List Chronologically) Notes due August 2013 Purchased commissions, taxes, and fees)(Month/Day/Year)


$ in face amount of Select Medical 7.5% Notes due August 2013 (If none, write

"zero' or "0." If other than zero, must be documented.).

17. I made the following sales of Select Medical 7.5% Notes due August 2013

between July 29, 2003 and August 11, 2004, inclusive (If none, write "zero' or "0." If other than

zero, must be documented.):

7


Date(s) of Purchase Face Amount of Select Medical 7.5% Aggregate Cost (net of(List Chronologically) Notes due August 2013 Sold commissions, taxes, and fees)(Month/Day/Year)

18. At the close of business on August 11, 2004, I owned $ in face

amount of Select Medical 7.5% Notes due August 2013. (If none, write "zero' or "0." If other

than zero, must be documented.)

FOR SELECT MEDICAL 9.5% NOTES DUE JUNE 2009 (CUSIP: 816196AC3):

19. At the close of business on July 28, 2003, I owned $ in face amount

of Select Medical 9.5% Notes due June 2009. (If none, write "zero' or "0." If other than zero,

must be documented.)

20. 1 made the following purchases of Select Medical 9.5% Notes due June 2009

between July 29, 2003 and May 11, 2004, inclusive. (Persons who received Select Medical 9.5%

Notes due June 2009 during the Class Period other than by purchase are not eligible to submit

claims for those transactions) (All purchases must be documented.):

Date(s) of Purchase Face Amount of Select Medical 9.5% Aggregate Cost (including(List Chronologically) Notes due June 2009 Purchased commissions, taxes, and fees)(Month/Day/Year)

8



$ in face amount of Select Medical 9.5% Notes due June 2009 (If none, write "zero'

or "0." If other than zero, must be documented.).

22. I made the following sales of Select Medical 9.5% Notes due June 2009 between

July 29, 2003 and August 11, 2004, inclusive (If none, write "zero" or "0." If other than zero,

must be documented.):

Date(s) of Purchase Face Amount of Select Medical 9.5% Aggregate Cost (net of(List Chronologically) Notes due June 2009 Sold commissions, taxes, and fees)(Month/Day/Year)

23. At the close of business on August 11, 2004, I owned $ in face

amount of Select Medical 9.5% Notes due June 2009. (If none, write "zero' or "0." If other

than zero, must be documented.)

IF YOU NEED ADDITIONAL SPACE TO LIST YOUR TRANSACTIONS PHOTOCOPY THIS PAGE

24. Request for Taxpayer Identification Number:

Enter taxpayer identification number below for the Beneficial Owner(s). For most

individuals, this is your Social Security Number. The Internal Revenue Service ("I.R.S.")

requires such taxpayer identification number. If you fail to provide this information, your claim

maybe rejected.

Social Security Number (for individuals) or

9


Taxpayer Identification Number(for estates, trusts, corporations, etc.)

25. Certification

I (We) certify that I am (we are) NOT subject to backup withholding under the provisions

of Section 3406 (a)(1)(c) of the Internal Revenue Code because: (a) I am (We are) exempt from

backup withholding, or (b) I (We) have not been notified by the I.R.S. that I am (we are) subject

to backup withholding as a result of a failure to report all interest or dividends, or (c) the I.R.S.

has notified me (us) that I am (we are) no longer subject to backup withholding.

NOTE: If you have been notified by the I.R.S. that you are subject to backup

withholding, please strike out the language that you are not subject to backup withholding in the

certification above.

UNDER THE PENALTIES OF PERJURY, I (WE) CERTIFY THAT ALL OF THE

INFORMATION I (WE) PROVIDED ON THIS PROOF OF CLAIM FORM IS TRUE,

CORRECT AND COMPLETE.

Signature of Claimant (If this claim is beingmade on behalf of Joint Claimants, theneach must sign)

(Signature)

(Signature)

(Capacity of person(s) signing, e.g.beneficial purchaser(s), executor,administrator, trustee, etc.)

Date:

10


THIS PROOF OF CLAIM MUST BE SUBMITTED NO LATER THAN

2009, AND MUST BE MAILED TO:


Corte Madera, CA 94976-0990

A Proof of Claim received by the Claims Administrator shall be deemed to have been

submitted when posted, if mailed by , 2009, and if a postmark is indicated on

the envelope and it is mailed first class, and addressed in accordance with the above instructions.

In all other cases, a Proof of Claim shall be deemed to have been submitted when actually

received by the Claims Administrator.

If you wish to be assured that your Proof of Claim is actually received by the Claims

Administrator, then you should send it by Certified Mail, Return Receipt Requested. No

acknowledgment will be made as to the receipt of claim forms. You should be aware that it will

take a significant amount of time to process fully all of the Proofs of Claim and to administer the

Settlement. This work will be completed as promptly as time permits, given the need to

investigate and tabulate each Proof of Claim. Please notify the Claims Administrator of any

change of address.

