Credit Agreement - HealthSouth Corp., NationsBank NA, JP Morgan Securities Inc., Deutsche Bank AG and ScotiaBanc Inc.


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                                CREDIT AGREEMENT



                                  by and among



                            HEALTHSOUTH CORPORATION,
                                  as Borrower,



                       NATIONSBANK, NATIONAL ASSOCIATION,
                      as Administrative Agent and Arranger



                          J.P. MORGAN SECURITIES INC.,
                              DEUTSCHE BANK AG and
                                SCOTIABANC, INC.,
                     as Syndication Agents and Co-Arrangers

                                       and

                   THE LENDERS PARTY HERETO FROM TIME TO TIME



                                  June 23, 1998


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                                TABLE OF CONTENTS

                                                                            Page

                                    ARTICLE I

                              Definitions and Terms

  1.1.    Definitions..........................................................2
  1.2.    Rules of Interpretation.............................................26
  1.3.    Classes and Types of Loans..........................................27

                                   ARTICLE II

                                    The Loans

  2.1.   Revolving Loans......................................................28
  2.2.   Competitive Bid Loans................................................30
  2.3.   Payment of Interest..................................................34
  2.4.   Payment of Principal.................................................34
  2.5.   Non-Conforming Payments..............................................35
  2.6.   Notes................................................................35
  2.7.   Pro Rata Payments....................................................36
  2.8.   Reductions...........................................................36
  2.9.   Conversions and Elections of Subsequent Interest Periods.............37
  2.10.  Unused Fees..........................................................37
  2.11.  Deficiency Advances..................................................37
  2.12.  Use of Proceeds......................................................38
  2.13.  Increase and Decrease in Amounts.....................................38

                                   ARTICLE III

                                Letters of Credit

  3.1.   Letters of Credit....................................................39
  3.2.   Reimbursement........................................................39
  3.3.   Letter of Credit Facility Fees.......................................42
  3.4.   Administrative Fees..................................................43

                                   ARTICLE IV

                             Change in Circumstances

  4.1.   Increased Cost and Reduced Return. ..................................44
  4.2.   Limitation on Types of Loans.........................................45






  4.3.   Illegality...........................................................45
  4.4.   Treatment of Affected Loans..........................................46
  4.5.   Compensation.........................................................46
  4.6.   Taxes................................................................47

                                    ARTICLE V

            Conditions to Making Loans and Issuing Letters of Credit

  5.1.   Conditions of Initial Advance........................................49
  5.2.   Conditions of Loans and Letters of Credit............................50

                                   ARTICLE VI

                         Representations and Warranties

  6.1.   Organization and Authority...........................................52
  6.2.   Loan Documents.......................................................52
  6.3.   Solvency.............................................................53
  6.4.   Subsidiaries.........................................................53
  6.5.   Ownership Interests..................................................53
  6.6.   Financial Condition..................................................53
  6.7.   Title to Properties..................................................54
  6.8.   Taxes................................................................54
  6.9.   Other Agreements.....................................................54
  6.10.  Litigation...........................................................55
  6.11.  Margin Stock.........................................................55
  6.12.  Investment Company...................................................55
  6.13.  Patents, Etc.........................................................55
  6.14.  No Untrue Statement..................................................55
  6.15.  No Consents, Etc.....................................................56
  6.16.  ERISA Requirement....................................................56
  6.17.  No Default...........................................................56
  6.18.  Hazardous Materials..................................................56
  6.19.  Employment Matters...................................................56
  6.20.  RICO.................................................................57
  6.21.  Reimbursement from Third Party Payors................................57
  6.22.  Year 2000 Compliance.................................................57

                                   ARTICLE VII

                              Affirmative Covenants

  7.1.   Financial Statements, Reports, Etc...................................58
  7.2.   Maintain Properties..................................................59


                                       ii





  7.3.   Existence, Qualification, Etc........................................59
  7.4.   Regulations and Taxes................................................60
  7.5.   Insurance............................................................60
  7.6.   True Books...........................................................60
  7.7.   Right of Inspection..................................................60
  7.8.   Observe all Laws.....................................................60
  7.9.   Governmental Licenses................................................60
  7.10.  Covenants Extending to Other Persons.................................61
  7.11.  Officer's Knowledge of Default.......................................61
  7.12.  Suits or Other Proceedings...........................................61
  7.13.  Notice of Discharge of Hazardous Material or Environmental Complaint.61
  7.14.  Environmental Compliance.............................................61
  7.15.  Continuation of Current Business.....................................62
  7.16.  Management Contracts.................................................62
  7.17.  Year 2000 Compliance.................................................62

                                  ARTICLE VIII

                               Negative Covenants

  8.1.   Financial Covenants..................................................63
  8.2.   Investments and Loans................................................63
  8.3.   Indebtedness.........................................................63
  8.4.   Disposition of Assets................................................64
  8.5.   Consolidation or Merger..............................................64
  8.6.   Liens................................................................64
  8.7.   Dividends and Distributions..........................................64
  8.8.   Acquisitions.........................................................64
  8.9.   Restricted Payments..................................................64
  8.10.  Compliance with ERISA................................................64
  8.11.  Fiscal Year..........................................................65
  8.12.  Dissolution, etc.....................................................65
  8.13.  [Reserved]...........................................................65
  8.14.  Transactions with Affiliates.........................................65

                                   ARTICLE IX

                       Events of Default and Acceleration

  9.1.   Events of Default....................................................67
  9.2.   Agent to Act.........................................................69
  9.3.   Cumulative Rights....................................................69
  9.4.   No Waiver............................................................70
  9.5.   Allocation of Proceeds...............................................70



                                       iii





                                    ARTICLE X

                                    The Agent

  10.1.  Appointment, Powers, and Immunities..................................71
  10.2.  Reliance by Agent....................................................71
  10.3.  Defaults.............................................................71
  10.4.  Rights as Lender.....................................................72
  10.5.  Indemnification......................................................72
  10.6.  Non-Reliance on Agent and Other Lenders..............................72
  10.7.  Resignation of Agent.................................................73
  10.8.  Fees.................................................................73

                                ARTICLE XI

                               Miscellaneous

  11.1.  Assignments and Participations.......................................74
  11.2.  Notices..............................................................75
  11.3.  No Waiver............................................................76
  11.4.  Rights of Setoff; Adjustments........................................76
  11.5.  Survival.............................................................77
  11.6.  Expenses.............................................................77
  11.7.  Amendments and Waivers...............................................78
  11.8.  Counterparts.........................................................78
  11.9.  Waivers by Borrower..................................................78
  11.10. Termination..........................................................79
  11.11. Governing Law........................................................79
  11.12. Indemnification......................................................79
  11.13. Agreement Controls...................................................80
  11.14. Integration..........................................................80
  11.15. Successors and Assigns...............................................80
  11.16. Severability.........................................................80
  11.17. Usury Savings Clause.................................................80

EXHIBIT A Applicable Commitment Percentages..................................A-1
EXHIBIT B Form of Assignment and Acceptance..................................B-1
EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative.C-1
EXHIBIT D Form of Borrowing Notice...........................................D-1
EXHIBIT E Form of Interest Rate Selection Notice.............................E-1
EXHIBIT F Form of Note.......................................................F-1
EXHIBIT G Investments........................................................G-1
EXHIBIT H Form of Opinion of Borrower's Counsel..............................H-1
EXHIBIT I Compliance Certificate.............................................I-1
EXHIBIT J Executive Officers.................................................J-1



                                       iv





EXHIBIT K Form of Competitive Bid Quote Request..............................K-1
EXHIBIT L Form of Competitive Bid Quote......................................L-1
EXHIBIT M Form of Competitive Bid Note.......................................M-1

Schedule 1.1    Existing Letters of Credit
Schedule 6.4    Subsidiaries
Schedule 6.13   Patent Issue
Schedule 6.19   Employment Matters
Schedule 8.3    Existing Subsidiary Indebtedness







                                        v





                                CREDIT AGREEMENT

     THIS  CREDIT  AGREEMENT  dated as of June 23,  1998 (this  "Agreement")  is
entered into by and among HEALTHSOUTH  CORPORATION,  a Delaware corporation (the
"Borrower"),  the Lenders  signatories  hereto (the "Lenders") and  NATIONSBANK,
N.A., a national banking association, as agent for the Lenders (the "Agent").


                                    RECITAL:

     The  Borrower  has  heretofore  entered  into a Third  Amended and Restated
Credit Agreement dated April 18, 1996 (the "Prior Agreement")  pursuant to which
the lenders party  thereto have made loans to the Borrower  (the "Prior  Loans")
and issued  letters of credit for the benefit of the Borrower.  The Borrower has
requested  that  the  Lenders  make  a  revolving   credit  facility  of  up  to
$1,750,000,000,  including a  $75,000,000  sublimit  for the issuance of standby
letters of credit,  to the Borrower,  the proceeds of which shall be used as set
forth in Section 2.12 and the Lenders have agreed to make such revolving  credit
facility available to the Borrower on the following terms and conditions:








                                    ARTICLE I

                              Definitions and Terms

     1.1.  Definitions.  For the purposes of this Agreement,  in addition to the
definitions  set forth  above,  the  following  terms shall have the  respective
meanings set forth below:

          "Absolute  Rate"  shall  have the  meaning  assigned  to such  term in
     Section 2.2(c)(ii)(D).

          "Absolute Rate Auction" shall mean a solicitation  of Competitive  Bid
     Quotes setting forth Absolute Rates pursuant to Section 2.2.

          "Absolute  Rate  Loans"  shall  mean the  Competitive  Bid  Loans  the
     interest  rates on which are  determined on the basis of Absolute Rates set
     at Absolute Rate Auctions.

          "Acquisition"  means the  acquisition,  whether  with cash,  property,
     stock or promise to pay,  of all or a portion of a Person or a Facility  or
     Facilities of a Person,  permitted under Section 8.8;  provided such Person
     or Facilities is in  substantially  the same line of business engaged in by
     Borrower or its Consolidated Entities.

          "Actual/360  Basis" shall mean a method of computing interest or other
     charges  hereunder  on the basis of an assumed  year of 360 days for actual
     number of days elapsed,  meaning that interest or other charges accrued for
     each day will be computed by multiplying the rate applicable on that day by
     the  unpaid  principal  balance  (or  other  relevant  sum) on that day and
     dividing the result by 360.

          "Advance"  means a  borrowing  under  the  Revolving  Credit  Facility
     consisting  of the  aggregate  principal  amount of a Syndicated  Loan or a
     Competitive Bid Loan.

          "Affiliate"  of any specified  Person means any other Person (i) which
     directly or indirectly through one or more intermediaries  controls,  or is
     controlled by, or is under common control with, such specified  Person;  or
     (ii)  which  beneficially  owns or  holds  5% or more of any  class  of the
     outstanding  voting  stock  (or in the  case  of a  Person  which  is not a
     corporation,  5% or more of the equity interest) of such specified  Person;
     or 5% or more of any class of the outstanding  voting stock (or in the case
     of a Person which is not a corporation,  5% or more of the equity interest)
     of which is beneficially  owned or held by such specified Person.  The term
     "control"  means the  possession,  directly or indirectly,  of the power to
     direct or cause the direction of the  management  and policies of a Person,
     whether through ownership of voting stock, by contract or otherwise.

          "Applicable Commitment Percentage" means, with respect to each Lender,
     that portion of the Total  Revolving  Credit  Commitment  allocable to such
     Lender (a) with respect to Lenders as of the Closing  Date, as set forth on
     Exhibit  A,  and (b)  with  respect  to any  Person  who  becomes  a Lender
     thereafter, as reflected in each Assignment and


                                        2





     Acceptance  to which such  Lender is a party  assignee;  provided  that the
     Applicable  Commitment  Percentage  of each Lender  shall be  increased  or
     decreased  to reflect  any  assignments  to or by such  Lender  effected in
     accordance with Section 11.1.

          "Applicable  Lending Office" means,  for each Lender and for each Type
     of Loan,  the  "Lending  Office" of such  Lender (or an  affiliate  of such
     Lender)  designated for such Type of Loan on the signature  pages hereof or
     such other  office of such Lender (or an  affiliate of such Lender) as such
     Lender  may from time to time  specify  to the Agent  and the  Borrower  by
     written  notice in accordance  with the terms hereof as the office by which
     its Loans of such Type are to be made and maintained.

          "Applicable  Margin"  means that number of basis  points per annum set
     forth below  determined  based upon the more  favorable  to the Borrower of
     either (i) the highest Rating of outstanding senior unsecured  Indebtedness
     of the Borrower  from time to time as specified in Table I below  (provided
     that in the event of a Rating split between Tiers, then the Tier next above
     the Tier  corresponding  to the lower Rating shall apply) or (ii) the ratio
     of Consolidated  Indebtedness at the date of  determination to Consolidated
     EBITDA for the  Four-Quarter  Period most  recently  ended as  specified in
     Table II below:

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                                     TABLE I

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       Tier                      Rating                       Applicable Margin
                             S&P or Moody's
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        I                        A- A3                             25 b.p.
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        II                     BBB+ Baa1                              30
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       III                      BBB Baa2                              35
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        IV                     BBB- Baa3                              45
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        V                       BB+ Ba1                               65
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        VI                       BB Ba2                              100
                           or lower or lower
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                                    TABLE II
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       Tier        Ratio of Consolidated Indebtedness to       Applicable Margin
                            Consolidated EBITDA
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        I                         Less than 1.50 to 1.00           30 b.p.
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        II         Equal to or greater than 1.50 to 1.00             35
                              but less than 2.00 to 1.00
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                                        3






--------------------------------------------------------------------------------
       III         Equal to or greater than 2.00 to 1.00                45
                              but less than 2.50 to 1.00
--------------------------------------------------------------------------------
        IV         Equal to or greater than 2.50 to 1.00                65
                              but less than 3.00 to 1.00
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        V          Equal to or greater than 3.00 to 1.00               100
--------------------------------------------------------------------------------

     ; provided, however, that any time during which the sum of Revolving Credit
     Outstandings,  outstanding  Competitive  Bid  Loans  and  Letter  of Credit
     Outstandings exceed $875,000,000, five (5) basis points shall automatically
     be added to the Applicable Margin set forth in Tables I and II above.

     The  Applicable  Margin shall be  established  in the case of a Rating from
     time to time based upon the Rating  then in effect  and, in the case of the
     ratio,  at the end of each  fiscal  quarter  of the  Borrower  (the  "Ratio
     Determination  Date").  Any change in the Applicable  Margin following each
     Ratio  Determination  Date shall be determined  based upon the computations
     set forth in the Compliance Certificate,  subject to review and approval of
     such  computations by the Agent,  and shall be effective  commencing on the
     date  following  the date  such  certificate  is  received  until  the date
     following the date on which a new Compliance Certificate is delivered or is
     required to be delivered, whichever shall first occur; provided however, if
     the  Borrower  shall fail to deliver any such  certificate  within the time
     period  required by Section  7.1,  then the  Applicable  Margin shall be 2%
     until the appropriate certificate is so delivered. From the Closing Date to
     the first Ratio Determination Date, the Applicable Margin shall be 35 basis
     points (subject to the proviso in the first sentence of this definition).

          "Applicable  Unused Fee" means that  number of basis  points per annum
     set forth below determined based upon the more favorable to the Borrower of
     either (i) the highest Rating of outstanding senior unsecured  Indebtedness
     of the Borrower from time to time as specified in Table III below (provided
     that in the event of a Rating split between Tiers, then the Tier next above
     the Tier  corresponding  to the lower Rating shall apply) or (ii) the ratio
     of Consolidated  Indebtedness at the date of  determination to Consolidated
     EBITDA for the  Four-Quarter  Period most  recently  ended as  specified in
     Table IV below:

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                                    TABLE III

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       Tier                     Rating                      Applicable Unused
                            S&P or Moody's                         Fee
--------------------------------------------------------------------------------
        I                       A- A3                            9.0 b.p.
--------------------------------------------------------------------------------
        II                    BBB+ Baa1                            10.0
--------------------------------------------------------------------------------
       III                     BBB Baa2                            12.5




                                        4






--------------------------------------------------------------------------------
        IV                       BBB- Baa3                         15.0
--------------------------------------------------------------------------------
        V                         BB+ Ba1                          20.0
--------------------------------------------------------------------------------
        VI                         BB Ba2                          25.0
                             or lower or lower
--------------------------------------------------------------------------------


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                                       TABLE IV
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       Tier        Ratio of Consolidated Indebtedness to       Applicable Unused
                            Consolidated EBITDA                       Fee
--------------------------------------------------------------------------------
        I                         Less than 1.50 to 1.00      10.0 b.p.
--------------------------------------------------------------------------------
        II         Equal to or greater than 1.50 to 1.00         12.5
                              but less than 2.00 to 1.00
--------------------------------------------------------------------------------
       III         Equal to or greater than 2.00 to 1.00         15.0
                              but less than 2.50 to 1.00
--------------------------------------------------------------------------------
        IV         Equal to or greater than 2.50 to 1.00         20.0
                              but less than 3.00 to 1.00
--------------------------------------------------------------------------------
        V          Equal to or greater than 3.00 to 1.00         25.0
--------------------------------------------------------------------------------


     The Applicable Unused Fee shall be established in the case of a Rating from
     time to time based upon the Rating  then in effect,  and in the case of the
     ratio,  at the end of each  fiscal  quarter  of the  Borrower  (the  "Ratio
     Determination  Date").  Any change in the  Applicable  Unused Fee following
     each  Ratio   Determination   Date  shall  be  determined  based  upon  the
     computations set forth in the Compliance Certificate, subject to review and
     approval  of  such  computations  by  the  Agent  and  shall  be  effective
     commencing  on the date  following  the date such  certificate  is received
     until the date following the date on which a new Compliance  Certificate is
     delivered  or is required to be  delivered,  whichever  shall first  occur;
     provided  however,   if  the  Borrower  shall  fail  to  deliver  any  such
     certificate  within  the time  period  required  by Section  7.1,  then the
     Applicable Unused Fee shall be 2%. From the Closing Date to the first Ratio
     Determination Date, the Applicable Unused Fee shall be 12.5 basis points.

          "Applications   and   Agreements   for   Letters  of  Credit"   means,
     collectively,  the  Applications  and Agreements for Letters of Credit,  or
     similar  documentation,  executed  by the  Borrower  from  time to time and
     delivered to the Issuing Bank to support the issuance of Letters of Credit.

          "Assignment and Acceptance" shall mean an Assignment and Acceptance in
     the form of Exhibit B (with blanks  appropriately  filled in)  delivered to
     the Agent in



                                        5





     connection  with an assignment of a Lender's  interest under this Agreement
     pursuant to Section 11.1.

          "Authorized Representative" means any of the Executive Officers of the
     Borrower or, with respect to financial matters,  the Treasurer or the Chief
     Financial Officer of the Borrower, or any other Person expressly designated
     by the Board of Directors of the  Borrower  (or the  appropriate  committee
     thereof) as an Authorized Representative of the Borrower, as set forth from
     time to time in a certificate in the form of Exhibit C.

          "Base Rate" means, for any day, the rate per annum equal to the higher
     of (i) the Prime Rate for such day or (ii) the Federal  Funds Rate for such
     day plus one-half of one percent (1/2%). Any change in the Base Rate due to
     a change in the Prime Rate or the Federal  Funds Rate shall be effective on
     the effective date of such change in the Prime Rate or Federal Funds Rate.

          "Base  Rate  Loan"  means a Loan for  which  the rate of  interest  is
     determined by reference to the Base Rate.

          "Base Rate Refunding Loan" means an Advance under the Revolving Credit
     Facility which bears interest at a Base Rate made to satisfy  Reimbursement
     Obligations arising from a drawing under a Letter of Credit.

          "Board" means the Board of Governors of the Federal Reserve System (or
     any successor body).

          "Borrowing  Notice"  means  the  notice  delivered  by  an  Authorized
     Representative  in connection  with an Advance  under the Revolving  Credit
     Facility, in the form of Exhibit D.

          "Business  Day"  means,  (i) except in the case of a  Eurodollar  Rate
     Loan,  any day which is not a  Saturday,  Sunday or a day on which banks in
     the States of New York and North  Carolina are  authorized  or obligated by
     law,  executive  order or  governmental  decree to be closed and, (ii) with
     respect to any  Eurodollar  Rate Loan,  any day which is a Business Day, as
     described above, and on which the relevant international  financial markets
     are open for the transaction of business  contemplated by this Agreement in
     London, England, New York, New York and Charlotte, North Carolina.

          "Capital  Leases"  means  all  leases  which  have  been or  should be
     capitalized  in  accordance  with  GAAP  as in  effect  from  time  to time
     including Statement No. 13 of the Financial  Accounting Standards Board and
     any successor thereof.

          "Capital  Stock" of any  Person  means any and all  shares,  rights to
     purchase,  warrants  or options  (whether  or not  currently  exercisable),
     participation or other  equivalents of or interest in (however  designated)
     the equity (including without limitation



                                        6





     common stock,  preferred stock and partnership and joint venture interests)
     of such Person (excluding any debt securities that are convertible into, or
     exchangeable for, such equity).

          "Change of Control" means, at any time:

               (i) any  "person" or "group"  (each as used in Sections  13(d)(3)
          and 14(d)(2) of the Exchange  Act), who are not as of the Closing Date
          owners  of one  percent  (1%)  or  more  of the  Voting  Stock  of the
          Borrower,  either (A)  becomes the  "beneficial  owner" (as defined in
          Rule 13d-3 of the Exchange  Act),  directly or  indirectly,  of Voting
          Stock of the Borrower (or securities  convertible into or exchangeable
          for such Voting Stock) representing 15% or more of the combined voting
          power of all Voting Stock of the Borrower (on a fully  diluted  basis)
          or (B) otherwise has the ability,  directly or indirectly,  to elect a
          majority of the board of directors of the Borrower;

               (ii) during any period of up to 24 consecutive months, commencing
          on the Closing Date,  individuals  who at the beginning of such period
          were  directors of the Borrower shall cease for any reason (other than
          the death, disability or retirement of an officer of the Borrower that
          is serving as a  director  at such time so long as another  officer of
          the  Borrower  replaces  such Person as a director)  to  constitute  a
          majority of the board of directors of the Borrower; or

               (iii) any Person or two or more Persons  acting in concert  shall
          have acquired by contract or  otherwise,  or shall have entered into a
          contract or arrangement that, upon consummation  thereof,  will result
          in its or their  acquisition,  of the power to  exercise,  directly or
          indirectly,  a controlling  influence on the management or policies of
          the Borrower.

          "Closing  Date" means the date as of which this  Agreement is executed
     by the Borrower,  the Lenders and the Agent and on which the conditions set
     forth in Section 5.1 have been satisfied.

          "Code" means the Internal  Revenue Code of 1986,  as amended,  and any
     regulations promulgated thereunder.

          "Common  Stock" means the common stock,  par value $.01 per share,  of
     the Borrower.

          "Competitive  Bid Borrowing"  shall have the meaning  assigned to such
     term in Section 2.2(b).

          "Competitive  Bid Loans" shall mean the Loans  provided for by Section
     2.2.

          "Competitive  Bid Notes" shall mean the promissory  notes provided for
     by Section 2.6(c) substantially in the form of Exhibit M and all promissory
     notes delivered in



                                        7





     substitution  or  exchange  therefor,  in each  case as the  same  shall be
     modified and supplemented and in effect from time to time.

          "Competitive Bid Quote" shall mean an offer in accordance with Section
     2.2(c) by a Lender to make a Competitive Bid Loan with one single specified
     interest rate.

          "Competitive  Bid Quote  Request"  shall have the meaning  assigned to
     such term in Section 2.2(b).

          "Compliance  Certificate"  shall have the meaning  attributed  to that
     term in Section 7.1(c).

          "Consistent  Basis" in reference to the  application of GAAP means the
     accounting  principles observed in the period referred to are comparable in
     all material  respects to those applied in the  preparation  of the audited
     financial statements of the Borrower referred to in Section 6.6(a).

          "Consolidated  Amortization  Expense" of the  Borrower  for any period
     means  the  amortization  expense  of the  Borrower  and  its  Consolidated
     Entities  for such  period (to the extent  included in the  computation  of
     Consolidated Net Income),  determined on a consolidated basis in accordance
     with GAAP.

          "Consolidated   Depreciation   Expense"  of  the  Borrower  means  the
     depreciation expense of the Borrower and its Consolidated Entities for such
     period (to the extent  included  in the  computation  of  Consolidated  Net
     Income of the Borrower),  determined on a consolidated  basis in accordance
     with GAAP.

          "Consolidated  EBITDA"  means,  with  respect to the  Borrower and its
     Consolidated  Entities for any  Four-Quarter  Period  ending on the date of
     computation thereof, the sum of, without duplication,  (i) Consolidated Net
     Income, (ii) Consolidated  Interest Expense,  (iii) Consolidated Income Tax
     Expense,   (iv)  Consolidated   Amortization   Expense,   (v)  Consolidated
     Depreciation  Expense  and (vi) the  minority  interest  of any  Person  or
     Persons  in the  income  of  Consolidated  Entities  for such  period,  all
     determined on a  consolidated  basis in  accordance  with GAAP applied on a
     Consistent Basis.

          "Consolidated Entity" shall mean any Person whose financial statements
     are  appropriately  consolidated with the Borrower's  financial  statements
     under GAAP.

          "Consolidated Indebtedness" means all Indebtedness of the Borrower and
     its Consolidated Entities, all determined on a consolidated basis.

          "Consolidated   Interest   Expense"   means,   with   respect  to  any
     Four-Quarter  Period ending on the date of computation  thereof,  the gross
     interest expense of the Borrower and its Consolidated  Entities,  including
     without  limitation (i) the current  amortized portion of debt discounts to
     the extent included in gross interest expense, (ii) the current amortized



                                        8





     portion of all fees  (including fees payable in respect of any Rate Hedging
     Obligation)  payable in connection  with the incurrence of  Indebtedness to
     the extent  included in gross  interest  expense,  (iii) the portion of any
     payments  made in  connection  with  Capital  Leases  allocable to interest
     expense, and (iv) lease payments, other than the Headquarters  Obligations,
     made pursuant to the  Headquarters  Lease, all determined on a consolidated
     basis in accordance with GAAP applied on a Consistent Basis.

          "Consolidated Net Income" of the Borrower for any period means the net
     income (or loss) of the  Borrower  and its  Consolidated  Entities for such
     period determined on a consolidated  basis in accordance with GAAP, without
     giving  effect  to  dividends  on any  series  of  preferred  stock  of any
     Consolidated   Entity,   whether  or  not  in  cash,  to  the  extent  such
     consolidated net income was reduced  thereby;  provided that there shall be
     excluded from such net income (for all purposes, other than compliance with
     Section  8.1(a),  to  the  extent  otherwise  included  therein),   without
     duplication,  (i) the net income of any Person  (other than a  Consolidated
     Entity) to the extent that any such income has not actually  been  received
     by the  Borrower  or a  Consolidated  Entity  in the form of  dividends  or
     similar distributions during such period, but including,  in any event, net
     income of any Person who becomes a Consolidated Entity whose Acquisition is
     accounted for on a "pooling of interests"  basis; (ii) except to the extent
     includable in the consolidated net income of the Borrower or a Consolidated
     Entity  pursuant to the foregoing  clause (i), the net income of any Person
     that accrued prior to the date that (a) such Person  becomes a Consolidated
     Entity or is merged into or consolidated with a Consolidated  Entity or (b)
     the assets of such Person are  acquired by the  Borrower or a  Consolidated
     Entity;  (iii) the net income of any Consolidated Entity to the extent that
     the  declaration or payment of dividends or similar  distributions  by such
     Consolidated  Entity of that income is not  permitted  by  operation of the
     terms of its charter or any agreement, instrument, judgment, decree, order,
     statute,  rule or governmental  regulation  applicable to that Consolidated
     Entity  during  such  period;  (iv) any gain (or loss),  together  with any
     related provisions for taxes on any such gain,  realized during such period
     by the Borrower or its  Consolidated  Entities upon (a) the  acquisition of
     any securities, or the extinguishment of any Indebtedness,  of the Borrower
     or its  Consolidated  Entities or (b) any asset sale by the referent person
     or any of its Subsidiaries;  (v) any  extraordinary  gain (or extraordinary
     loss),  together  with any  related  provision  for  taxes  or tax  benefit
     resulting  from  any  such  extraordinary  gain or  loss,  realized  by the
     Borrower or its Consolidated  Entities during such period;  and (vi) in the
     case of a successor to any Person by  consolidation,  merger or transfer of
     its  assets,   any  earnings  of  the  successor   prior  to  such  merger,
     consolidation or transfer of assets; provided, further, however, that there
     shall be added back to net income non-recurring, non-cash expenses and cash
     transaction costs relating to professional fees arising in conjunction with
     an  Acquisition  provided  such  expenses  do not exceed 10% of the Cost of
     Acquisition.

          "Consolidated  Net  Worth" of the  Borrower  as of any date  means the
     Consolidated  Stockholders'  Equity  (including any preferred stock that is
     classified  as equity  under GAAP,  other than  Disqualified  Stock) of the
     Borrower and its Consolidated Entities (excluding any equity adjustment for
     foreign currency translation for any period



                                        9





     subsequent  to the Closing Date) on a  consolidated  basis at such date, as
     determined in accordance  with GAAP,  less all write-ups  subsequent to the
     Closing Date in the book value of any asset owned by the Borrower or any of
     its Consolidated Entities.

          "Consolidated Stockholders' Equity" shall mean at any time as at which
     the amount thereof is to be determined, the sum of the following amounts in
     respect  of the  Borrower  and the  Consolidated  Entities:  (i) the par or
     stated value of all Capital Stock of the Borrower,  (ii) retained earnings,
     (iii)  additional  paid in  capital,  (iv)  capital  surplus and (v) earned
     surplus minus treasury stock.

          "Consolidated  Tangible Net Worth" means,  as of any date on which the
     amount thereof is to be determined, Consolidated Stockholders' Equity minus
     (without  duplication of deductions in respect of items already deducted in
     arriving at surplus and retained  earnings)  (i) all  reserves  (other than
     contingency  reserves not allocated to any particular  purpose),  including
     without  limitation  reserves for  depreciation,  depletion,  amortization,
     obsolescence,  deferred income taxes, insurance and inventory valuation and
     (ii) the net book value of all assets which would be treated as  intangible
     assets,  such as (without  limitation)  goodwill (whether  representing the
     excess  of  cost  over  book  value  of  assets   acquired  or  otherwise),
     capitalized  expenses,  unamortized debt discount and expense,  consignment
     inventory rights, patents, trademarks, trade names, copyrights,  franchises
     and licenses,  all as determined on a consolidated basis in accordance with
     GAAP applied on a Consistent Basis.

          "Consolidated  Total Assets" means, as of any date on which the amount
     thereof  is to be  determined,  the net  book  value of all  assets  of the
     Borrower and its  Consolidated  Entities as  determined  on a  consolidated
     basis in accordance with GAAP applied on a Consistent Basis.

          "Consolidated Total Capital" means, as of any date on which the amount
     thereof is to be  determined,  the sum of  Consolidated  Indebtedness  plus
     Consolidated  Stockholders'  Equity of the  Borrower  and its  Consolidated
     Entities.

          "Continue",   "Continuation",  and  "Continued"  shall  refer  to  the
     continuation  pursuant to Section 2.9 hereof of a  Eurodollar  Rate Loan of
     one Type as a  Eurodollar  Rate  Loan of the same  Type  from one  Interest
     Period to the next Interest Period.

          "Convert",  "Conversion"  and "Converted"  shall refer to a conversion
     pursuant to Section 2.9 or Article IV of one Type of Loan into another Type
     of Loan.

          "Contract Provider" means any Person who provides  professional health
     care  services  under or pursuant to any contract  with the Borrower or any
     Subsidiary.

          "Controlled Partnership" shall mean a general partnership of which the
     Borrower or a Subsidiary is a general  partner (but not  including  Alabama
     World Football),  or a limited  partnership  whose general partners include
     the Borrower or a Subsidiary (but not

                                                        10






     including Vanderbilt), or a limited liability company whose members include
     the  Borrower or a  Subsidiary  or another  Controlled  Partnership,  which
     partnership,  whether general or limited,  or limited liability company has
     assets  with a value in  excess of  $2,000.00,  and with  respect  to which
     partnership  or limited  liability  company the Borrower or a Subsidiary is
     entitled to receive not less than 50% of any  distributions of cash made to
     the partners or members thereof, other than any preferred cash distribution
     arrangement  in  existence  at the Closing Date or approved by the Required
     Lenders in writing, or which is otherwise a Consolidated Entity.

          "Cost of Acquisition" means, in respect of any Acquisition, the sum of
     (i) the amount of cash paid by the Borrower and its  Consolidated  Entities
     in  connection  with such  Acquisition,  (ii) the Fair Market  Value of all
     Capital  Stock  or  other  ownership  interests  of  the  Borrower  or  any
     Consolidated  Entity issued or given in connection  with such  Acquisition,
     (iii) the amount (determined by using the face amount or the amount payable
     at maturity, whichever is greater) of all Indebtedness incurred, assumed or
     acquired in connection with such Acquisition,  (iv) all additional purchase
     price amounts in the form of earnouts and other contingent obligations that
     should be recorded on the  financial  statements  of the  Borrower  and its
     Consolidated  Entities in connection  with  Generally  Accepted  Accounting
     Principles,  (v) all amounts paid in respect of  covenants  not to compete,
     consulting  agreements and other  affiliated  contracts in connection  with
     such  Acquisition  and (vi) the  aggregate  fair market  value of all other
     consideration  given  by the  Borrower  and its  Consolidated  Entities  in
     connection with such Acquisition.

          "Default"  means  any event or  condition  which,  with the  giving or
     receipt of notice or lapse of time or both,  would  constitute  an Event of
     Default.

          "Default  Rate" means (i) with respect to each Fixed Rate Loan,  until
     the end of the Interest Period  applicable  thereto,  a rate of two percent
     (2%) plus the Fixed Rate  applicable to such Loan, and thereafter at a rate
     of interest  per annum which shall be two percent  (2%) plus the Base Rate,
     (ii) with respect to Base Rate Loans, at a rate of interest per annum which
     shall be two  percent  (2%) plus the Base  Rate and (iii) in any case,  the
     maximum rate permitted by applicable law, if lower.

          "Disqualified Stock" means any Capital Stock that, by its terms (or by
     the terms of any security into which it is  convertible  or for which it is
     exchangeable),   or  upon  the  happening  of  any  event,  matures  or  is
     mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
     or is redeemable at the option of the holder thereof,  in whole or in part,
     on or prior to the Revolving Credit Termination Date.

          "Dollars"  and the symbol "$" mean dollars  constituting  legal tender
     for the  payment  of  public  and  private  debts in the  United  States of
     America.

          "Eligible Assignee" means (i) a Lender, (ii) an affiliate of a Lender,
     and (iii) any other  Person  approved by the Agent and,  unless an Event of
     Default  has  occurred  and is  continuing  at the time any  assignment  is
     effected in accordance with Section 11.1, the



                                       11





     Borrower,  such approval not to be unreasonably  withheld or delayed by the
     Borrower or the Agent and such  approval to be deemed given by the Borrower
     if no objection is received by the assigning  Lender and the Agent from the
     Borrower  within two Business  Days after  written  notice of such proposed
     assignment  has been  provided  by the  assigning  Lender to the  Borrower;
     provided,  however,  that  neither the  Borrower  nor an  affiliate  of the
     Borrower shall qualify as an Eligible Assignee.

          "Employee  Benefit  Plan" means any  employee  benefit plan within the
     meaning of Section 3(3) of ERISA which (i) is  maintained  for employees of
     the Borrower or any of its ERISA  Affiliates  or is assumed by the Borrower
     or any of its ERISA  Affiliates in connection  with any Acquisition or (ii)
     has at any time been  maintained  for the  employees of the Borrower or any
     current or former ERISA Affiliate.

          "Environmental Laws" means any federal,  state or local statute,  law,
     ordinance,  code,  rule,  regulation,  order,  decree,  permit  or  license
     regulating,  relating  to, or imposing  liability  or  standards of conduct
     concerning  any   environmental   matters  or   conditions,   environmental
     protection or conservation, including without limitation, the Comprehensive
     Environmental Response, Compensation and Liability Act of 1980, as amended;
     the Superfund  Amendments  and  Reauthorization  Act of 1986,  the Resource
     Conservation  and Recovery Act, as amended;  the Toxic  Substances  Control
     Act,  as amended;  the Clean Air Act,  as amended;  the Clean Water Act, as
     amended;  together with all  regulations  promulgated  thereunder,  and any
     other "Superfund" or "Superlien" law.

          "ERISA" means the Employee  Retirement Income Security Act of 1974, as
     amended  from time to time,  and any  successor  statute  and all rules and
     regulations promulgated thereunder.

          "ERISA  Affiliate",  as applied to the  Borrower,  means any Person or
     trade  or  business  which  is a member  of a group  which is under  common
     control with the Borrower,  who together with the Borrower, is treated as a
     single employer within the meaning of Section 414(b) and (c) of the Code.

          "Eurodollar  Auction"  shall mean a solicitation  of  Competitive  Bid
     Quotes setting forth Eurodollar Margins based on the Interbank Offered Rate
     pursuant to Section 2.2.

          "Eurodollar  Margin"  shall have the meaning  assigned to such term in
     Section 2.2(c)(ii)(C).

          "Eurodollar  Market Loans" shall mean  Competitive  Bid Loans interest
     rates on which are  determined on the basis of the  Interbank  Offered Rate
     pursuant to a Eurodollar Auction.

          "Eurodollar  Market Rate" means the interest rate per annum calculated
     according to the following formula:



                                       12






              Eurodollar =     Interbank Offered Rate        +    Eurodollar
                            ---------------------------      -
              Market Rate      1- Reserve Requirement              Margin

          "Eurodollar  Rate"  means  the  interest  rate  per  annum  calculated
     according to the following formula:

              Eurodollar =     Interbank Offered Rate        +    Applicable
                            ---------------------------
                 Rate          1- Reserve Requirement              Margin

          "Eurodollar  Rate Loan" means a Loan for which the rate of interest is
     determined by reference to the Eurodollar Rate.

          "Event of Default" means any of the  occurrences  set forth as such in
     Section 9.1.

          "Exchange Act" means the Securities  Exchange Act of 1934, as amended,
     and the regulations promulgated thereunder.

          "Executive  Officer"  means any Person who from time to time holds the
     offices with Borrower listed on Exhibit J.

          "Existing  Letters of Credit" means those Letters of Credit  described
     on  Schedule  1.1  previously  issued by the  Issuing  Bank under the Prior
     Agreement.

          "Facility"  shall  mean  an  inpatient  or  outpatient  rehabilitation
     facility,  certified outpatient  rehabilitation  facility,  skilled nursing
     facility,  specialty medical center, specialty orthopedic hospital or acute
     care hospital,  subacute inpatient  facility,  transitional  living center,
     medical office building, outpatient surgery center or outpatient diagnostic
     center with all buildings and improvements  associated  therewith,  that is
     owned or leased,  in whole or part,  by the Borrower or a Subsidiary or any
     Controlled Partnership.