REMINDER CHECKLIST

1. q Please be sure to sign this Proof of Claim on page r 1. If thisProof of Claim is submitted on behalf of joint claimants, then both claimants must sign.

2. q Please remember to attach supporting documents. Do NOT sendany stock certificates. Keep copies of everything you submit.

3. q Do NOT use highlighter on the Proof of Claim or any supportingdocuments.

11


4. q If you move after submitting this Proof of Claim, please notify theClaims Administrator of the change in your address.

12





CLIFFORD C. MARSDEN and MING XU, : CIVIL ACTION NO.2:04-cv-4020 (JCJ)Plaintiffs,

V.

SELECT MEDICAL CORP., et al.Defendants.

SUMMARY NOTICE OF PENDENCY OF CLASS ACTION,PROPOSED SETTLEMENT AND SETTLEMENT HEARING

TO: ALL PERSONS WHO PURCHASED THE SECURITIES OF SELECT MEDICALCORPORATION BETWEEN JULY 29, 2003 AND MAY 11, 2004, INCLUSIVE,AND WHO WERE DAMAGED THEREBY (THE "CLASS").

YOU ARE HEREBY NOTIFIED, pursuant to Rule 23 of the Federal Rules of Civil

Procedure and an Order of the Court, that a settlement for $5,000,000 (Five Million U.S. Dollars)

in cash has been proposed in the above-captioned Action. A hearing will be held before the

Honorable J. Curtis Joyner in the James A. Byrne United States Courthouse, 601 Market Street,

Philadelphia, PA 19106-1797, at _ m., on , 2009 to determine

whether the proposed settlement should be approved by the Court as fair, reasonable, and

adequate, and to consider the application of Plaintiffs' Counsel for attorneys' fees and

reimbursement of expenses.

IF YOU ARE A MEMBER OF THE CLASS DESCRIBED ABOVE, YOUR RIGHTS

WILL BE AFFECTED AND YOU MAY BE ENTITLED TO SHARE IN THE SETTLEMENT

FUND. If you have not yet received the full printed Notice of Pendency of Class Action and

Proposed Settlement, Motion for Attorneys' Fees and Settlement Fairness Hearing and a Proof of

Claim form, you may obtain copies of these documents by contacting the Claims Administrator:



Corte Madera, CA 94976-0990(877) 581-3299

www.gilardi com/SelectMedical

Inquiries, other than requests for the forms of Notice and Proof of Claim, may be made to

Plaintiffs' Co-Lead Counsel:

William H. Narwold Sanford P. DumainMotley Rice LLC Milberg LLPOne Corporate Center One Pennsylvania Plaza20 Church Street, 17th Floor New York, NY 10119-0165Hartford, CT 06103 (212) 594-5300(860) 882-1681

To participate in the Settlement, you must submit a Proof of Claim no later than

, 2009. If you are a Class Member and do not exclude yourself from the

Class, you will be bound by the Order and Final Judgment of the Court. To exclude yourself

from the Class, you must submit a request for exclusion postmarked no later than

, 2009. Any objections to the Settlement must be filed by

2009. If you are a Class Member and do not submit a proper Proof of Claim, you will not share

in the Settlement but you nevertheless will be bound by the Order and Final Judgment of the

Court.

Further information may be obtained by contacting the Claims Administrator.

By Order of The Court

2


EXHIBIT B




Plaintiffs,

CIVIL ACTION NO.V.2:04-cv-4020 (JCJ)


Defendants.

ORDER AND FINAL JUDGMENT

On the day of , 2009, a hearing having been held before this

Court to determine: (1) whether the terms and conditions of the Stipulation and Agreement of

Settlement dated November 5, 2008 (the "Stipulation") are fair, reasonable, and adequate for the

settlement of all claims asserted by the Class against the Defendants in the Complaint now

pending in this Court under the above caption, including the release of the Defendants and the

Released Parties, and should be approved; (2) whether judgment should be entered dismissing

the Complaint on the merits and with prejudice in favor of the Defendants and as against all

persons or entities who are members of the Class herein who have not requested exclusion

therefrom; (3) whether to approve the Plan of Allocation as a fair and reasonable method to

allocate the settlement proceeds among the members of the Class; (4) whether and in what

amount to award the Class Representatives reimbursement of expenses; and (5) whether and in

what amount to award Plaintiffs' Counsel fees and reimbursement of expenses.