          "Fair Market  Value" shall mean,  with respect to any capital stock or
     other  ownership   interests  issued  or  given  by  the  Borrower  or  any
     Consolidated  Entity in connection with an Acquisition,  (i) in the case of
     capital stock that is Common Stock and such Common Stock is then designated
     as a  national  market  system  security  by the  National  Association  of
     Securities  Dealers,  Inc.  ("NASD") or is listed on a national  securities
     exchange, the average of the last reported bid and ask quotations or prices
     reported thereon for Common Stock or such other value as may be ascribed to
     the Common Stock in a definitive merger or acquisition  agreement  provided
     such  value  is  determined   according  to  customary   methods  for  like
     transactions and is approved (to the extent required by Borrower's  charter
     or  bylaws) by the  Borrower's  Board of  Directors  or (ii) in the case of
     capital stock that is not Common Stock or in the event that Common Stock is
     not so designated by NASD or listed on such  national  exchange,  or in the
     case of any other ownership interests, the determination of the fair market
     value thereof in good faith by a majority of  disinterested  members of the
     board of  directors of the Borrower or such  Consolidated  Entity,  in each
     case effective as of the close of business on the Business Day  immediately
     preceding the closing date of such Acquisition.



                                       13






          "Federal  Funds Rate" means,  for any day, the rate per annum (rounded
     upwards, if necessary,  to the nearest 1/100th of 1%) equal to the weighted
     average of the rates on overnight  Federal funds  transactions with members
     of the Federal  Reserve  System  arranged by Federal  funds brokers on such
     day, as published  by the Federal  Reserve Bank of New York on the Business
     Day  next  succeeding  such  day,  provided  that  (a) if such day is not a
     Business  Day,  the  Federal  Funds Rate for such day shall be such rate on
     such transactions on the next preceding Business Day as so published on the
     next  succeeding  Business  Day, and (b) if no such rate is so published on
     such next  succeeding  Business  Day,  the Federal  Funds Rate for such day
     shall be the average rate charged to the Agent (in its individual capacity)
     on such day on such transaction as determined by the Agent.

          "Fiscal Year" means,  with respect to the  Borrower,  the twelve month
     fiscal period of the Borrower commencing on January 1 of each calendar year
     and ending on December 31 of each calendar year.

          "Fixed Rate" shall mean the  Absolute  Rate or the  Eurodollar  Market
     Rate or the Eurodollar Rate, as the case may be.

          "Fixed  Rate  Loan"  means a Loan for  which the rate of  interest  is
     determined by reference to the Fixed Rate.

          "Four-Quarter  Period" means a period of four full consecutive  fiscal
     quarters  of the  Borrower  and its  Subsidiaries,  taken  together  as one
     accounting period.

          "GAAP" or "Generally Accepted  Accounting  Principles" means generally
     accepted  accounting  principles,  being those principles of accounting set
     forth in pronouncements of the Financial  Accounting Standards Board or the
     American  Institute of  Certified  Public  Accountants  or which have other
     substantial  authoritative  support and are applicable in the circumstances
     as of the date of a report.

          "Governmental  Authority"  shall mean any Federal,  state,  municipal,
     national  or other  governmental  department,  commission,  board,  bureau,
     court,  agency or instrumentality or political  subdivision  thereof or any
     entity or officer exercising executive,  legislative,  judicial, regulatory
     or  administrative  functions of or  pertaining  to any  government  or any
     court,  in each case whether  associated with a state of the United States,
     the United States, or a foreign entity or government.

          "Guaranteed  Obligations"  of any  Person  shall  mean all  guaranties
     (including  guaranties of guaranties  and guaranties of dividends and other
     monetary  obligations),  endorsements,  assumptions  and  other  contingent
     obligations with respect to, or to purchase or to otherwise pay or acquire,
     Indebtedness of others; provided, however, that such term shall not include
     obligations under leases and other contracts initially incurred directly by
     another Person and subsequently directly assumed by the Person in question,
     but  such  term  shall  include  obligations  that,  if the  same  had been
     initially  incurred  directly  by  the  Person  in  question,   would  have
     constituted Guaranteed Obligations.



                                       14






          "Hazardous Material" means and includes any pollutant, contaminant, or
     hazardous,  toxic or  dangerous  waste,  substance  or material  (including
     without limitation petroleum products,  asbestos-containing  materials, and
     lead), the generation,  handling, storage, disposal,  treatment or emission
     of which is subject to any Environmental Law.

          "HCFA" means the United  States Health Care  Financing  Administration
     and any successor thereto.

          "Headquarters  Lease" means the Lease  Agreement  between  HEALTHSOUTH
     Holdings,  Inc.,  as Lessee,  and First  Security  Bank of Utah,  N.A.,  as
     Lessor,  dated  as  of  November  16,  1995  providing  for  the  lease  to
     HEALTHSOUTH Holdings,  Inc. of the land and improvements thereon located on
     the property  described  therein,  as such Lease  Agreement may be amended,
     modified, supplemented or restated in its entirety from time to time.

          "Headquarters Obligations" means all of the Holder Advances and Loans,
     as each such term is defined in the Participation Agreement.

          "Indebtedness" of any Person at any date means,  without  duplication:
     (i) all  indebtedness of such Person for borrowed money (whether or not the
     recourse of the lender is to the whole of the assets of such Person or only
     to a portion  thereof);  (ii) all  obligations of such Person  evidenced by
     bonds,   debentures,   notes  or  other  similar  instruments;   (iii)  all
     obligations  (contingent or otherwise) of such Person in respect of letters
     of credit or other similar  instruments (or reimbursement  obligations with
     respect thereto);  (iv) all obligations of such Person with respect to Rate
     Hedging  Obligations  (other  than  those  that  fix the  interest  rate on
     variable rate indebtedness  otherwise  permitted  hereunder or that protect
     the Borrower and or its  Consolidated  Entities  against changes in foreign
     exchange  rates);  (v)  obligations  of such Person to pay the deferred and
     unpaid  purchase  price of property or services,  except trade payables and
     accrued  expenses  incurred in the ordinary  course of  business;  (vi) all
     Capitalized  Lease  Obligations of such Person;  (vii) all  indebtedness of
     others secured by a Lien on any assets of such Person,  whether or not such
     indebtedness is assumed by such Person; (viii) all Guaranteed  Obligations;
     (ix) the Headquarters Obligations; and (x) all obligations of a like nature
     to those  described in clauses (i) through (ix) above of a  partnership  of
     which such Person is a general partner or of a limited liability company of
     which such Person is a member.  The amount of Indebtedness of any Person at
     any date shall be the outstanding balance at such date of all unconditional
     obligations as described  above,  the maximum  liability of such Person for
     any such  contingent  obligations  at such date and,  in the case of clause
     (vii), the amount of the Indebtedness secured.

          "Interbank  Offered  Rate"  means,  for any  Eurodollar  Rate  Loan or
     Eurodollar Market Loan for the Interest Period applicable thereto, the rate
     per annum (rounded upwards, if necessary,  to the nearest one-one hundredth
     (1/100) of one percent)  appearing on Dow Jones  Telerate Page 3750 (or any
     successor  page) as the  London  interbank  offered  rate for  deposits  in
     Dollars at approximately 11:00 a.m. (London time) two



                                       15





     Business  Days  prior to the first day of such  Interest  Period for a term
     comparable  to such  Interest  Period.  If for any reason  such rate is not
     available, the term "Interbank Offered Rate" shall mean, for any Eurodollar
     Rate Loan or  Eurodollar  Market Loan for the  Interest  Period  applicable
     thereto, the rate per annum (rounded upwards, if necessary,  to the nearest
     1/100 of 1%) appearing on Reuters Screen LIBO Page as the London  interbank
     offered rate for deposits in Dollars at  approximately  11:00 a.m.  (London
     time) two Business Days prior to the first day of such Interest  Period for
     a term comparable to such Interest Period; provided,  however, if more than
     one rate is  specified on Reuters  Screen LIBO Page,  the  applicable  rate
     shall  be the  arithmetic  mean of all  such  rates  (rounded  upwards,  if
     necessary, to the nearest 1/100 of 1%).

          "Interest Period" shall mean:

          (i) with respect to any Eurodollar Rate Loan,  each period  commencing
     on the date such  Eurodollar  Rate Loan is made or Converted from a Loan of
     another Type or the last day of the next preceding Interest Period for such
     Loan and ending on the numerically  corresponding day in the first, second,
     third or sixth  calendar  month  thereafter,  as the Borrower may select as
     provided in Section 2.3, except that each Interest Period that commences on
     the last Business Day of a calendar month (or on any day for which there is
     no numerically  corresponding  day in the appropriate  subsequent  calendar
     month)  shall end on the last  Business Day of the  appropriate  subsequent
     calendar month;

          (ii) with respect to any Absolute Rate Loan, the period  commencing on
     the date such  Absolute Rate Loan is made and ending on any Business Day up
     to 180 days  thereafter,  as the Borrower may select as provided in Section
     2.2(b); and

          (iii)  with  respect  to  any  Eurodollar   Market  Loan,  the  period
     commencing  on the date such  Eurodollar  Market Loan is made and ending on
     the  numerically  corresponding  day in the first,  second,  third or sixth
     calendar  month  thereafter,  as the  Borrower  may select as  provided  in
     Section 2.2(b), except that each Interest Period that commences on the last
     Business  Day of a  calendar  month  (or  any  day for  which  there  is no
     numerically corresponding day in the appropriate subsequent calendar month)
     shall end on the last Business Day of the appropriate  subsequent  calendar
     month.

     Notwithstanding  the  foregoing:   (i)  if  any  Interest  Period  for  any
     Competitive  Bid Loan  would  otherwise  end  after  the  Revolving  Credit
     Termination  Date, such Interest  Period shall end on the Revolving  Credit
     Termination  Date; (ii) if any Interest Period for any Eurodollar Rate Loan
     would  otherwise  end after the Revolving  Credit  Termination  Date,  such
     Interest Period shall end on the Revolving Credit  Termination  Date; (iii)
     each  Interest  Period  that  would  otherwise  end on a day which is not a
     Business Day shall end on the next succeeding Business Day (or, in the case
     of an Interest  Period for a Eurodollar  Rate Loan or a  Eurodollar  Market
     Loan,  if such next  succeeding  Business Day falls in the next  succeeding
     calendar   month,   on  the  next   preceding   Business   Day);  and  (iv)
     notwithstanding  clauses (i), (ii) and (iii) above,  no Interest Period for
     any Loan (other  than an Absolute  Rate Loan) shall have a duration of less
     than one month (in the case of



                                       16





     a Eurodollar  Rate Loan or a  Eurodollar  Market Loan) and, if the Interest
     Period  for any  Eurodollar  Rate  Loan or  Eurodollar  Market  Loan  would
     otherwise be a shorter period,  such Loan shall not be available  hereunder
     for such period.

          "Interest Rate Selection Notice" means the written notice delivered by
     an  Authorized   Representative  in  connection  with  the  election  of  a
     subsequent  Interest  Period for any Eurodollar Rate Loan or the Conversion
     of any Eurodollar  Rate Loan into a Base Rate Loan or the Conversion of any
     Base Rate Loan into a Eurodollar Rate Loan, in the form of Exhibit E.

          "Issuing Bank" means  NationsBank as issuer of Letters of Credit under
     Article III.

          "LC Account  Agreement" means the LC Account Agreement dated as of the
     date hereof between the Borrower and the Issuing Bank, as amended, modified
     or supplemented from time to time.

          "Letter  of  Credit"  means a standby  letter of credit  issued by the
     Issuing  Bank  pursuant to Article  III for the account of the  Borrower in
     favor of a Person  advancing  credit or securing an obligation on behalf of
     the Borrower, including the Existing Letters of Credit.

          "Letter of Credit  Commitment" means, with respect to each Lender, the
     obligation of such Lender to acquire  Participations  in respect of Letters
     of Credit and  Reimbursement  Obligations up to an aggregate  amount at any
     one  time  outstanding  equal  to  such  Lender's   Applicable   Commitment
     Percentage  of the Total  Letter of  Credit  Commitment  as the same may be
     increased or decreased from time to time pursuant to this Agreement.

          "Letter of Credit  Facility"  means the facility  described in Article
     III  providing  for the issuance by the Issuing Bank for the account of the
     Borrower  of Letters of Credit in an  aggregate  stated  amount at any time
     outstanding not exceeding, together with all Reimbursement Obligations, the
     Total Letter of Credit Commitment.

          "Letter   of   Credit   Outstandings"   means,   as  of  any  date  of
     determination,  the aggregate amount remaining undrawn under all Letters of
     Credit plus Reimbursement Obligations then outstanding.

          "Lien" means any interest in property securing any obligation owed to,
     or a claim by, a Person other than the owner of the property,  whether such
     interest is based on the common law, statute or contract, and including but
     not  limited to the lien or  security  interest  arising  from a  mortgage,
     encumbrance,  pledge, security agreement, conditional sale or trust receipt
     or a lease, consignment or bailment for security purposes. For the purposes
     of this  Agreement,  the Borrower and any Subsidiary  shall be deemed to be
     the owner of any  property  which it has  acquired  or holds  subject  to a
     conditional sale agreement,  financing lease, or other arrangement pursuant
     to which title to the property has been retained by or vested in some other
     Person for security purposes.



                                       17





          "Loan" or "Loans" means any Syndicated  Loans,  Competitive Bid Loans,
     Reimbursement  Obligations  and  Letter  of  Credit  Outstandings  and  all
     extensions and renewals thereof.

          "Loan  Documents"  means this  Agreement,  the  Notes,  the LC Account
     Agreement,  the  Applications  and  Agreements for Letter of Credit and all
     other  instruments  and  documents  heretofore  or  hereafter  executed  or
     delivered to or in favor of any Lender or the Agent in connection  with the
     Loans made,  Letters of Credit issued and transactions  contemplated  under
     this Agreement,  as the same may be amended,  supplemented or replaced from
     time to time.

          "Material  Adverse Effect" means a material  adverse effect on (i) the
     business,  properties,  operations or condition, financial or otherwise, of
     the  Borrower and its  Consolidated  Entities,  taken as a whole,  (ii) the
     ability of the Borrower to pay or perform its obligations,  liabilities and
     indebtedness  under  the Loan  Documents  as such  payment  or  performance
     becomes  due in  accordance  with the terms  thereof,  or (iii) the rights,
     powers and remedies of the Agent or any Lender  under any Loan  Document or
     the validity, legality or enforceability thereof (including for purposes of
     clauses (ii) and (iii) the imposition of burdensome conditions thereon).

          "Material  Group" shall mean, at any time,  any group,  whether one or
     more, or  combination  of  Consolidated  Entities (a) whose assets,  in the
     aggregate,  constitute  5% or more of the  assets of the  Borrower  and the
     Consolidated Entities on a consolidated basis or (b) whose net revenues, in
     the  aggregate,  constitute  5% or more of the net revenues of the Borrower
     and the Consolidated Entities on a consolidated basis.

          "Medicaid Certification" means certification by HCFA or a state agency
     or entity  under  contract  with HCFA that a health  care  operation  is in
     compliance  with  all the  conditions  of  participation  set  forth in the
     Medicaid Regulations.

          "Medicaid Provider  Agreement" means an agreement entered into between
     a state agency or other  entity  administering  the Medicaid  program and a
     health  care  operation  under which the health  care  operation  agrees to
     provide services for Medicaid  patients in accordance with the terms of the
     agreement and Medicaid Regulations.

          "Medicaid Regulations" means,  collectively,  (i) all federal statutes
     (whether set forth in Title XIX of the Social  Security  Act or  elsewhere)
     affecting the medical  assistance  program  established by Title XIX of the
     Social  Security  Act  and  any  statutes  succeeding  thereto;   (ii)  all
     applicable provisions of all federal rules, regulations, manuals and orders
     of all Governmental  Authorities  promulgated  pursuant to or in connection
     with  the   statutes   described  in  clause  (i)  above  and  all  federal
     administrative,  reimbursement  and other  guidelines  of all  Governmental
     Authorities  having  the  force  of  law  promulgated  pursuant  to  or  in
     connection with the statutes described in clause (i) above; (iii) all state
     statutes and plans for medical  assistance  enacted in connection  with the
     statutes and provisions  described in clauses (i) and (ii) above;  and (iv)
     all applicable provisions of all



                                       18





     rules,  regulations,  manuals  and orders of all  Governmental  Authorities
     promulgated  pursuant to or in  connection  with the statutes  described in
     clause (iii) above and all state  administrative,  reimbursement  and other
     guidelines  of  all  Governmental  Authorities  having  the  force  of  law
     promulgated  pursuant to or in  connection  with the statutes  described in
     clause  (ii)  above,  in  each  case  as may be  amended,  supplemented  or
     otherwise modified from time to time.

          "Medicare Certification" means certification by HCFA or a state agency
     or entity  under  contract  with HCFA that a health  care  operation  is in
     compliance  with  all the  conditions  of  participation  set  forth in the
     Medicare Regulations.

          "Medicare Provider  Agreement" means an agreement entered into between
     a state agency or other  entity  administering  the Medicare  program and a
     health  care  operation  under which the health  care  operation  agrees to
     provide services for Medicare  patients in accordance with the terms of the
     agreement and Medicare Regulations.

          "Medicare  Regulations"  means,  collectively,  all  federal  statutes
     (whether set forth in Title XVIII of the Social  Security Act or elsewhere)
     affecting  the  health   insurance   program  for  the  aged  and  disabled
     established  by Title  XVIII of the Social  Security  Act and any  statutes
     succeeding thereto;  together with all applicable  provisions of all rules,
     regulations, manuals and orders and administrative, reimbursement and other
     guidelines  having  the  force  of  law  of  all  Governmental  Authorities
     (including without limitation, Health and Human Services ("HHS"), HCFA, the
     Office of the  Inspector  General for HHS, or any Person  succeeding to the
     functions of any of the foregoing) promulgated pursuant to or in connection
     with any of the foregoing  having the force of law, as each may be amended,
     supplemented or otherwise modified from time to time.

          "Moody's" means Moody's Investors Service, Inc.

          "Multiemployer  Plan"  means a  "multiemployer  plan"  as  defined  in
     Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
     making, or is accruing an obligation to make, contributions or has made, or
     been obligated to make,  contributions  within the preceding six (6) Fiscal
     Years.

          "NationsBank" means NationsBank, National Association.

          "1997 10-K" means the  Borrower's  Annual  Report on Form 10-K for the
     Fiscal Year Ended December 31, 1997;

          "Notes" means,  collectively,  the Revolving Notes and the Competitive
     Bid Notes.

          "Obligations"  means the obligations,  liabilities and Indebtedness of
     the Borrower with respect to (i) the principal and interest on the Loans as
     evidenced by the Notes, (ii) the Reimbursement Obligations and otherwise in
     respect of the Letters of Credit,  (iii) all liabilities of the Borrower to
     any Lender which arise under a Swap Agreement, and (iv)



                                       19





     the payment  and  performance  of all other  obligations,  liabilities  and
     Indebtedness of the Borrower to the Lenders or the Agent  hereunder,  under
     any one or more of the other Loan Documents or with respect to the Loans.

          "Participation"  means,  with  respect to any Lender  (other  than the
     Issuing Bank) and a Letter of Credit,  the extension of credit  represented
     by the  participation  of such Lender  hereunder  in the  liability  of the
     Issuing Bank in respect of a Letter of Credit issued by the Issuing Bank in
     accordance with the terms hereof.

          "Participation  Agreement"  means the  Participation  Agreement  dated
     November 16, 1995 among  HEALTHSOUTH  Corporation,  as Construction  Agent,
     HEALTHSOUTH  Holdings,  Inc., as Lessee, First Security Bank of Utah, N.A.,
     as Trustee, the Holders identified therein, the Lenders identified therein,
     and  NationsBank,  National  Association,  as Agent, as such  Participation
     Agreement  may  be  amended,  modified,  supplemented  or  restated  in its
     entirety from time to time.

          "PBGC"  means  the  Pension  Benefit  Guaranty   Corporation  and  any
     successor thereto.

          "Pension  Plan" means any  employee  pension  benefit  plan within the
     meaning of Section 3(2) of ERISA, other than a Multiemployer Plan, which is
     subject to the  provisions  of Title IV of ERISA or Section 412 of the Code
     and which (i) is  maintained  for  employees  of the Borrower or any of its
     ERISA  Affiliates  or is  assumed  by the  Borrower  or  any  of its  ERISA
     Affiliates in connection  with any Acquisition or (ii) has at any time been
     maintained for the employees of the Borrower or any current or former ERISA
     Affiliate.

          "Permitted Encumbrances" shall mean:

               (1) liens for taxes,  assessments and other governmental  charges
          that are not  delinquent or that are being  contested in good faith by
          appropriate proceedings duly pursued;

               (2) mechanic's, materialmen's,  contractor's, landlord's or other
          similar  liens  arising in the ordinary  course of business,  securing
          obligations  that are not  delinquent  or that are being  contested in
          good faith by appropriate proceedings duly pursued;

               (3)   restrictions,    exceptions,    reservations,    easements,
          conditions,  limitations  and  other  matters  of  record  that do not
          materially  adversely  affect  the value or  utility  of the  affected
          property;

               (4) Liens on assets securing  Indebtedness  the proceeds of which
          are used to acquire such assets;



                                       20





               (5) Liens and other  matters  approved in writing by the Required
          Lenders; and

               (6) Liens in favor of  landlords,  the  amount  secured  by which
          landlords'  Liens,  in the aggregate,  would not materially  adversely
          affect the Borrower or a Material Group.

          "Permitted Investments" shall mean:

               (1) direct obligations of, or obligations the payment of which is
          guaranteed  by, the United  States of  America or an  interest  in any
          trust or fund that invests  solely in such  obligations  or repurchase
          agreements, properly secured, with respect to such obligations.

               (2) direct  obligations of agencies or  instrumentalities  of the
          United  States of America  having a rating of A or higher by S&P or A2
          or higher by Moody's;

               (3) a certificate of deposit issued by, or other interest-bearing
          deposits  with,  a bank which is a Lender or an affiliate of a Lender,
          or a bank having its principal  place of business in the United States
          of America and having equity capital of not less than $250,000,000;

               (4) a certificate of deposit issued by, or other interest-bearing
          deposits with,  any other bank organized  under the laws of the United
          States of America or any state thereof,  provided that such deposit is
          either (i) insured by the Federal  Deposit  Insurance  Corporation  or
          (ii) properly  secured by such bank by pledging direct  obligations of
          the United  States of America  having a market value not less than the
          face amount of such deposits;

               (5) the capital stock of and partnership  interests in, and loans
          made by the Borrower to, Controlled Partnerships and Subsidiaries;

               (6)  prime  commercial  paper  maturing  within  270  days of the
          acquisition  thereof and, at the time of acquisition,  having a rating
          of A-1 or higher by S&P, or P-1 or higher by Moody's;

               (7) eligible  banker's  acceptances,  repurchase  agreements  and
          tax-exempt municipal bonds having a maturity of less than one year, in
          each case having a rating, or that is the full recourse  obligation of
          a person  whose  senior  debt is  rated,  A or  higher by S&P or A2 or
          higher by Moody's;

               (8) loans made by the  Borrower  or a  Consolidated  Entity in an
          aggregate amount of $2,000,000 or less to employees of the Borrower or
          of a Consolidated Entity;



                                       21






               (9) loans made by the Borrower or a Controlled  Partnership in an
          aggregate  amount  of  $1,000,000  or less  to  limited  partners  (or
          potential limited partners) of Controlled Partnerships for the purpose
          of  enabling  such  limited  partners to acquire  limited  partnership
          interests in Controlled Partnerships, to operate their practices or to
          restructure partnership interests;

               (10) loans in an aggregate  amount of up to  $20,000,000  made by
          the Borrower to the HEALTHSOUTH Employee Stock Benefit Plan;

               (11)  scholarship  loans  made by the  Borrower  in an  aggregate
          amount  not  exceeding  $1,000,000  to  individuals  who meet  certain
          eligibility  requirements  as established by the Borrower from time to
          time;

               (12) up to 100% of the outstanding shares of stock of Caretenders
          Healthcorp  (formerly  known as Senior  Services,  Inc.) provided that
          aggregate  costs  incurred  to purchase  such shares  shall not exceed
          $12,000,000;

               (13) other  investments of less than  $5,000,000 in the aggregate
          expressly  approved  in  writing  by  the  Agent  and  investments  of
          $5,000,000  or greater  expressly  approved in writing by the Required
          Lenders;

               (14) any other  investment  having a rating of A or higher or A-1
          or higher by S&P or A2 or higher or P-1 or higher by Moody's;

               (15) loans to health care  practitioners and other persons not to
          exceed in the aggregate $5,000,000;

               (16)  investments  in  Acacia  Venture   Partners,   HEALTHSMART,
          MedPartners  and Austin Medical Office Building which in the aggregate
          do not exceed $5,000,000; and

               (17)  additional  investments  existing on the  Closing  Date and
          described in Exhibit G.

          "Person"  means  an  individual,  partnership,   corporation,  limited
     liability company, trust, unincorporated organization,  association,  joint
     venture or a government or agency or political subdivision thereof.

          "Prime  Rate"  means the per annum rate of interest  established  from
     time to time by  NationsBank  as its prime rate,  which rate may not be the
     lowest rate of interest charged by NationsBank to its Customers.

          "Principal  Office"  means the  office  of the  Agent at  NationsBank,
     National  Association,  Independence  Center,  15th Floor,  NC1  001-15-04,
     Charlotte, North Carolina



                                       22





     28255, Attention:  Agency Services, or such other office and address as the
     Agent may from time to time designate.

          "Rate  Hedging  Obligations"  means  any  and all  obligations  of the
     Borrower or any  Consolidated  Entity,  whether  absolute or contingent and
     howsoever and whensoever created, arising, evidenced or acquired (including
     all  renewals,  extensions  and  modifications  thereof  and  substitutions
     therefor),  under  (i) any  and all  agreements,  devices  or  arrangements
     designed  to protect  the  Borrower  or such  Consolidated  Entity from the
     fluctuations of interest rates,  exchange rates or forward rates applicable
     to such party's assets,  liabilities or exchange  transactions,  including,
     but not limited to,  Dollar-  denominated or  cross-currency  interest rate
     exchange agreements,  forward currency exchange  agreements,  interest rate
     cap or collar protection agreements, forward rate currency or interest rate
     options,  puts,  warrants and those  commonly known as interest rate "swap"
     agreements;  and  (ii)  any and  all  cancellations,  buybacks,  reversals,
     terminations or assignments of any of the foregoing.

          "Rating"  means the  rating of senior  unsecured  Indebtedness  of the
     Borrower in effect at any time which rating is made by either of Moody's or
     S&P.

          "Regulation  D"  means  Regulation  D of the  Board as the same may be
     amended or supplemented from time to time.

          "Reimbursement  Obligation" shall mean, at any time, the obligation of
     the Borrower  with respect to any Letter of Credit to reimburse the Issuing
     Bank and the  Lenders  to the  extent  of their  respective  Participations
     (including by the receipt by the Issuing Bank of proceeds of Loans pursuant
     to Section 3.2) for amounts  theretofore  paid by the Issuing Bank pursuant
     to a drawing under such Letter of Credit.

          "Required  Lenders" means, as of any date, Lenders on such date having
     Credit  Exposures  (as  defined  below)  aggregating  at  least  51% of the
     aggregate Credit Exposures of all the Lenders on such date. For purposes of
     the preceding sentence,  the amount of the "Credit Exposure" of each Lender
     shall be equal to the  aggregate  principal  amount  of the  Loans  without
     regard to any  Competitive  Bid Loan,  so long as there  exists no Event of
     Default, owing to such Lender plus the aggregate unutilized amounts of such
     Lender's  Revolving  Credit  Commitment  plus the  amount of such  Lender's
     Applicable Commitment Percentage of Letter of Credit Outstandings; provided
     that,  if any  Lender  shall  have  failed to pay to the  Issuing  Bank its
     Applicable  Commitment Percentage of any drawing under any Letter of Credit
     resulting in an outstanding Reimbursement Obligation,  such Lender's Credit
     Exposure  attributable to Letters of Credit and  Reimbursement  Obligations
     shall  be  deemed  to be held by the  Issuing  Bank  for  purposes  of this
     definition.

          "Reserve  Requirement"  means,  at any time, the maximum rate at which
     reserves   (including,   without   limitation,   any   marginal,   special,
     supplemental,  or emergency  reserves) are required to be maintained  under
     regulations  issued  from time to time by the Board by member  banks of the
     Federal Reserve System (or any successor) by member banks of the



                                       23





     Federal Reserve System against "Eurocurrency  liabilities" (as such term is
     used in Regulation  D). Without  limiting the effect of the foregoing,  the
     Reserve  Requirement  shall  reflect  any  other  reserves  required  to be
     maintained  by such  member  banks  with  respect  to (i) any  category  of
     liabilities  which  includes  deposits by reference to which the Eurodollar
     Rate is to be  determined,  or (ii) any category of extensions of credit or
     other assets which include Eurodollar Rate Loans. The Eurodollar Rate shall
     be adjusted  automatically on and as of the effective date of any change in
     the Reserve Requirement.

          "Restricted  Payment"  means (a) any  dividend or other  distribution,
     direct  or  indirect,  on  account  of any  shares of any class of stock of
     Borrower or any of its  Consolidated  Entities (other than those payable or
     distributable solely to the Borrower) now or hereafter outstanding,  except
     a dividend  payable  solely in shares of a class of stock to the holders of
     that class; (b) any redemption, conversion, exchange, retirement or similar
     payment,  purchase or other acquisition for value,  direct or indirect,  of
     any shares of any class of stock of the Borrower or any of its Consolidated
     Entities (other than those payable or distributable solely to the Borrower)
     now or hereafter outstanding;  (c) any payment made to retire, or to obtain
     the  surrender  of, any  outstanding  warrants,  options or other rights to
     acquire  shares  of  any  class  of  stock  of the  Borrower  or any of its
     Consolidated  Entities now or hereafter  outstanding;  and (d) any issuance
     and sale of capital  stock of any  Consolidated  Entity of the Borrower (or
     any  option,  warrant or right to  acquire  such  stock)  other than to the
     Borrower.

          "Revolving Credit  Commitment" means, with respect to each Lender, the
     obligation of such Lender to make Syndicated Loans to the Borrower up to an
     aggregate  principal  amount  at any one  time  outstanding  equal  to such
     Lender's  Applicable  Commitment  Percentage of the Total Revolving  Credit
     Commitment.

          "Revolving Credit Facility" means the facility described in Article II
     providing  for  Loans  to the  Borrower  by the  Lenders  in the  aggregate
     principal amount of the Total Revolving Credit Commitment.

          "Revolving   Credit   Outstandings"   means,   as  of  any   date   of
     determination,  the aggregate principal amount of all Syndicated Loans then
     outstanding.

          "Revolving Credit  Termination Date" means (i) the Stated  Termination
     Date or (ii) such earlier date of  termination  of Lenders'  Obligations as
     may be determined  pursuant to Section 9.1 upon the  occurrence of an Event
     of  Default,  or  (iii)  such  date as the  Borrower  may  voluntarily  and
     permanently  terminate the Revolving  Credit Facility by payment in full of
     all Revolving Credit Outstandings,  Competitive Bid Loans and all Letter of
     Credit  Outstandings  and  cancellation of all Letters of Credit,  together
     with all accrued and unpaid interest and fees thereon.

          "Revolving  Notes" means,  collectively,  the promissory  notes of the
     Borrower evidencing  Syndicated Loans executed and delivered to the Lenders
     as provided in Section



                                       24





     2.5, substantially in the form of Exhibit F, with appropriate insertions as
     to amounts, dates and names of Lenders.

          "S&P" means  Standard & Poor's Rating Group,  a division of The McGraw
     Hill Companies.

          "Single Employer Plan" means any employee pension benefit plan covered
     by Title IV of ERISA in respect of which the Borrower or any  Subsidiary is
     an "employer"  as described in Section  4001(b) of ERISA and which is not a
     Multiemployer Plan.

          "Solvent"  means,  when used with  respect to any Person,  that at the
     time of determination:

               (i) the fair value of its assets (both at fair  valuation  and at
          present fair saleable  value on an orderly  basis) is in excess of the
          total amount of its liabilities, including contingent obligations; and

               (ii) it is then able and  expects  to be able to pay its debts as
          they mature; and

               (iii) it has  capital  sufficient  to carry  on its  business  as
          conducted and as proposed to be conducted.

          "Stated Termination Date" means June 22, 2003.

          "Subordinated  Debt" means any unsecured  Indebtedness of the Borrower
     or any Consolidated Entity (other than inter-company Indebtedness) which is
     subordinated  in right of payment in all respects to the  Obligations  in a
     manner reasonably acceptable to the Agent.

          "Subsidiary"  means any corporation or other entity in which more than
     50%  of its  outstanding  voting  stock  or  more  than  50% of all  equity
     interests is owned directly or indirectly by the Borrower  and/or by one or
     more of the Borrower's Subsidiaries.

          "Swap Agreement" means one or more agreements between the Borrower and
     any Person  with  respect to  Indebtedness  evidenced  by any or all of the
     Notes,  on terms  mutually  acceptable  to  Borrower  and such  Person  and
     approved by each of the  Lenders,  which  agreements  create  Rate  Hedging
     Obligations;  provided, however, that no such approval of the Lenders shall
     be required  to the extent such  agreements  are entered  into  between the
     Borrower and any Lender.

          "Syndicated  Loans"  shall mean any  borrowing  pursuant to an Advance
     provided  for by Section  2.1,  which may be Base Rate Loans or  Eurodollar
     Rate Loans.



                                       25





          "Termination  Event"  means:  (i) a  "Reportable  Event"  described in
     Section 4043 of ERISA and the  regulations  issued  thereunder  (unless the
     notice requirement has been waived by applicable  regulation);  or (ii) the
     withdrawal  of the  Borrower  or any ERISA  Affiliate  from a Pension  Plan
     during a plan year in which it was a  "substantial  employer" as defined in
     Section  4001(a)(2)  of ERISA or was deemed such under  Section  4062(e) of
     ERISA;  or (iii) the  termination of a Pension Plan, the filing of a notice
     of intent to  terminate a Pension  Plan or the  treatment of a Pension Plan
     amendment  as a  termination  under  Section  4041 of  ERISA;  or (iv)  the
     institution  of proceedings to terminate a Pension Plan by the PBGC; or (v)
     any other event or condition which would  constitute  grounds under Section
     4042(a) of ERISA for the termination of, or the appointment of a trustee to
     administer, any Pension Plan; or (vi) the partial or complete withdrawal of
     the Borrower or any ERISA Affiliate from a Multiemployer Plan; or (vii) the
     imposition  of a Lien pursuant to Section 412 of the Code or Section 302 of
     ERISA; or (viii) any event or condition which results in the reorganization
     or insolvency of a Multiemployer Plan under Section 4241 or Section 4245 of
     ERISA,  respectively;  or (ix) any event or condition  which results in the
     termination  of a  Multiemployer  Plan under  Section 4041A of ERISA or the
     institution by the PBGC of proceedings  to terminate a  Multiemployer  Plan
     under Section 4042 of ERISA.

          "Total  Letter of  Credit  Commitment"  means an amount  not to exceed
     $75,000,000.

          "Total Revolving Credit  Commitment" means a principal amount equal to
     $1,750,000,000,  as reduced  from time to time in  accordance  with Section
     2.1(a) and Section 2.8.

          "Unused  Amount"  shall  mean with  respect  to each  Lender,  (a) the
     Revolving Credit  Commitment of such Lender less (b) such Lender's pro rata
     share of  outstanding  Syndicated  Loans and Letter of Credit  Outstandings
     less (c) the outstanding principal amount of all Competitive Bid Loans then
     held by such  Lender;  provided  that in no event  shall  such  amount be a
     negative number.

          "Vanderbilt" shall mean Vanderbilt Stallworth Rehabilitation Hospital,
     L.P.,  the partners of which are the Borrower,  Vanderbilt  University  and
     Vanderbilt Health Services.

          "Voting  Stock" means shares of Capital Stock issued by a corporation,
     or  equivalent  interests  in any other  Person,  the  holders of which are
     ordinarily,  in the  absence  of  contingencies,  entitled  to vote for the
     election of directors  (or persons  performing  similar  functions) of such
     Person, even if the right so to vote has been suspended by the happening of
     such a contingency.

     1.2. Rules of Interpretation.

          (a) All accounting  terms not  specifically  defined herein shall have
     the meanings  assigned to such terms and shall be interpreted in accordance
     with GAAP applied on a Consistent Basis.



                                       26






          (b) The headings,  subheadings and table of contents used herein or in
     any other Loan Document are solely for  convenience  of reference and shall
     not  constitute  a  part  of any  such  document  or  affect  the  meaning,
     construction or effect of any provision thereof.

          (c)  Except as  otherwise  expressly  provided,  references  herein to
     articles, sections, paragraphs,  clauses, annexes, appendices, exhibits and
     schedules  are  references  to  articles,  sections,  paragraphs,  clauses,
     annexes, appendices, exhibits and schedules in or to this Agreement.

          (d) All  definitions  set forth  herein or in any other Loan  Document
     shall  apply to the  singular  as well as the plural  form of such  defined
     term, and all references to the masculine gender shall include reference to
     the feminine or neuter gender, and vice versa, as the context may require.

          (e) When used  herein or in any other  Loan  Document,  words  such as
     "hereunder", "hereto", "hereof" and "herein" and other words of like import
     shall,  unless the context clearly indicates to the contrary,  refer to the
     whole  of the  applicable  document  and  not to  any  particular  article,
     section, subsection, paragraph or clause thereof.

          (f) References to "including"  means  including  without  limiting the
     generality of any description  preceding such term, and for purposes hereof
     the rule of  ejusdem  generis  shall not be  applicable  to limit a general
     statement,  followed by or referable to an enumeration of specific matters,
     to matters similar to those specifically mentioned.

          (g) All dates and times of day  specified  herein  shall refer to such
     dates and times at Charlotte, North Carolina.

          (h) Each of the parties to the Loan  Documents  and their counsel have
     reviewed and  revised,  or requested  (or had the  opportunity  to request)
     revisions  to,  the  Loan  Documents,  and any  rule of  construction  that
     ambiguities  are  to be  resolved  against  the  drafting  party  shall  be
     inapplicable in the construing and interpretation of the Loan Documents and
     all exhibits, schedules and appendices thereto.

          (i) Any reference to an officer of the Borrower or any other Person by
     reference  to the  title of such  officer  shall be deemed to refer to each
     other  officer  of such  Person,  however  titled,  exercising  the same or
     substantially similar functions.

          (j) All  references to any agreement or document as amended,  modified
     or  supplemented,  or words of similar effect,  shall mean such document or
     agreement,  as the case may be, as amended,  modified or supplemented  from
     time to time only as and to the extent  permitted  therein  and in the Loan
     Documents.

     1.3.  Classes and Types of Loans.  Loans  hereunder  are  distinguished  by
"Class" and by "Type".  The  "Class" of a Loan refers to whether  such Loan is a
Competitive Bid Loan or a Syndicated  Loan,  each of which  constitutes a Class.
The "Type" of a Loan refers to whether



                                       27





such Loan is a Base Rate Loan, a Eurodollar Rate Loan, an Absolute Rate Loan, or
a  Eurodollar  Market  Loan,  each of which  constitutes  a Type.  Loans  may be
identified by both Class and Type.