The Court having considered all matters submitted to it at the hearing and otherwise; and

it appearing that a notice of the hearing substantially in the form approved by the Court was

mailed to all persons or entities reasonably identifiable, who purchased the securities of Select

Medical Corporation ("Select Medical") between July 29, 2003 and May 11, 2004, inclusive (the

"Class Period"), except those persons or entities excluded from the definition of the Class, as

shown by the records of Select Medical's transfer agent, at the respective addresses set forth in

such records, and that a summary notice of the hearing substantially in the form approved by the

Court was published in Investor's Business Daily and transmitted over Business Wire pursuant to

the specifications of the Court; and the Court having considered and determined the fairness and

reasonableness of the award of attorneys' fees and expenses requested; and all capitalized terms

used herein having the meanings as set forth and defined in the Stipulation.

NOW, THEREFORE, IT IS HEREBY ORDERED THAT:

1. The Court has jurisdiction over the subject matter of the Action, the Class

Representatives, all Class Members, and the Defendants.

2. The Court finds that the prerequisites for a class action under Federal Rules of

Civil Procedure 23 (a) and (b)(3) have been satisfied in that: (a) the number of Class Members is

so numerous that joinder of all members thereof is impracticable; (b) there are questions of law

and fact common to the Class; (c) the claims of the Class Representatives are typical of the

claims of the Class they seek to represent; (d) the Class Representatives and Plaintiffs' Co-Lead

Counsel have and will fairly and adequately represent the interests of the Class; (e) the questions

of law and fact common to the members of the Class predominate over any questions affecting

only individual members of the Class; and (f) a class action is superior to other available

methods for the fair and efficient adjudication of the controversy.

2


3. Pursuant to Rule 23 of the Federal Rules of Civil Procedure, this Court hereby

finally certifies this action as a class action on behalf of all persons who purchased the securities

of Select Medical Corporation between July 29, 2003 and May 11, 2004, inclusive, and who

were damaged thereby. Excluded from the Class are the Defendants, the officers and directors of

Select Medical Corporation at all relevant times, members of their immediate families and their

legal representatives, heirs, successors or assigns and any entity in which Defendants have or had

a controlling interest. [Also excluded from the Class are the persons and/or entities who

requested exclusion from the Class as listed on Exhibit 1 annexed hereto OR No timely and valid

requests for exclusion from the Class were received.]

4. Pursuant to Rule 23 of the Federal Rules of Civil Procedure, this Court hereby

finally certifies Lead Plaintiffs Capital Invest, die Kapitalanlagegesellschaft der Bank Austria

Creditanstalt Gruppe GmbH (now known as Pioneer Investments Austria) for account of its

funds C 43 and GF 5, James Shaver, and Frank C. Bagatta as Class Representatives.

5. Notice of the pendency of this Action as a class action and of the proposed

Settlement was given to all Class Members who could be identified with reasonable effort. The

form and method of notifying the Class of the pendency of the action as a class action and of the

terms and conditions of the proposed Settlement met the requirements of Rule 23 of the Federal

Rules of Civil Procedure, Section 21D(a)(7) of the Securities Exchange Act of 1934, 15 U.S.C. §

78u-4(a)(7) as amended by the Private Securities Litigation Reform Act of 1995, due process,

and any other applicable law, constituted the best notice practicable under the circumstances, and

constituted due and sufficient notice to all persons and entities entitled thereto.

3


6. The Settlement is not an admission by the Defendants of, and this Order and Final

Judgment is not a finding of, the validity of any claims in the Action or of any wrongdoing by

the Defendants. Neither this Order and Final Judgment, nor the Stipulation, nor any document

referred to therein, nor any action taken to carry out the Settlement, is or may be construed as or

may be used as an admission by or against any of the Released Parties of any fault, wrongdoing

or liability whatsoever, and neither this Order and Final Judgment, nor the Stipulation, nor any

document referred to therein shall be offered or received in evidence in any action or proceeding

against any of the Released Parties in any court, administrative agency, arbitration or other

tribunal for any purpose whatsoever, other than to enforce the provisions of this Order and Final

Judgment or the Stipulation. Neither this Order and Final Judgment, nor the Stipulation, nor any

document referred to therein, nor any action taken to carry out the Settlement, is or may be

construed as or received in evidence as an admission, concession or presumption against the

Class Representatives or any of the Class Members that any of their claims are without merit, or

that any defenses asserted by the Defendants have any merit, or that damages recoverable under

the Complaint would not have exceeded the Gross Settlement Fund.

7. The Settlement is approved as fair, reasonable, and adequate, and the Class

Members and the parties are directed to consummate the Settlement in accordance with the terms

and provisions of the Stipulation.