                                       28






                                   ARTICLE II

                                    The Loans

     2.1. Syndicated Loans.

          (a) Commitment. Subject to the terms and conditions of this Agreement,
each  Lender  severally  agrees  to make  Advances  to the  Borrower  under  the
Revolving  Credit  Facility  from time to time from the  Closing  Date until the
Revolving Credit  Termination Date on a pro rata basis as to the total borrowing
requested  by the Borrower on any day  determined  by such  Lender's  Applicable
Commitment Percentage up to but not exceeding the Revolving Credit Commitment of
such Lender, provided,  however, that the Lenders will not be required and shall
have no obligation to make any such Advance (i) so long as a Default or an Event
of Default has occurred and is  continuing or (ii) if the maturity of any of the
Notes has been accelerated as a result of an Event of Default; provided further,
however,  that  immediately  after  giving  effect  to each  such  Advance,  the
principal  amount  of  Revolving  Credit  Outstandings  plus  Letters  of Credit
Outstandings  plus outstanding  Competitive Bid Loans shall not exceed the Total
Revolving Credit Commitment.  Within such limits, the Borrower may borrow, repay
and  reborrow  under the  Revolving  Credit  Facility on a Business Day from the
Closing Date until, but (as to borrowings and reborrowings)  not including,  the
Revolving Credit Termination Date; provided, however, that (y) no Loan that is a
Eurodollar  Rate Loan shall be made which has an Interest  Period  that  extends
beyond  the  Revolving  Credit  Termination  Date  and (z) each  Loan  that is a
Eurodollar  Rate Loan may,  subject to the  provisions of Section 2.4, be repaid
only on the last day of the  Interest  Period with respect  thereto  unless such
payment is accompanied by the additional  payment,  if any,  required by Section
4.5.

          (b) Amounts.  The aggregate  unpaid  principal amount of the Revolving
Credit   Outstandings  plus  Letter  of  Credit  Outstandings  plus  outstanding
Competitive  Bid Loans shall not exceed the Total  Revolving  Credit  Commitment
and, in the event there shall be outstanding any such excess, the Borrower shall
immediately  make such payments and  prepayments as shall be necessary to comply
with this  restriction.  Each Syndicated  Loan  hereunder,  other than Base Rate
Refunding Loans, and each Conversion under Section 2.9, shall be in an amount of
at least  $5,000,000,  and, if greater than $5,000,000,  an integral multiple of
$1,000,000.

          (c) Advances.  (i) An Authorized  Representative  shall give the Agent
(1)  at  least  three  (3)  Business   Days'   irrevocable   written  notice  by
telefacsimile  transmission  of a Borrowing  Notice or Interest  Rate  Selection
Notice (as applicable) with appropriate  insertions,  effective upon receipt, of
each  Syndicated  Loan that is a Eurodollar  Rate Loan (whether  representing an
additional  borrowing  hereunder or the Conversion of a borrowing hereunder from
Base  Rate  Loans  to  Eurodollar  Rate  Loans)  prior  to  10:30  A.M.  and (2)
irrevocable  written notice by telefacsimile  transmission of a Borrowing Notice
or Interest Rate Selection Notice (as applicable)  with appropriate  insertions,
effective upon receipt,  of each Syndicated Loan (other than Base Rate Refunding
Loans to the extent the same are  effected  without  notice  pursuant to Section
2.1(c)(iv))  that  is a Base  Rate  Loan  (whether  representing  an  additional
borrowing  hereunder or the Conversion of borrowing  hereunder  from  Eurodollar
Rate Loans to Base Rate



                                       29





Loans) prior to 10:30 A.M. on the day of such  proposed  Syndicated  Loan.  Each
such notice shall  specify the amount of the  borrowing,  the Type of Loan (Base
Rate or Eurodollar  Rate), the date of borrowing and, if a Eurodollar Rate Loan,
the Interest Period to be used in the computation of interest. Notice of receipt
of such Borrowing Notice or Interest Rate Selection  Notice, as the case may be,
together  with the  amount of each  Lender's  portion  of an  Advance  requested
thereunder,  shall be  provided  by the Agent to each  Lender  by  telefacsimile
transmission  with  reasonable  promptness,  but  (provided the Agent shall have
received  such notice by 10:30 A.M.) not later than 1:00 P.M. on the same day as
the Agent's receipt of such notice.

     (ii) Not later  than 2:00 P.M.  on the date  specified  for each  borrowing
under this Section 2.1, each Lender shall,  pursuant to the terms and subject to
the  conditions  of this  Agreement,  make the amount of the Loan or Loans to be
made by it on such day  available by wire transfer to the Agent in the amount of
its pro rata share,  determined according to such Lender's Applicable Commitment
Percentage of the  Syndicated  Loan or Syndicated  Loans to be made on such day.
Such wire transfer  shall be directed to the Agent at the  Principal  Office and
shall be in the form of Dollars  constituting  immediately  available funds. The
amount so received by the Agent shall,  subject to the terms and  conditions  of
this  Agreement,  be made  available to the Borrower by delivery of the proceeds
thereof  as  shall  be  directed  in  the  applicable  Borrowing  Notice  by the
Authorized Representative and reasonably acceptable to the Agent.

     (iii) The  Borrower  shall  have the  option to elect the  duration  of the
initial and any subsequent  Interest Periods and to Convert the Syndicated Loans
in accordance with Section 2.9. Eurodollar Rate Loans and Base Rate Loans may be
outstanding at the same time, provided,  however, there shall not be outstanding
at any one time Loans (whether Syndicated Loans or Competitive Bid Loans) having
more than eight (8) different Interest Periods.  If the Agent does not receive a
Borrowing  Notice or an Interest Rate Selection Notice giving notice of election
of the  duration  of an  Interest  Period  or of  Conversion  of any  Loan to or
Continuation  of a Loan as a  Eurodollar  Rate  Loan by the time  prescribed  by
Section  2.1(c) or 2.9, the Borrower  shall be deemed to have elected to Convert
such Loan to (or  Continue  such Loan as) a Base  Rate Loan  until the  Borrower
notifies the Agent in accordance with Section 2.9.

     (iv)  Notwithstanding the foregoing,  if a drawing is made under any Letter
of Credit,  such drawing is honored by the Issuing  Bank prior to the  Revolving
Credit  Termination Date, and the Borrower shall not immediately fully reimburse
the Issuing Bank in respect of such drawing, (A) provided that the conditions to
making a  Syndicated  Loan as  herein  provided  shall  then be  satisfied,  the
Reimbursement  Obligation arising from such drawing shall be paid to the Issuing
Bank by the Agent without the requirement of notice to or from the Borrower from
immediately  available  funds which  shall be advanced as a Base Rate  Refunding
Loan by each Lender under the  Revolving  Credit  Facility in an amount equal to
such Lender's Applicable Commitment Percentage of such Reimbursement Obligation,
and (B) if the conditions to making a Loan as herein  provided shall not then be
satisfied,  each of the  Lenders  shall  fund by  payment  to the Agent (for the
benefit of the Issuing Bank) in  immediately  available  funds the purchase from
the Issuing Bank of their respective Participations in the related Reimbursement
Obligation based on their respective  Applicable  Commitment  Percentages.  If a
drawing is  presented  under any Letter of Credit in  accordance  with the terms
thereof and the Borrower shall not immediately reimburse



                                       30





the Issuing  Bank in respect  thereof,  then  notice of such  drawing or payment
shall be provided  promptly by the Issuing Bank to the Agent and the Agent shall
provide  notice to each Lender by telephone or  telefacsimile  transmission.  If
notice to the  Lenders  of a drawing  under any Letter of Credit is given by the
Agent at or before 12:00 noon on any Business Day,  each Lender shall,  pursuant
to the conditions specified in this Section 2.1(c)(iv),  either make a Base Rate
Refunding Loan or fund the purchase of its  Participation  in the amount of such
Lender's Applicable  Commitment  Percentage of such drawing or payment and shall
pay  such  amount  to the  Agent  for the  account  of the  Issuing  Bank at the
Principal Office in Dollars and in immediately  available funds before 2:30 P.M.
on the same  Business  Day. If notice to the Lenders of a drawing under a Letter
of Credit is given by the Agent  after  12:00  noon on any  Business  Day,  each
Lender shall,  pursuant to the conditions  specified in this Section 2.1(c)(iv),
either make a Base Rate Refunding Loan or fund the purchase of its Participation
in the amount of such Lender's Applicable  Commitment Percentage of such drawing
or payment and shall pay such amount to the Agent for the account of the Issuing
Bank at the  Principal  Office in Dollars  and in  immediately  available  funds
before  12:00  noon on the next  following  Business  Day.  Any such  Base  Rate
Refunding  Loan shall be advanced  as, and shall  Continue  as, a Base Rate Loan
unless and until the Borrower  Converts such Base Rate Loan in  accordance  with
the terms of Section 2.9.

     2.2. Competitive Bid Loans.

          (a) In addition to borrowings of Syndicated  Loans,  at any time prior
     to the Revolving Credit Termination Date, the Borrower may, as set forth in
     this  Section 2.2,  request the Lenders to make offers to make  Competitive
     Bid Loans to the  Borrower in Dollars.  The Lenders  may, but shall have no
     obligation  to, make such offers and the  Borrower  may,  but shall have no
     obligation  to,  accept  any such  offers in the  manner  set forth in this
     Section  2.2.  Competitive  Bid Loans  may be  Eurodollar  Market  Loans or
     Absolute Rate Loans (each a "Type" of Competitive Bid Loan), provided that:

               (i) the aggregate  amount of  outstanding  Competitive  Bid Loans
          shall not exceed the Total Revolving Credit Commitment less the sum of
          the principal  amount of Revolving  Credit  Outstandings and Letter of
          Credit Outstandings;

               (ii)  there may be no more  than  eight  (8)  different  Interest
          Periods  for  both   Syndicated   Loans  and   Competitive  Bid  Loans
          outstanding  at the same  time (for  which  purpose  Interest  Periods
          described in different  lettered clauses of the definition of the term
          "Interest Period" shall be deemed to be different periods even if they
          are coterminous);

               (iii) the aggregate  amount of outstanding  Competitive Bid Loans
          of a Lender  shall  not  exceed  at any time an  amount  equal to such
          Lender's Revolving Credit Commitment;

               (iv) the aggregate principal amount of all Competitive Bid Loans,
          together with the sum of (1)  Revolving  Credit  Outstandings  and (2)
          Letter of



                                       31





          Credit  Outstandings  shall  not  exceed  the Total  Revolving  Credit
          Commitment at such time; and

               (v) no Competitive Bid Loan shall have a maturity date subsequent
          to the Revolving Credit Termination Date.

          (b) When the Borrower wishes to request offers to make Competitive Bid
     Loans,  it shall give the Agent (which shall  promptly  notify the Lenders)
     notice (a  "Competitive  Bid Quote  Request")  to be received no later than
     11:00 a.m. on (x) the fourth  Business  Day prior to the date of  borrowing
     proposed therein,  in the case of a Eurodollar  Auction or (y) the Business
     Day next preceding the date of borrowing  proposed therein,  in the case of
     an Absolute Rate Auction (or, in any such case, such other time and date as
     the Borrower and the Agent, with the consent of the Required  Lenders,  may
     agree).  The Borrower may request offers to make  Competitive Bid Loans for
     up to three (3)  different  Interest  Periods in a single notice (for which
     purpose Interest Periods in different lettered clauses of the definition of
     the term "Interest Period" shall be deemed to be different Interest Periods
     even if they are coterminous);  provided that the request for each separate
     Interest  Period  shall be deemed to be a  separate  Competitive  Bid Quote
     Request for a separate  borrowing (a "Competitive Bid Borrowing") and there
     shall not be outstanding at any one time more than four (4) Competitive Bid
     Borrowings.  Each such Competitive Bid Quote Request shall be substantially
     in the form of  Exhibit  K and shall  specify  as to each  Competitive  Bid
     Borrowing:

               (i) the proposed date of such  Competitive  Bid Borrowing,  which
          shall be a Business Day;

               (ii) the  aggregate  amount of such  Competitive  Bid  Borrowing,
          which shall be at least  $10,000,000 (or a larger integral multiple of
          $1,000,000) but shall not cause the limits specified in Section 2.2(a)
          to be violated;

               (iii) the duration of the Interest Period applicable thereto;

               (iv)  whether  the  Competitive   Bid  Quotes   requested  for  a
          particular  Interest  Period are seeking quotes for Eurodollar  Market
          Loans or Absolute Rate Loans; and

               (v) if the Competitive Bid Quotes  requested are seeking Absolute
          Rate  Loans,  the date on which the  Competitive  Bid Quotes are to be
          submitted if it is before the proposed date of Borrowing  (the date on
          which such  Competitive  Bid Quotes are to be  submitted is called the
          "Quotation Date").

     Except as otherwise  provided in this Section  2.2(b),  no Competitive  Bid
     Quote  Request  shall be given within five (5) Business Days (or such other
     number of days as the  Borrower  and the  Agent,  with the  consent  of the
     Required Lenders, may agree) of any other Competitive Bid Quote Request.



                                       32






               (c) (i)  Each  Lender  may  submit  one or more  Competitive  Bid
          Quotes,  each  containing an offer to make a  Competitive  Bid Loan in
          response to any Competitive  Bid Quote Request;  provided that, if the
          Borrower's  request  under  Section  2.2(b)  specified  more  than one
          Interest Period,  such Lender may make a single submission  containing
          one or more Competitive Bid Quotes for each such Interest Period. Each
          Competitive  Bid Quote must be  submitted  to the Agent not later than
          (x) 2:00 p.m. on the fourth Business Day prior to the proposed date of
          borrowing,  in the case of a  Eurodollar  Auction or (y) 10:00 a.m. on
          the  Quotation  Date,  in the case of an Absolute Rate Auction (or, in
          any such case, such other time and date as the Borrower and the Agent,
          with the consent of the Required  Lenders,  may agree);  provided that
          any  Competitive  Bid Quote may be  submitted by  NationsBank  (or its
          Applicable  Lending  Office) only if NationsBank  (or such  Applicable
          Lending  Office)  notifies  the  Borrower  of the  terms of the  offer
          contained  therein not later than (x) 1:00 p.m. on the fourth Business
          Day  prior  to the  proposed  date  of  borrowing,  in the  case  of a
          Eurodollar Auction or (y) 9:45 a.m. on the Quotation Date, in the case
          of an Absolute  Rate  Action.  Subject to Article  IV,  Article VI and
          Article  IX, any  Competitive  Bid Quote so made shall be  irrevocable
          except with the consent of the Agent given on the  instructions of the
          Borrower.

               (ii) Each  Competitive  Bid Quote shall be  substantially  in the
          form of Exhibit L and shall specify:

                    (A) the proposed date of borrowing  and the Interest  Period
               therefor;

                    (B) the  principal  amount of the  Competitive  Bid Loan for
               which  each  such  Competitive  Bid  Quote is being  made,  which
               principal  amount  shall  be at  least  $5,000,000  (or a  larger
               integral  multiple of  $1,000,000);  provided  that the aggregate
               principal  amount of all Competitive Bid Loans for which a Lender
               submits  Competitive  Bid Quotes (x) may not exceed the Revolving
               Credit  Commitment  of such  Lender  and (y) may not  exceed  the
               principal   amount  of  the   Competitive  Bid  Borrowing  for  a
               particular Interest Period for which offers were requested;

                    (C) in the case of a Eurodollar Auction, the margin above or
               below the  applicable  Interbank  Offered  Rate  adjusted for any
               Reserve  Requirement (the  "Eurodollar  Margin") offered for each
               such  Competitive  Bid Loan,  expressed as a percentage  (rounded
               upwards,  if  necessary,  to the nearest  1/10,000th of 1%) to be
               added to or subtracted from the applicable Interbank Offered Rate
               as so adjusted;

                    (D) in the case of an  Absolute  Rate  Auction,  the rate of
               interest per annum (rounded upwards, if necessary, to the nearest
               1/10,000th of 1%) offered for each such Competitive Bid Loan (the
               "Absolute Rate"); and

                    (E) the identity of the quoting Lender.



                                       33





     Unless otherwise  agreed by the Agent and the Borrower,  no Competitive Bid
     Quote shall contain qualifying,  conditional or similar language or propose
     terms  other  than or in  addition  to those  set  forth in the  applicable
     Competitive Bid Quote Request and, in particular,  no Competitive Bid Quote
     may be  conditioned  upon  acceptance  by the  Borrower  of  all  (or  some
     specified  minimum) of the principal amount of the Competitive Bid Loan for
     which such Competitive Bid Quote is being made.

          (d) The Agent shall (x) in the case of a Eurodollar  Auction,  by 4:00
     p.m. on the day a Competitive  Bid Quote is submitted or (y) in the case of
     an Absolute Rate Auction,  as promptly as practicable after the Competitive
     Bid Quote is  submitted  (but in any event not later than 10:30 a.m. on the
     Quotation  Date),  notify the Borrower of the terms (i) of any  Competitive
     Bid Quote  submitted by a Lender that is in accordance  with Section 2.2(c)
     and (ii) of any Competitive Bid Quote that amends, modifies or is otherwise
     inconsistent with a previous Competitive Bid Quote submitted by such Lender
     with respect to the same Competitive Bid Quote Request. Any such subsequent
     Competitive  Bid  Quote  shall be  disregarded  by the  Agent  unless  such
     subsequent  Competitive Bid Quote is submitted solely to correct a manifest
     error in such  former  Competitive  Bid Quote.  The  Agent's  notice to the
     Borrower  shall  specify  (A)  the  aggregate   principal   amount  of  the
     Competitive  Bid  Borrowing  for which  Competitive  bid  Quotes  have been
     received and (B) the respective principal amounts and Eurodollar Margins or
     Absolute Rates, as the case may be, so offered by each Lender  (identifying
     the Lender that made such Competitive Bid Quote).

          (e) Not later than 11:00 a.m. on (x) the third  Business  Day prior to
     the proposed date of borrowing,  in the case of a Eurodollar Auction or (y)
     the  Quotation  Date,  in the case of an Absolute  Rate Auction (or, in any
     such case, such other time and date as the Borrower and the Agent, with the
     consent of the Required Lenders,  may agree), the Borrower shall notify the
     Agent of its  acceptance or  nonacceptance  of the offers so notified to it
     pursuant to Section  2.2(d)  (and the failure of the  Borrower to give such
     notice by such time shall  constitute  nonacceptance)  and the Agent  shall
     promptly  notify each  affected  Lender.  In the case of  acceptance,  such
     notice  shall  specify the  aggregate  principal  amount of offers for each
     Interest Period that are accepted.  The Borrower may accept any Competitive
     Bid  Quote in whole or in part  (provided  that any  Competitive  Bid Quote
     accepted in part shall be at least $5,000,000 or a larger integral multiple
     of $1,000,000); provided that:

               (i)  the  aggregate  principal  amount  of each  Competitive  Bid
          Borrowing  may not  exceed  the  applicable  amount  set  forth in the
          related Competitive Bid Request;

               (ii) the  aggregate  principal  amount  of each  Competitive  Bid
          Borrowing shall be at least $10,000,000 (or a larger integral multiple
          of  $1,000,000)  but shall not cause the limits  specified  in Section
          2.2(a) to be violated;



                                       34





               (iii) acceptance of offers may be made only in ascending order of
          Eurodollar Margins or Absolute Rates, as the case may be, in each case
          beginning with the lowest rate so offered; provided, however, that the
          Borrower,  in its sole  discretion,  may accept  other than the lowest
          rate  where  acceptance  of the  lowest  rate  will  result in (x) the
          outstanding  Loans of a Lender or Lenders  offering  the  lowest  rate
          exceeding  such  Lender's  Revolving  Credit  Commitment  and  (y)  an
          increase in the  Applicable  Unused Fee payable by the Borrower  under
          Section 2.10.

               (iv) the  Borrower  may not accept any offer  where the Agent has
          correctly  advised the  Borrower  that such offer fails to comply with
          Section  2.2(c)(ii) or otherwise fails to comply with the requirements
          of this Agreement (including, without limitation, Section 2.2(a)).

     If offers are made by two or more Lenders with the same Eurodollar  Margins
     or Absolute  Rates, as the case may be, for a greater  aggregate  principal
     amount  than the  amount in respect of which  offers  are  permitted  to be
     accepted  for the  related  Interest  Period  after the  acceptance  of all
     offers,  if any, of all lower Eurodollar  Margins or Absolute Rates, as the
     case may be, offered by any Lender for such related  Interest  Period,  the
     principal  amount of Competitive  Bid Loans in respect of which such offers
     are  accepted  shall be  allocated  by the  Borrower  among such Lenders as
     nearly as possible (in amounts of at least  $5,000,000  or larger  integral
     multiples of $1,000,000) in proportion to the aggregate principal amount of
     such offers.  Determinations  by the Borrower of the amounts of Competitive
     Bid Loans and the  lowest  bid after  adjustment  as  provided  in  Section
     2.2(e)(iii) shall be conclusive in the absence of manifest error.

          (f) Any Lender whose offer to make any  Competitive  Bid Loan has been
     accepted  shall,  not later than 1:00 p.m.  on the date  specified  for the
     making of such Loan, make the amount of such Loan available to the Agent at
     the Principal  Office in Dollars and in immediately  available  funds,  for
     account of the Borrower. The amount so received by the Agent shall, subject
     to the terms and  conditions of this  Agreement,  be made  available to the
     Borrower on such date by depositing the same, in Dollars and in immediately
     available funds, in an account of the Borrower  maintained at the Principal
     Office.

     2.3. Payment of Interest.  (a) The Borrower shall pay interest to the Agent
for the account of each Lender on the outstanding and unpaid principal amount of
each Loan made by such Lender for the period commencing on the date of such Loan
until  such  Loan  shall be due at the then  applicable  Base Rate for Base Rate
Loans or  applicable  Fixed  Rate for Fixed Rate  Loans,  as  designated  by the
Authorized  Representative  pursuant to Section 2.1 or 2.2;  provided,  however,
that if any amount payable under this  Agreement  shall not be paid when due (at
maturity,  by  acceleration  or otherwise,  subject to the provisions of Section
9.1(a)), all amounts outstanding hereunder shall bear interest thereafter at the
Default Rate.



                                       35





          (b)  Interest on each Loan shall be computed on an  Actual/360  Basis.
Interest  on each  Loan  shall  be paid (i)  quarterly  in  arrears  on the last
Business Day of each March, June,  September and December,  commencing September
30,  1998,  for each  Base  Rate  Loan,  (ii) on the last day of the  applicable
Interest  Period for each Fixed Rate Loan and, if such Interest  Period  extends
for more than three (3) months, at intervals of three (3) months after the first
day of such Interest  Period,  and (iii) upon the Revolving  Credit  Termination
Date. Interest payable at the Default Rate shall be payable on demand.

     2.4.  Payment of Principal.  The principal  amount of each  Syndicated Loan
shall be due and  payable to the Agent for the benefit of each Lender in full on
the Stated  Termination  Date, or earlier as specifically  provided herein.  The
principal  amount of each  Competitive  Bid Loan shall be due and payable to the
Agent for the  benefit of the  applicable  Lender in full on the last day of the
Interest Period applicable thereto, or earlier as specifically  provided herein.
The principal amount of any Base Rate Loan may be prepaid in whole or in part at
any time. The principal amount of any Fixed Rate Loan may be prepaid only at the
end of the applicable Interest Period unless the Borrower shall pay to the Agent
for the account of the Lenders the  additional  amount,  if any,  required under
Section 4.5. All  prepayments of Syndicated  Loans made by the Borrower shall be
in the amount of $5,000,000 or such greater amount which is an integral multiple
of $1 ,000,000, or the amount equal to all Revolving Credit Outstandings, as the
case may be, or such other amount as necessary to comply with Section  2.1(b) or
Section 2.9.

     2.5. Non-Conforming  Payments. (a) Each payment of principal (including any
prepayment)  and payment of interest and fees, and any other amount  required to
be paid to the Lenders with respect to the Loans,  shall be made to the Agent at
the  Principal  Office,  for the  account  of each  Lender,  in  Dollars  and in
immediately  available funds,  without setoff,  deduction or counterclaim before
10:00  A.M.  on the date such  payment is due.  The Agent may,  but shall not be
obligated  to,  debit the amount of any such  payment  which is not made by such
time to any ordinary  deposit  account,  if any, of the Borrower with the Agent.
The Agent shall promptly notify the Borrower of any such debit; however, failure
to give such notice shall not affect the validity of such debit.

     (b) The Agent shall deem any payment  made by or on behalf of the  Borrower
hereunder  that is not made both in Dollars and in immediately  available  funds
and prior to 10:00 A.M. to be a non-conforming  payment.  Any such payment shall
not be deemed to be  received  by the Agent until the later of (i) the time such
funds become available funds and (ii) the next Business Day. Any  non-conforming
payment may  constitute or become a Default or Event of Default.  Interest shall
continue to accrue on any principal as to which a non-conforming payment is made
until the later of (x) the date such  funds  become  available  funds or (y) the
next  Business  Day at the  Default  Rate from the date such  amount was due and
payable.

     (c) In the event that any payment  hereunder or under the Notes becomes due
and  payable  on a day other than a  Business  Day,  then such due date shall be
extended to the next succeeding Business Day unless provided otherwise under the
definition of "Interest Period"; provided that interest shall continue to accrue
during the period of any such extension and



                                       36





provided  further,  that in no event shall any such due date be extended  beyond
the Stated Termination Date.

     2.6. Notes.  (a) Syndicated Loans made by each Lender shall be evidenced by
the Revolving Note payable to the order of such Lender in the respective  amount
of  its  Applicable   Commitment   Percentage  of  the  Total  Revolving  Credit
Commitment, which Revolving Note shall be dated the Closing Date or a later date
pursuant to an Assignment and Acceptance and shall be duly  completed,  executed
and delivered by the Borrower.

     (b)  Competitive  Bid Loans made by each Lender  shall be  evidenced by the
Competitive  Bid Note payable to the order of such Lender and  representing  the
obligation of the Borrower to pay the Lesser of (i) the aggregate  amount of the
Revolving Credit  Commitment of such Lender and (ii) the unpaid principal amount
of all  Competitive  Bid Loans made by such Lender,  with interest on the unpaid
principal  amount from time to time  outstanding  of each  Competitive  Bid Loan
evidenced thereby as prescribed in Section 2.3. Each Lender is hereby authorized
to record the date and amount of each  Competitive Bid Loan made by such Lender,
the  maturity  date  thereof,  the date and amount of each  payment of principal
thereof and the interest rate with respect  thereto on the schedule  attached to
and  constituting  part of its  Competitive  Bid Note, and any such  recordation
shall  constitute  prima face  evidence of the  accuracy of the  information  so
recorded; provided, however, that the failure to make any such recordation shall
not affect the  obligations of the Borrower  hereunder or under any  Competitive
Bid Note.  Each  Competitive Bid Note shall be dated the Closing Date or a later
date  pursuant to an  Assignment  and  Acceptance  and shall be duly  completed,
executed and delivered by the Borrower.

     2.7. Pro Rata  Payments.  Except as  otherwise  provided  herein,  (a) each
payment on account of the principal of and interest on the Syndicated  Loans and
the fees  described  in Section  2.10 and the first  sentence of Section  3.3(a)
shall be made to the Agent for the  account  of the  Lenders  pro rata  based on
their  Applicable  Commitment  Percentages,  (b) all  payments to be made by the
Borrower  for the  account  of each of the  Lenders  on  account  of  principal,
interest  and fees,  shall be made without  diminution,  setoff,  recoupment  or
counterclaim,  and (c) the Agent  will  promptly  distribute  to the  Lenders in
immediately  available funds payments  received in fully collected,  immediately
available funds from the Borrower.

     2.8.  Reductions.  The  Borrower  shall,  by  irrevocable  notice  from  an
Authorized  Representative,  have  the  right  from  time to time  but not  more
frequently than once each calendar month,  upon not less than three (3) Business
Days' written notice to the Agent, effective upon receipt, to permanently reduce
the Total Revolving Credit Commitment.  The Agent shall give each Lender, within
one (1)  Business  Day of  receipt  of such  notice,  telefacsimile  notice,  or
telephonic notice (confirmed in writing), of such reduction. Each such reduction
shall be in the aggregate  amount of $10,000,000 or such greater amount which is
in an integral  multiple of $1,000,000,  or the entire remaining Total Revolving
Credit  Commitment,  and shall  permanently  reduce the Total  Revolving  Credit
Commitment.  Each reduction of the Total Revolving  Credit  Commitment  shall be
accompanied  by payment of  Syndicated  Loans and  Competitive  Bid Loans to the
extent that the principal amount of Revolving Credit Outstandings plus Letter of
Credit



                                       37





Outstandings plus outstanding  Competitive Bid Loans exceeds the Total Revolving
Credit  Commitment after giving effect to such reduction,  together with accrued
and unpaid interest on the amounts  prepaid.  If any such reduction shall result
in the payment of any Fixed Rate Loan other than on the last day of the Interest
Period of such Fixed Rate Loan such  prepayment  shall be accompanied by amounts
due, if any, under Section 4.5.

     2.9.  Conversions and Elections of Subsequent Interest Periods.  Subject to
the limitations set forth below and in Article IV, the Borrower may:

          (a) upon  delivery,  effective upon receipt,  of a properly  completed
Interest  Rate  Selection  Notice to the Agent on or before  10:30  A.M.  on any
Business Day,  Convert all or a part of Eurodollar Rate Loans to Base Rate Loans
on the last day of the Interest Period for such Eurodollar Rate Loans; and

          (b) provided  that no Default or Event of Default  shall have occurred
and be continuing upon delivery, effective upon receipt, of a properly completed
Interest Rate  Selection  Notice to the Agent on or before 10:30 A.M.  three (3)
Business Days prior to the date of such election or Conversion:

               (i) elect a  subsequent  Interest  Period for all or a portion of
          Eurodollar  Rate  Loans to  begin on the last day of the then  current
          Interest Period for such Eurodollar Rate Loans; and

               (ii)  Convert  Base Rate  Loans to  Eurodollar  Rate Loans on any
          Business Day.

     Each election and Conversion  pursuant to this Section 2.9 shall be subject
to the  limitations  on  Eurodollar  Rate Loans set forth in the  definition  of
"Interest  Period"  herein and in Sections 2.1 and 2.4 and Article IV. The Agent
shall  give  written  notice  to each  Lender  of such  notice  of  election  or
Conversion  prior to 3:00 P.M. on the day such notice of election or  Conversion
is received.  All such  Continuations  or Conversions of Loans shall be effected
pro rata based on the Applicable Commitment Percentages of the Lenders.

     2.10. Unused Fees.

     (a)  For the  period  beginning  on the  Closing  Date  and  ending  on the
Revolving Credit  Termination Date, the Borrower agrees to pay to the Agent, for
the benefit of each  Lender,  an unused fee equal to the  Applicable  Unused Fee
multiplied by the average daily Unused Amount of such Lender. Such fees shall be
due in arrears on the last  Business  Day of each  March,  June,  September  and
December  commencing   September  30,  1998  to  and  on  the  Revolving  Credit
Termination Date.

     (b)  Notwithstanding  the  foregoing,  so long as any Lender  fails to make
available any portion of its Revolving  Credit  Commitment when requested,  such
Lender  shall not be entitled  to receive  payment of its pro rata share of such
fees until such Lender shall make available such



                                       38





portion.  All fees payable  pursuant to this Section 2.10 shall be calculated on
an Actual/360 Basis.

     2.11.  Deficiency Advances.  No Lender shall be responsible for any default
of any other  Lender in respect of such other  Lender's  obligation  to make any
Loan or fund its purchase of any Participation hereunder nor shall the Revolving
Credit  Commitment  of any Lender  hereunder  be  increased  as a result of such
default of any other Lender.  Without  limiting the generality of the foregoing,
in the event any Lender shall fail to advance  funds to the  Borrower  under the
Revolving Credit Facility as herein  provided,  the Agent may in its discretion,
but shall not be obligated  to,  advance under the Note in its favor as a Lender
all or any portion of such amount or amounts (each, a "deficiency  advance") and
shall  thereafter  be entitled to payments of  principal of and interest on such
deficiency  advance in the same manner and at the same interest rate or rates to
which such other Lender would have been  entitled had it made such advance under
its Note; provided that, upon payment to the Agent from such other Lender of the
entire outstanding amount of each such deficiency advance, together with accrued
and unpaid  interest  thereon,  from the most recent date or dates  interest was
paid to the  Agent by the  Borrower  on each  Loan  comprising  such  deficiency
advance at the interest rate per annum for overnight borrowing by the Agent from
the Federal  Reserve Bank of  Richmond,  Virginia,  then such  payment  shall be
credited  against  the  applicable  Note of the  Agent in full  payment  of such
deficiency  advance and the Borrower shall be deemed to have borrowed the amount
of such deficiency  advance from such other Lender as of the most recent date or
dates,  as the case may be, upon which any payments of interest were made by the
Borrower thereon.

     2.12.  Use of  Proceeds.  The  proceeds of the Loans made  pursuant to this
Agreement shall be used by the Borrower to repay existing  indebtedness  and for
general   corporate   purposes,   including   working  capital  needs,   capital
expenditures and permitted Acquisitions.

     2.13.  Increase and Decrease in Amounts.  The amount of the Total Revolving
Credit  Commitment which shall be available to the Borrower as Advances shall be
reduced by the aggregate amount of Letter of Credit Outstandings.




                                       39





                                   ARTICLE III

                                Letters of Credit

     3.1. Letters of Credit.  The Issuing Bank agrees,  subject to the terms and
conditions of this Agreement, upon request of the Borrower to issue from time to
time for the  account of the  Borrower  Letters of Credit  upon  delivery to the
Issuing  Bank of an  Application  and  Agreement  for Letter of Credit  relating
thereto in form and content acceptable to the Issuing Bank;  provided,  that (i)
the Letter of Credit  Outstandings  shall not exceed the Total  Letter of Credit
Commitment,  (ii) no Letter of Credit shall be issued so long as a Default or an
Event of Default has occurred or is continuing or if the  applicable  conditions
set forth in  Article V shall  not have been  satisfied,  and (iii) no Letter of
Credit  shall be  issued  if,  after  giving  effect  thereto,  Letter of Credit
Outstandings   plus  the  aggregate   principal   amount  of  Revolving   Credit
Outstandings  and  outstanding  Competitive  Bid Loans  shall  exceed  the Total
Revolving  Credit  Commitment.  No Letter of Credit  shall  have an expiry  date
(including all rights of the Borrower or any beneficiary named in such Letter of
Credit to  require  renewal)  or  payment  date  occurring  later than the fifth
Business Day prior to the Revolving Credit Termination Date.

     3.2. Reimbursement.

          (a) The Borrower hereby  unconditionally  agrees to pay to the Issuing
Bank  immediately on demand at the Principal  Office all amounts required to pay
all drafts drawn or  purporting  to be drawn under the Letters of Credit and all
reasonable  expenses incurred by the Issuing Bank in connection with the Letters
of Credit,  and in any event and without  demand to place in  possession  of the
Issuing Bank (which shall include  Advances under the Revolving  Credit Facility
if  permitted  by  Section  2.1(c))  sufficient  funds  to  pay  all  debts  and
liabilities  arising in respect of any Letter of Credit. The Issuing Bank agrees
to give the Borrower  prompt  notice of any request for a draw under a Letter of
Credit.  The Issuing  Bank may charge any account the  Borrower may have with it
for any and all  amounts the  Issuing  Bank pays under a Letter of Credit,  plus
charges  and  reasonable  expenses as from time to time agreed to by the Issuing
Bank  and  the  Borrower;  provided  that to the  extent  permitted  by  Section
2.1(c)(iv),  amounts  shall be paid  pursuant  to Advances  under the  Revolving
Credit  Facility.  The Borrower  agrees to pay the Issuing Bank  interest on any
Reimbursement Obligations not paid when due hereunder at the Default Rate.

          (b) In accordance with the provisions of Section  2.1(c),  the Issuing
Bank shall notify the Agent of any drawing  under any Letter of Credit  promptly
following the receipt by the Issuing Bank of such drawing.

          (c) Each  Lender  (other than the  Issuing  Bank) shall  automatically
acquire on the date of issuance  thereof a Participation in the liability of the
Issuing  Bank in  respect  of each  Letter of Credit in an amount  equal to such
Lender's Applicable Commitment  Percentage of such liability,  and to the extent
that the Borrower is obligated  to pay the Issuing  Bank under  Section  3.2(a),
each  Lender  (other  than  the  Issuing   Bank)   thereby   shall   absolutely,
unconditionally and irrevocably  assume, and shall be unconditionally  obligated
to pay to the Issuing Bank as



                                       40





hereinafter described,  its Applicable Commitment Percentage of the liability of
the Issuing Bank under such Letter of Credit.

               (i) Each Lender  (including the Issuing Bank in its capacity as a
          Lender) shall,  subject to the terms and conditions of Article II, pay
          to the Agent for the  account  of the  Issuing  Bank at the  Principal
          Office in Dollars and in immediately  available funds, an amount equal
          to its Applicable  Commitment Percentage of any drawing under a Letter
          of  Credit,  such funds to be  provided  in the  manner  described  in
          Section 2.1(c)(iv).

               (ii)  Simultaneously  with the making of each payment by a Lender
          to the Issuing  Bank  pursuant to Section  2.1(c)(iv)(B),  such Lender
          shall, automatically and without any further action on the part of the
          Issuing  Bank or such  Lender,  acquire a  Participation  in an amount
          equal to such  payment  (excluding  the portion  thereof  constituting
          interest  accrued  prior to the date such Lender made its  payment) in
          the   related   Reimbursement   Obligation   of  the   Borrower.   The
          Reimbursement Obligations of the Borrower shall be immediately due and
          payable whether by Advances made in accordance with Section 2.1(c)(iv)
          or otherwise.

               (iii) Each  Lender's  obligation to make payment to the Agent for
          the account of the Issuing  Bank  pursuant to Section  2.1(c)(iv)  and
          this Section 3.2(c),  and the right of the Issuing Bank to receive the
          same,  shall be absolute and  unconditional,  shall not be affected by
          any  circumstance  whatsoever  and shall be made  without  any offset,
          abatement,  withholding  or  reduction  whatsoever.  If any  Lender is
          obligated to pay but does not pay amounts to the Agent for the account
          of the Issuing  Bank in full upon such  request as required by Section
          2.1(c)(iv) or this Section 3.2(c),  such Lender shall, on demand,  pay
          to the Agent for the  account  of the  Issuing  Bank  interest  on the
          unpaid amount for each day during the period commencing on the date of
          notice  given to such  Lender  pursuant to Section  2.1(c)  until such
          Lender  pays such  amount to the Agent for the  account of the Issuing
          Bank in full at the interest rate per annum for overnight borrowing by
          the Agent from the Federal Reserve Bank of Richmond, Virginia.

               (iv) In the event the Lenders have  purchased  Participations  in
          any  Reimbursement  Obligation as set forth in clause (ii) above, then
          at any time payment (in fully collected,  immediately available funds)
          of such Reimbursement  Obligation, in whole or in part, is received by
          the Issuing Bank from the  Borrower,  the Issuing Bank shall  promptly
          pay to each  Lender  an  amount  equal  to its  Applicable  Commitment
          Percentage of such payment from the Borrower.