8. The Complaint is hereby dismissed with prejudice and without costs as against

any party-

9. The Class Representatives and members of the Class on behalf of themselves and

on behalf of their past or present subsidiaries, parents, successors, predecessors, officers,

4


directors, agents, employees, attorneys, advisors, investment advisors, insurers, auditors, and

accountants, legal representatives, heirs, executors, trustees, administrators, and assigns (but only

in those persons' and entities' capacities as such to the Class Member, not by those persons and

entities as themselves independent of their relationship to a Class Member), shall hereby release

and forever discharge each and every one of the Settled Claims, and shall hereby forever be

enjoined from prosecuting the Settled Claims against any of the Released Parties.

10. The Class Representatives and all Class Members who did not file timely and

valid requests for exclusion, whether or not they file a Proof of Claim within the time provided

for, and whether or not they receive any distributions from the Settlement Fund, are permanently

barred, enjoined and restrained from commencing, prosecuting or asserting the Settled Claims.

11. Each of the Defendants, on behalf of themselves and the Released Parties, shall

hereby release and forever discharge each and every one of the Settled Defendants' Claims, and

shall hereby forever be enjoined from prosecuting the Settled Defendants' Claims against the

Class Representatives, all Class Members and their counsel.

12. To the maximum extent permitted by law, the Court hereby bars (a) any action or

claim for contribution or indemnification arising out of the Action against any of the Defendants

and (b) any action or claim for contribution or indemnification arising out of the Action by or on

behalf of any of the Defendants.

13. The Released Parties and their counsel shall have no responsibility for, interest in,

or liability whatsoever with respect to, the investment or distribution of the Settlement Fund, the

Plan of Allocation, the determination, administration, calculation or payment of Class Members'

5


claims, the payment or withholding of any local, state or federal governmental charge, levy, or

tax lawfully imposed thereon, or any losses incurred in connection therewith.

14. The Plan of Allocation is approved as fair and reasonable, and Plaintiffs' Counsel

and the Claims Administrator are directed to administer the Stipulation in accordance with its

terms and provisions.

15. Upon review of the record, the Court finds that all parties and their counsel have

complied with each requirement of Rule I I (b) of the Federal Rules of Civil Procedure as to

every complaint, responsive pleading, and dispositive motion herein.

16. Plaintiffs' Counsel are hereby awarded % of the Gross Settlement

Fund, first as and for reimbursement of their litigation expenses, and the excess as and for their

attorneys' fees, which sum the Court finds to be fair and reasonable. This award shall be

allocated among Plaintiffs' Counsel in a fashion which, in the opinion of Plaintiffs' Co-Lead

Counsel, fairly compensates Plaintiffs' Counsel for their respective contributions in the

prosecution of the Action.

17. In making this award of attorneys' fees and reimbursement of expenses to be paid

from the Gross Settlement Fund, the Court has considered and found that:

(a) the settlement has created a fund of $5 million (Five Million U.S. Dollars)

in cash that is already on deposit, plus interest thereon, and that numerous Class Members who

submit acceptable Proofs of Claim will benefit from the Settlement created by Plaintiffs'

Counsel;

6


(b) Over copies of the Notice were disseminated to putative Class

Members indicating that Plaintiffs' Counsel were moving the Court to award them an amount for

both attorneys' fees and litigation expenses incurred in connection with the prosecution of this

Action, limited to a total of forty percent (40%) of the Gross Settlement Fund. r I

objections were filed against the terms of the proposed Settlement or the ceiling on the fees and

expenses requested by Plaintiffs' Counsel contained in the Notice;

(c) Plaintiffs' Counsel have conducted the litigation and achieved the

Settlement with skill, perseverance and diligent advocacy;

(d) The action involves complex factual and legal issues and was actively

prosecuted over four years and, in the absence of a settlement, would involve further lengthy

proceedings with uncertain resolution of the complex factual and legal issues;

(e) Had Plaintiffs' Counsel not achieved the Settlement there would remain a

significant risk that the Class Representatives and the Class may have recovered less or nothing

from the Defendants;

(f) Plaintiffs' Counsel have devoted over hours, with a lodestar

value of $ , to achieve the Settlement; and

(g) The amount of attorneys' fees awarded and expenses reimbursed from the

Settlement Fund are fair and reasonable and consistent with awards in similar cases.

18. The Court reserves jurisdiction, without affecting the finality of this Judgment,

over the parties and the Class Members for all matters relating to this Action, including the

administration, interpretation, effectuation or enforcement of the Stipulation and this Order and

7


Final Judgment, and including any application for fees and expenses incurred in connection with

administering and distributing the settlement proceeds to the members of the Class.

19. Without further order of the Court, the parties may agree to reasonable extensions

of time to carry out any of the provisions of the Stipulation.

Dated: Philadelphia, Pennsylvania , 2009


8

Documents

Case 2:04-cv-04020-JCJ Document 141 Filed 11/14/2008 Page ...securities.stanford.edu/filings-documents/1038/SEM04_01/20081114… · account of its funds C 43 and GF 5, James Shaver,