          (d) Promptly  following the end of each calendar quarter,  the Issuing
Bank shall  deliver to the Agent and the Agent  shall  deliver to each  Lender a
notice  describing the aggregate  undrawn amount of all Letters of Credit at the
end of such quarter. The Agent shall promptly notify each Lender of the issuance
of a Letter of Credit.

          (e) The issuance by the Issuing  Bank of each Letter of Credit  shall,
in addition to the  conditions  precedent  set forth in Article V, be subject to
the conditions that such Letter of Credit be in such form and contain such terms
as shall be reasonably satisfactory to the Issuing



                                       41





Bank  consistent  with the then current  practices and procedures of the Issuing
Bank with  respect to similar  letters of credit,  and the  Borrower  shall have
executed and delivered such other  instruments  and agreements  relating to such
Letters of Credit as the Issuing Bank shall have reasonably requested consistent
with such  practices and procedures and shall not be in conflict with any of the
express terms herein  contained.  All Letters of Credit shall be issued pursuant
to and subject to the Uniform Customs and Practice for Documentary Credits, 1993
revision,  International  Chamber  of  Commerce  Publication  No.  500  and  all
subsequent amendments and revisions thereto.

          (f) The  Borrower  agrees  that  the  Issuing  Bank  may,  in its sole
discretion,  accept or pay, as complying with the terms of any Letter of Credit,
any drafts or other  documents  otherwise in order which may be signed or issued
by an  administrator,  executor,  trustee in  bankruptcy,  debtor in possession,
assignee for the benefit of creditors, liquidator, receiver, attorney in fact or
other legal  representative  of a party who is  authorized  under such Letter of
Credit to draw or issue any drafts or other documents.

          (g) Without  limiting  the  generality  of the  provisions  of Section
11.12,  the Borrower  hereby  agrees to indemnify  and hold harmless the Issuing
Bank,  each other  Lender and the Agent from and  against any and all claims and
damages,  losses,  liabilities,  reasonable costs and expenses which the Issuing
Bank,  such other Lender or the Agent may incur (or which may be claimed against
the Issuing Bank,  such other Lender or the Agent) by any Person by reason of or
in  connection  with the  issuance  or  transfer of or payment or failure to pay
under any Letter of Credit;  provided that the Borrower shall not be required to
indemnify  the  Issuing  Bank,  any other  Lender  or the Agent for any  claims,
damages, losses,  liabilities,  costs or expenses to the extent, but only to the
extent,  (i) caused by the willful  misconduct  or negligence of the party to be
indemnified  or (ii) in the case of the Issuing  Bank,  caused by the failure of
the Issuing Bank to pay under any Letter of Credit after the  presentation to it
of a request for payment  strictly  complying  with the terms and  conditions of
such Letter of Credit, unless such payment is prohibited by any law, regulation,
court order or decree. The  indemnification and hold harmless provisions of this
Section  3.2(g) shall survive  repayment of the  Obligations,  occurrence of the
Revolving  Credit  Termination  Date  and  expiration  or  termination  of  this
Agreement.

          (h) Without  limiting  the  Borrower's  rights as set forth in Section
3.2(g), the obligation of the Borrower to immediately reimburse the Issuing Bank
for drawings  made under Letters of Credit and to repay Loans made under Section
2.1(c) and the Issuing  Bank's and each  Lender's  right to receive such payment
shall be absolute,  unconditional  and irrevocable,  and such obligations of the
Borrower  shall be  performed  strictly  in  accordance  with the  terms of this
Agreement and such Letters of Credit and the related  Applications and Agreement
for any Letter of Credit,  under all  circumstances  whatsoever,  including  the
following circumstances:

               (i) any lack of  validity  or  enforceability  of any  Letter  of
          Credit, the obligation  supported by any Letter of Credit or any other
          agreement or instrument relating thereto  (collectively,  the "Related
          LC Documents");



                                       42





               (ii) any  amendment  or waiver of or any consent to or  departure
          from all or any of the Related LC Documents;

               (iii) the existence of any claim, setoff, defense (other than the
          defense of payment in accordance  with the terms of this Agreement) or
          other  rights  which the  Borrower  may have at any time  against  any
          beneficiary or any transferee of a Letter of Credit (or any persons or
          entities for whom any such  beneficiary or any such  transferee may be
          acting),  the  Agent,  the  Lenders  or any other  Person,  whether in
          connection  with the Loan  Documents,  the Related LC Documents or any
          unrelated transaction;

               (iv) any breach of contract or other dispute between the Borrower
          and any  beneficiary  or any  transferee of a Letter of Credit (or any
          persons or entities for whom such  beneficiary or any such  transferee
          may be acting), the Agent, the Lenders or any other Person;

               (v) any draft,  statement or any other document  presented  under
          any  Letter of Credit  proving to be  forged,  fraudulent,  invalid or
          insufficient  in any respect or any statement  therein being untrue or
          inaccurate in any respect whatsoever;

               (vi) any delay,  extension of time, renewal,  compromise or other
          indulgence  or  modification  granted or agreed to by the Agent or the
          requisite number of Lenders,  with or without notice to or approval by
          the Borrower in respect of any of  Borrower's  Obligations  under this
          Agreement; or

               (vii) any other circumstance or happening whatsoever,  whether or
          not similar to any of the foregoing;

provided,  however,  that nothing in this Section  3.2(h) shall give the Issuing
Bank any  right to  reimbursement  for  drawings  made  under a Letter of Credit
otherwise  than pursuant to a request for payment  strictly  complying  with the
terms  and  conditions  of  such  Letter  of  Credit  unless  the  Borrower  has
specifically waived such strict compliance in writing.

     3.3.  Letter of Credit  Facility  Fees.  (a) The Borrower  shall pay to the
Agent,  for the pro rata  benefit  of the  Lenders  based  on  their  Applicable
Commitment  Percentages,  a fee on the aggregate amount available to be drawn on
each outstanding  Letter of Credit at a rate equal to the Applicable  Margin. In
addition, the Borrower agrees to pay to the Agent for the benefit of the Issuing
Bank an issuance fee equal to one-eighth  of one percent  (1/8%) per annum times
the amount of outstanding Letters of Credit. Such fees shall be due with respect
to each Letter of Credit  quarterly in arrears on the last  Business Day of each
March, June,  September and December,  the first such payment to be made on June
30,  1998.  The fees  described in this  Section 3.3 shall be  calculated  on an
Actual/360 Basis.

     (b) The  Borrower  acknowledges  that the  Issuing  Bank as  issuer of each
Letter of Credit will be required by  applicable  rules and  regulations  of the
Board to maintain  reserves for its  liability to honor draws made pursuant to a
Letter of Credit notwithstanding the obligation of



                                       43





the  Lenders for a  Participation  in such  liability.  The  Borrower  agrees to
promptly  reimburse  the  Issuing  Bank for all  additional  costs  which it may
hereafter  incur  solely  by reason of its  acting as issuer of the  Letters  of
Credit and its being required to reserve for such liability, it being understood
by the Borrower that other interest and fees payable under this Agreement do not
include  compensation  of the Issuing Bank for such  reserves.  The Issuing Bank
shall  furnish to the  Borrower  at the time of its  demand for  payment of such
additional  costs,  the  computation  of such  additional  cost  which  shall be
conclusive absent manifest error,  provided that such computations are made on a
reasonable basis.

     3.4.  Administrative  Fees. The Borrower shall pay to the Issuing Bank such
administrative  fee and other fees,  if any, in  connection  with the Letters of
Credit in such  amounts and at such times as the Issuing  Bank and the  Borrower
shall agree from time to time.






                                       44





                                   ARTICLE IV

                             Change in Circumstances

     4.1. Increased Cost and Reduced Return.

          (a) If, after the date hereof,  the  adoption of any  applicable  law,
rule, or regulation,  or any change in any applicable  law, rule, or regulation,
or  any  change  in  the   interpretation  or  administration   thereof  by  any
governmental  authority,  central bank, or  comparable  agency  charged with the
interpretation  or administration  thereof,  or compliance by any Lender (or its
Applicable  Lending Office) with any request or directive (whether or not having
the  force  of  law)  of any  such  governmental  authority,  central  bank,  or
comparable agency:

               (i) shall subject such Lender (or its Applicable  Lending Office)
          to any tax,  duty,  or other  charge  with  respect  to any Fixed Rate
          Loans, its Note, or its obligation to make Fixed Rate Loans, or change
          the basis of taxation  of any  amounts  payable to such Lender (or its
          Applicable Lending Office) under this Agreement or its Note in respect
          of any Fixed Rate Loans  (other than taxes  imposed on the overall net
          income of such Lender by the jurisdiction in which such Lender has its
          principal office or such Applicable Lending Office);

               (ii)  shall  impose,  modify,  or deem  applicable  any  reserve,
          special deposit,  assessment,  or similar  requirement (other than the
          Reserve  Requirement  utilized in the determination of the Fixed Rate)
          relating  to any  extensions  of  credit  or other  assets  of, or any
          deposits with or other  liabilities or commitments of, such Lender (or
          its  Applicable  Lending  Office),   including  the  Revolving  Credit
          Commitment of such Lender hereunder; or

               (iii)  shall  impose on such  Lender (or its  Applicable  Lending
          Office)  or  on  the  London  interbank  market  any  other  condition
          affecting  this  Agreement  or its Note or any of such  extensions  of
          credit or liabilities or commitments;

and the result of any of the  foregoing  is to increase  the cost to such Lender
(or its Applicable Lending Office) of making,  Converting into,  Continuing,  or
maintaining  any Fixed Rate Loans or to reduce any sum received or receivable by
such Lender (or its Applicable  Lending Office) under this Agreement or its Note
with respect to any Fixed Rate Loans, then the Borrower shall pay to such Lender
on demand  such  amount or  amounts  as will  compensate  such  Lender  for such
increased  cost or  reduction;  provided  that no Lender will be entitled to any
compensation  for any such  increased  cost or  reduction  if demand for payment
thereof is made by such  Lender more than 180 days after the  occurrence  of the
circumstances giving rise to such claim. If any Lender requests  compensation by
the Borrower  under this  Section  4.1(a),  the Borrower  may, by notice to such
Lender (with a copy to the Agent), suspend the obligation of such Lender to make
or  Continue  Loans of the Type  with  respect  to which  such  compensation  is
requested,  or to Convert Loans of any other Type into Loans of such Type, until
the event or condition  giving rise to such  request  ceases to be in effect (in
which case the provisions of Section 4.4 shall be



                                       45





applicable);  provided that such  suspension  shall not affect the right of such
Lender to receive the compensation so requested.

          (b) If, after the date hereof,  any Lender shall have  determined that
the adoption of any  applicable  law,  rule,  or  regulation  regarding  capital
adequacy  or any  change  therein  or in the  interpretation  or  administration
thereof by any  governmental  authority,  central  bank,  or  comparable  agency
charged with the  interpretation  or administration  thereof,  or any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such  governmental  authority,  central bank, or comparable  agency,  has or
would  have the  effect of  reducing  the rate of return on the  capital of such
Lender or any  corporation  controlling  such  Lender as a  consequence  of such
Lender's  obligations  hereunder to a level below that which such Lender or such
corporation  could have  achieved but for such  adoption,  change,  request,  or
directive  (taking  into  consideration  its  policies  with  respect to capital
adequacy),  then from time to time upon  demand the  Borrower  shall pay to such
Lender such additional amount or amounts as will compensate such Lender for such
reduction.

          (c) Each Lender  shall  promptly  notify the Borrower and the Agent of
any event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation  pursuant to this Section and will designate
a different  Applicable  Lending Office if such  designation will avoid the need
for, or reduce the amount of, such  compensation and will not, in the reasonable
judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation  under this Section  shall  furnish to the Borrower and the Agent a
statement  setting  forth  the  additional  amount or  amounts  to be paid to it
hereunder  which  shall be  conclusive  in the  absence of  manifest  error.  In
determining  such  amount,  such  Lender may use any  reasonable  averaging  and
attribution  methods that such Lender uses for its customers  that are similarly
situated to the Borrower.

     4.2.  Limitation on Types of Loans.  If on or prior to the first day of any
Interest Period for any Fixed Rate Loan:

          (a) the Agent  reasonably  determines  (which  determination  shall be
     conclusive) that by reason of circumstances  affecting the relevant market,
     adequate and reasonable  means do not exist for ascertaining the Fixed Rate
     for such Interest Period; or

          (b) the Required Lenders  reasonably  determine  (which  determination
     shall be  conclusive)  and  notify  the Agent  that the Fixed Rate will not
     adequately and fairly reflect the cost to the Lenders of funding Fixed Rate
     Loans for such Interest Period;

then the Agent shall give the Borrower  prompt  notice  thereof  specifying  the
relevant Type of Loans and the relevant amounts or periods,  and so long as such
condition  remains in effect,  the Lenders  shall be under no obligation to make
additional Loans of such Type,  Continue Loans of such Type, or to Convert Loans
of any other Type into Loans of such Type and the  Borrower  shall,  on the last
day(s) of the then current Interest  Period(s) for the outstanding  Loans of the
affected Type,  either prepay such Loans or Convert such Loans into another Type
of Loan in accordance with the terms of this Agreement.



                                       46





     4.3. Illegality.  Notwithstanding any other provision of this Agreement, in
the event that it becomes  unlawful  for any  Lender or its  Applicable  Lending
Office to make, maintain,  or fund Fixed Rate Loans hereunder,  then such Lender
shall promptly notify the Borrower thereof and such Lender's  obligation to make
or Continue Fixed Rate Loans and to Convert other Types of Loans into Fixed Rate
Loans  shall be  suspended  until  such  time as such  Lender  may  again  make,
maintain, and fund Fixed Rate Loans (in which case the provisions of Section 4.4
shall be applicable).

     4.4. Treatment of Affected Loans. If the obligation of any Lender to make a
Fixed  Rate Loan or to  Continue,  or to  Convert  Loans of any other Type into,
Loans of a  particular  Type shall be  suspended  pursuant to Section 4.1 or 4.3
hereof  (Loans of such Type being herein called  "Affected  Loans" and such Type
being herein called the "Affected Type"),  such Lender's Affected Loans shall be
automatically  Converted  into  Base Rate  Loans on the last  day(s) of the then
current  Interest  Period(s) for Affected Loans (or, in the case of a Conversion
required by Section 4.3 hereof,  on such earlier date as such Lender may specify
to the  Borrower  with a copy to the Agent)  and,  unless and until such  Lender
gives notice as provided below that the  circumstances  specified in Section 4.1
or 4.3 hereof that gave rise to such Conversion no longer exist:

          (a) to the  extent  that such  Lender's  Affected  Loans  have been so
     Converted,  all payments and  prepayments of principal that would otherwise
     be applied to such Lender's  Affected Loans shall be applied instead to its
     Base Rate Loans; and

          (b) all Loans that would otherwise be made or Continued by such Lender
     as Loans of the Affected  Type shall be made or  Continued  instead as Base
     Rate Loans,  and all Loans of such Lender that would otherwise be Converted
     into Loans of the Affected  Type shall be Converted  instead into (or shall
     remain as) Base Rate Loans.

If such Lender gives notice to the Borrower  (with a copy to the Agent) that the
circumstances  specified  in  Section  4.1 or 4.3  hereof  that gave rise to the
Conversion  of such  Lender's  Affected  Loans  pursuant to this  Section 4.4 no
longer exist (which such Lender  agrees to do promptly  upon such  circumstances
ceasing  to  exist)  at a time  when  Loans of the  Affected  Type made by other
Lenders are  outstanding,  such Lender's Base Rate Loans shall be  automatically
Converted,  on the first day(s) of the next  succeeding  Interest  Period(s) for
such  outstanding  Loans of the Affected Type, to the extent  necessary so that,
after giving effect thereto,  all Loans held by the Lenders holding Loans of the
Affected  Type and by such  Lender are held pro rata (as to  principal  amounts,
Types,  and Interest  Periods) in  accordance  with their  respective  Revolving
Credit Commitments.

     4.5.  Compensation.  Upon the request of any Lender, the Borrower shall pay
to such Lender such amount or amounts as shall be sufficient  (in the reasonable
opinion  of such  Lender)  to  compensate  it for any  loss,  cost,  or  expense
(including loss of anticipated profits) incurred by it as a result of:



                                       47





          (a) any payment,  prepayment,  or  Conversion of a Fixed Rate Loan for
     any reason (including,  without  limitation,  the acceleration of the Loans
     pursuant to Section  9.1) on a date other than the last day of the Interest
     Period for such Loan; or

          (b) any failure by the  Borrower  for any reason  (including,  without
     limitation,  the failure of any condition  precedent specified in Article V
     to be satisfied) to borrow, Convert, Continue, or prepay an Fixed Rate Loan
     on the date for such  borrowing,  Conversion,  Continuation,  or prepayment
     specified in the relevant notice of borrowing, prepayment, Continuation, or
     Conversion under this Agreement.

     4.6. Taxes.  (a) Any and all payments by the Borrower to or for the account
of any Lender or the Agent  hereunder or under any other Loan Document  shall be
made free and clear of and without  deduction  for any and all present or future
taxes, duties, levies,  imposts,  deductions,  charges or withholdings,  and all
liabilities with respect thereto,  excluding, in the case of each Lender and the
Agent,  taxes imposed on its income,  and franchise  taxes imposed on it, by the
jurisdiction  under the laws of which  such  Lender (or its  Applicable  Lending
Office)  or the  Agent  (as the  case  may  be) is  organized  or any  political
subdivision  thereof (all such  non-excluded  taxes,  duties,  levies,  imposts,
deductions, charges, withholdings, and liabilities being hereinafter referred to
as "Taxes").  If the Borrower  shall be required by law to deduct any Taxes from
or in respect of any sum payable under this Agreement or any other Loan Document
to any Lender or the Agent,  (i) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions applicable to
additional  sums  payable  under  this  Section  4.6)  such  Lender or the Agent
receives  an  amount  equal  to the  sum it  would  have  received  had no  such
deductions  been made, (ii) the Borrower shall make such  deductions,  (iii) the
Borrower shall pay the full amount deducted to the relevant  taxation  authority
or other  authority in  accordance  with  applicable  law, and (iv) the Borrower
shall  furnish to the Agent,  at its address  referred to in Section  11.2,  the
original or a certified copy of a receipt evidencing payment thereof.

     (b) In addition,  the Borrower  agrees to pay any and all present or future
stamp or documentary  taxes and any other excise or property taxes or charges or
similar  levies  which arise from any payment  made under this  Agreement or any
other Loan  Document or from the  execution or delivery  of, or  otherwise  with
respect to, this Agreement or any other Loan Document  (hereinafter  referred to
as "Other Taxes").

     (c) The Borrower agrees to indemnify each Lender and the Agent for the full
amount of Taxes and Other Taxes  (including,  without  limitation,  any Taxes or
Other Taxes  imposed or asserted by any  jurisdiction  on amounts  payable under
this  Section 4.6) paid by such Lender or the Agent (as the case may be) and any
liability  (including  penalties,  interest,  and expenses) arising therefrom or
with respect thereto.

     (d) Each  Lender  organized  under the laws of a  jurisdiction  outside the
United  States,  on or prior to the date of its  execution  and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which  it  becomes  a Lender  in the case of each  other
Lender, and from time to time thereafter if requested in writing by the Borrower
or the Agent (but only so long as such Lender  remains  lawfully able to do so),
shall



                                       48





provide the Borrower and the Agent with (i) Internal  Revenue  Service Form 1001
or 4224,  as  appropriate,  or any  successor  form  prescribed  by the Internal
Revenue  Service,  certifying  that such Lender is entitled to benefits under an
income tax treaty to which the United  States is a party which  reduces the rate
of  withholding  tax on  payments  of  interest  or  certifying  that the income
receivable pursuant to this Agreement is effectively  connected with the conduct
of a trade or business in the United States,  (ii) Internal Revenue Service Form
W-8 or W-9, as  appropriate,  or any successor  form  prescribed by the Internal
Revenue Service,  and (iii) any other form or certificate required by any taxing
authority  (including any certificate  required by Sections 871(h) and 881(c) of
the  Internal  Revenue  Code),  certifying  that such  Lender is  entitled to an
exemption  from or a reduced rate of tax on payments  pursuant to this Agreement
or any of the other Loan Documents.

     (e) For any period with respect to which a Lender has failed to provide the
Borrower  and the Agent with the  appropriate  form  pursuant to Section  4.6(d)
(unless such failure is due to a change in treaty, law, or regulation  occurring
subsequent to the date on which a form  originally was required to be provided),
such Lender  shall not be  entitled to  indemnification  under  Section  4.6(a),
4.6(b), or 4.6(c) with respect to Taxes imposed by the United States;  provided,
however,  that should a Lender,  which is otherwise  exempt from or subject to a
reduced rate of withholding  tax, become subject to Taxes because of its failure
to deliver a form required hereunder, the Borrower shall take such steps as such
Lender shall reasonably request to assist such Lender to recover such Taxes.

     (f) If the  Borrower is required  to pay  additional  amounts to or for the
account of any Lender  pursuant to this Section 4.6, then such Lender will agree
to use reasonable  efforts to change the jurisdiction of its Applicable  Lending
Office  so as to  eliminate  or reduce  any such  additional  payment  which may
thereafter  accrue  if such  change,  in the  judgment  of such  Lender,  is not
otherwise disadvantageous to such Lender.

     (g) Within  thirty  (30) days after the date of any  payment of Taxes,  the
Borrower  shall  furnish  to the Agent the  original  or a  certified  copy of a
receipt evidencing such payment.

     (h)  Without  prejudice  to the  survival  of any  other  agreement  of the
Borrower hereunder,  the agreements and obligations of the Borrower contained in
this  Section  4.6  shall  survive  the  termination  of  the  Revolving  Credit
Commitments and the payment in full of the Notes.



                                       49





                                    ARTICLE V

            Conditions to Making Loans and Issuing Letters of Credit

     5.1.  Conditions  of  Initial  Advance.  This  Agreement  shall not  become
effective  until the following  conditions  precedent have been satisfied in the
sole judgment of the Agent:

          (a) the Agent shall have  received on the  Closing  Date,  in form and
     substance satisfactory to the Agent and Lenders, the following:

               (i) executed originals of each of this Agreement,  the Notes, the
          LC Account  Agreement and the other Loan Documents,  together with all
          schedules and exhibits thereto;

               (ii) the  favorable  written  opinion or opinions with respect to
          the  Loan  Documents  and the  transactions  contemplated  thereby  of
          counsel to the Borrower dated the Closing Date, addressed to the Agent
          and the  Lenders  and  satisfactory  to Smith  Helms  Mulliss & Moore,
          L.L.P.,  special  counsel to the Agent,  substantially  in the form of
          Exhibit H;

               (iii)  resolutions  of the  board of  directors  of the  Borrower
          certified by its  secretary  or assistant  secretary as of the Closing
          Date,  approving and adopting the Loan Documents to be executed by the
          Borrower,  and  authorizing the execution and delivery and performance
          thereof;

               (iv) specimen  signatures  of officers of the Borrower  executing
          the  Loan  Documents  on  behalf  of the  Borrower,  certified  by the
          secretary or assistant secretary of the Borrower;

               (v) the  charter  documents  of the  Borrower  certified  as of a
          recent date by the Secretary of State of its state of organization;

               (vi) the bylaws of the Borrower  certified as of the Closing Date
          as true and correct by its secretary or assistant secretary;

               (vii) certificates issued as of a recent date by the Secretary of
          State of the jurisdiction of formation of the Borrower as to the valid
          existence and good standing of the Borrower;

               (viii)   notice  of   appointment   of  the  initial   Authorized
          Representative(s);

               (ix) evidence of all insurance required by the Loan Documents;

               (x) a certificate  in the form of Exhibit I completed as of March
          31, 1998;



                                       50





               (xi)  evidence  that  all fees  payable  by the  Borrower  on the
          Closing Date to the Agent and the Lenders have been paid in full;

               (xii) termination of the Prior Agreement and payment of the Prior
          Loans;

               (xiii)  such  other  documents,  instruments,   certificates  and
          opinions as the Agent or any Lender may reasonably request on or prior
          to the  Closing  Date  in  connection  with  the  consummation  of the
          transactions contemplated hereby; and

          (b) In the good faith judgment of the Agent and the Lenders:

               (i) there shall not have occurred or become known to the Agent or
          the Lenders any event,  condition,  situation or status since December
          31, 1997 that has had or could  reasonably  be expected to result in a
          Material Adverse Effect;

               (ii)  no  litigation,   action,  suit,   investigation  or  other
          arbitral,  administrative  or judicial  proceeding shall be pending or
          threatened  which could reasonably be expected to result in a Material
          Adverse Effect; and

               (iii) the  Borrower  and its  Consolidated  Entities  shall  have
          received all approvals,  consents and waivers,  and shall have made or
          given all  necessary  filings  and  notices,  as shall be  required to
          consummate the transactions contemplated hereby without the occurrence
          of any default under, conflict with or violation of (A) any applicable
          law, rule,  regulation,  order or decree of any Governmental Authority
          or arbitral authority or (B) any agreement,  document or instrument to
          which any of the Borrower or any Consolidated  Entity is a party or by
          which  any of them or  their  properties  is  bound,  except  for such
          approvals,  consents, waivers, filings and notices the receipt, making
          or giving of which will not have a Material Adverse Effect.

     5.2.  Conditions  of Loans and Letters of Credit.  The  obligations  of the
Lenders  to make any Loans,  and the  Issuing  Bank to issue  Letters of Credit,
hereunder on or subsequent to the Closing Date, are subject to the  satisfaction
of the following conditions:

          (a) the Agent shall have  received a  Borrowing  Notice if required by
     Article II;

          (b)  the  representations  and  warranties  of the  Borrower  and  the
     Subsidiaries  set  forth  in  Article  VI and in  each  of the  other  Loan
     Documents  shall be true and correct in all material  respects on and as of
     the date of such Advance or Letter of Credit issuance or renewal,  with the
     same effect as though such  representations and warranties had been made on
     and as of such date,  except to the extent  that such  representations  and
     warranties  expressly  relate  to an  earlier  date  and  except  that  the
     financial  statements  referred to in Section  6.6(a) shall be deemed to be
     those  financial  statements  most recently  delivered to the Agent and the
     Lenders  pursuant to Section  7.1 from the date  financial  statements  are
     delivered to the Agent and the Lenders in accordance with such Section;



                                       51





          (c) in the case of the  issuance of a Letter of Credit,  the  Borrower
     shall have  executed and delivered to the Issuing Bank an  Application  and
     Agreement  for the Letter of Credit in form and content  acceptable  to the
     Issuing Bank together with such other instruments and documents as it shall
     request;

          (d) at the time of (and after  giving  effect to) each  Advance or the
     issuance of a Letter of Credit,  no Default or Event of Default  shall have
     occurred and be continuing; and

          (e) immediately after giving effect to:

               (i) a Loan, the aggregate  principal  balance of all  outstanding
          Loans  for  each  Lender  plus  such  Lender's  Applicable  Commitment
          Percentage  of the aggregate  amount of Letter of Credit  Outstandings
          shall not exceed such Lender's Revolving Credit Commitment;

               (ii) a  Letter  of  Credit  or  renewal  thereof,  the  aggregate
          principal  balance  of all  outstanding  Participations  in Letters of
          Credit and  Reimbursement  Obligations  (or in the case of the Issuing
          Bank, its remaining  interest after deduction of all Participations in
          Letters of Credit and Reimbursement  Obligations of other Lenders) for
          each Lender and in the aggregate shall not exceed,  respectively,  (X)
          such Lender's  Letter of Credit  Commitment or (Y) the Total Letter of
          Credit Commitment; and

               (iii) a Loan or a Letter of Credit or renewal thereof, the sum of
          Letter of Credit  Outstandings plus the aggregate  principal amount of
          Revolving Credit  Outstandings plus Outstanding  Competitive Bid Loans
          shall not exceed the Total Revolving Credit Commitment.

     Each borrowing  hereunder and each issuance of a Letter of Credit hereunder
shall  constitute  a  representation  and warranty by the Borrower to the effect
that the  conditions  set forth in clauses (b) and (d) have been satisfied as of
the date of such borrowing.



                                       52





                                   ARTICLE VI

                         Representations and Warranties

     The Borrower  represents  and  warrants  with respect to itself and (to the
extent   expressly   set  forth   below)  its   Consolidated   Entities   (which
representations  and  warranties  shall  survive the  delivery of the  documents
mentioned  herein  and the  making  of Loans  and the  issuance  of a Letter  of
Credit), that:

     6.1. Organization and Authority.

          (a) The  Borrower  and  each  Consolidated  Entity  is a  corporation,
     partnership  or  limited  liability  company  duly  organized  and  validly
     existing under the laws of the jurisdiction of its formation;

          (b) The Borrower and each  Consolidated  Entity (x) has the  requisite
     power and  authority to own its  properties  and assets and to carry on its
     business as now being  conducted and as contemplated in the Loan Documents,
     and (y) is qualified to do business in every  jurisdiction in which failure
     so to qualify would have a Material Adverse Effect;

          (c) The Borrower has the power and  authority to execute,  deliver and
     perform  this  Agreement  and the Notes,  and to borrow  and  obtain  other
     extensions of credit hereunder, and to execute, deliver and perform each of
     the other Loan Documents to which it is a party; and

          (d) When executed and  delivered,  each of the Loan Documents to which
     the Borrower is a party will be the legal,  valid and binding obligation or
     agreement,  as the case may be, of the  Borrower,  enforceable  against the
     Borrower  in  accordance  with its  terms,  subject  to the  effect  of any
     applicable  bankruptcy,  moratorium,  insolvency,  reorganization  or other
     similar law affecting the enforceability of creditors' rights generally and
     to the effect of general  principles  of equity  (whether  considered  in a
     proceeding at law or in equity).

     6.2.  Loan  Documents.  The  execution,  delivery  and  performance  by the
Borrower of each of the Loan Documents and the credit extensions hereunder:

          (a) have been  duly  authorized  by all  requisite  corporate  actions
     (including any required shareholder  approval) of the Borrower required for
     the lawful execution, delivery and performance thereof;

          (b) do not violate  any  provisions  of (i)  applicable  law,  rule or
     regulation,  (ii) any  judgment,  writ,  order,  determination,  decree  or
     arbitral award of any Governmental  Authority or arbitral authority binding
     on the Borrower or any Subsidiary or its or any Subsidiary's properties, or
     (iii) the charter documents or bylaws of the Borrower;



                                       53





          (c) do not and will not be in conflict with,  result in a breach of or
     constitute an event of default,  or an event which, with notice or lapse of
     time or both,  would  constitute  an event of default,  under any contract,
     indenture,  agreement or other  instrument or document to which Borrower or
     any Consolidated Entity is a party, or by which the properties or assets of
     the Borrower or any Consolidated Entity are bound; and

          (d) do not and will not result in the  creation or  imposition  of any
     Lien upon any of the properties or assets of Borrower or any Subsidiary.

     6.3.   Solvency.   The  Borrower  is  Solvent  and  the  Borrower  and  its
Consolidated  Entities  taken as a whole are Solvent,  in each case after giving
effect to the transactions contemplated by the Loan Documents.

     6.4.  Subsidiaries.  The  Borrower  has no  Subsidiaries  other  than those
Persons  listed as  Subsidiaries  in Schedule  6.4 and  additional  Subsidiaries
created or acquired after the Closing Date.

     6.5.  Ownership  Interests.  Borrower  owns no interest in any Person other
than the  Persons  listed in Schedule  6.4,  equity  investments  in Persons not
constituting   Subsidiaries   permitted   under   Section  8.2  and   additional
Subsidiaries created or acquired after the Closing Date.

     6.6. Financial Condition.

          (a) The Borrower has heretofore furnished to the Agent and each Lender
     an audited  consolidated balance sheet of the Borrower and its Consolidated
     Entities  as at  December  31,  1997 and the notes  thereto and the related
     consolidated statements of income,  stockholders' equity and cash flows for
     the Fiscal Year then ended as examined and  certified by Ernst & Young LLP.
     Except as set forth therein, such financial statements (including the notes
     thereto)  present  fairly the  financial  condition of the Borrower and its
     Consolidated  Entities  as of the end of such  Fiscal  Year and  results of
     their operations and the changes in its stockholders' equity for the Fiscal
     Year, all in conformity  with GAAP applied on a Consistent  Basis,  subject
     however,  in the case of  unaudited  interim  statements  to year end audit
     adjustments;

          (b) since December 31, 1997, there has been no material adverse change
     in the  condition,  financial or  otherwise,  of the Borrower or any of its
     Consolidated  Entities,  or in  the  businesses,  properties,  performance,
     prospects  or  operations  of the  Borrower  or  any  of  its  Consolidated
     Subsidiaries  nor  have  such  businesses  or  properties  been  materially
     adversely  affected  as  a  result  of  any  fire,  explosion,  earthquake,
     accident, strike, lockout, combination of workers, flood, embargo or act of
     God; and

          (c) neither the Borrower nor any Consolidated  Entity has any material
     Indebtedness,  Guaranteed  Obligations or other obligations or liabilities,
     direct or  contingent,  in an aggregate  amount in excess of $300,000 other
     than (a) the  liabilities  reflected  in such  balance  sheet and the notes
     thereto,  (b)  $567,750,000  aggregate  principal  amount of the Borrower's
     3.25% Convertible Subordinated Debentures due 2003, (c)



                                       54





     $250,000,000  aggregate  principal  amount of the Borrower's  6.875% Senior
     Notes  due  2005  and  $250,000,000   aggregate  principal  amount  of  the
     Borrower's 7.0% Senior Notes due 2005, (d)  Obligations  arising under this
     Agreement, and (e) liabilities incurred in the ordinary course of business.

     6.7. Title to  Properties.  The Borrower and each  Consolidated  Entity has
good and marketable title to all its real and personal properties, subject to no
transfer restrictions or Liens of any kind, except for the transfer restrictions
and Liens permitted by this Agreement.

     6.8. Taxes. The Borrower and each Consolidated  Entity have filed or caused
to be filed all  federal,  state and local tax returns  which are required to be
filed by it and, except for taxes and assessments  being contested in good faith
by  appropriate  proceedings  diligently  conducted and against  which  reserves
reflected  in  the  financial   statements   described  in  Section  6.6(a)  and
satisfactory to the Borrower's  independent  certified  public  accountants have
been  established,  have  paid or  caused  to be paid all taxes as shown on said
returns or on any assessment  received by it, to the extent that such taxes have
become due.

     6.9. Other Agreements.  Except as disclosed in or incorporated by reference
in the 1997 10-K:

          (a) neither the Borrower nor any Consolidated  Entity is a party to or
     subject to any judgment, order, decree, agreement,  lease or instrument, or
     subject  to  other  restrictions,   compliance  with  the  terms  of  which
     individually  or in the  aggregate  could  reasonably  be  likely to have a
     Material Adverse Effect;

          (b) neither the Borrower nor any Consolidated  Entity is in default in
     the  performance,  observance  or  fulfillment  of any of the  obligations,
     covenants or conditions  contained in (i) any Medicaid Provider  Agreement,
     Medicare  Provider  Agreement or other agreement or instrument to which the
     Borrower or any Consolidated  Entity is a party, which default has resulted
     in, or if not remedied within any applicable  grace period could result in,
     the  revocation,  termination,   cancellation  or  suspension  of  Medicaid
     Certification  or Medicare  Certification  of Borrower or any  Consolidated
     Entity  which  could  have a  Material  Adverse  Effect  or (ii) any  other
     agreement or instrument to which the Borrower or any Consolidated Entity is
     a party,  which default has, or if not remedied within any applicable grace
     period could reasonably be likely to have, a Material Adverse Effect;

          (c) to the knowledge of  Borrower's  Executive  Officers,  no Contract
     Provider  is  a  party  to  any  judgment,   order,  decree,  agreement  or
     instrument, or subject to restrictions,  compliance with the terms of which
     could  individually  or in the  aggregate  reasonably  be  likely to have a
     Material Adverse Effect; and

          (d) to the knowledge of  Borrower's  Executive  Officers,  no Contract
     Provider is in default in the performance, observance or fulfillment of any
     of the  obligations,  covenants  or  conditions  contained  in any Medicaid
     Provider  Agreement,  Medicare  Provider  Agreement  or other  agreement or
     instrument to which such Person is a party,  which default has resulted in,
     or if not remedied within any applicable grace period could



                                       55





     result in, the  revocation,  termination,  cancellation  or  suspension  of
     Medicaid  Certification  or Medicare  Certification  of such Person,  which
     revocation,  termination,  cancellation or suspension  could  reasonably be
     likely to have a Material Adverse Effect.

     6.10.  Litigation.  Except as disclosed in or  incorporated by reference in
the 1997 10-K, there is no action,  suit,  investigation or proceeding at law or
in equity or by or before any governmental instrumentality or agency or arbitral
body pending or, to the knowledge of the Borrower,  threatened by or against the
Borrower  or any  Consolidated  Entity  or, to the  knowledge  of the  Borrower,
pending or  threatened  by or against any Contract  Provider,  or affecting  the
Borrower or any  Consolidated  Entity or, to the knowledge of the Borrower,  any
Contract   Provider  or  any  properties  or  rights  of  the  Borrower  or  any
Consolidated Entity or, to the knowledge of the Borrower, any Contract Provider,
which could  reasonably be likley (i) to result in the revocation,  termination,
cancellation or suspension of Medicaid  Certification or Medicare  Certification
of such Person, which revocation, termination,  cancellation or suspension could
reasonably  be  likely  to have a  Material  Adverse  Effect,  or (ii) to have a
Material Adverse Effect.

     6.11.  Margin Stock. The proceeds of the borrowings and other extensions of
credit  made  hereunder  will be  used by the  Borrower  only  for the  purposes
expressly  authorized  herein.  None of such proceeds will be used,  directly or
indirectly,  for the purpose of  purchasing  or carrying any margin stock or for
the  purpose of  reducing  or retiring  any  Indebtedness  which was  originally
incurred to purchase or carry margin stock or for any other  purpose which might
constitute any of the Loans or Letters of Credit under this Agreement a "purpose
credit" within the meaning of Regulation U or Regulation X of the Board. Neither
the  Borrower  nor any  agent  acting in its  behalf  has taken or will take any
action which might cause this  Agreement or any of the documents or  instruments
delivered  pursuant  hereto to violate any regulation of the Board or to violate
the  Exchange  Act or the  Securities  Act of 1933,  as  amended,  or any  state
securities laws, in each case as in effect on the date hereof.

     6.12. Investment Company.  Neither the Borrower nor any Consolidated Entity
is an  "investment  company," or an  "affiliated  person" of, or  "promoter"  or
"principal  underwriter" for, an "investment company", as such terms are defined
in the  Investment  Company Act of 1940,  as amended (15 U.S.C.  ss.  80a-1,  et
seq.). The application of the proceeds of the Loans and repayment thereof by the
Borrower  and the  issuance  of  Letters of Credit  and the  performance  by the
Borrower and any  Consolidated  Entity of the  transactions  contemplated by the
Loan  Documents  will not  violate  any  provision  of said  Act,  or any  rule,
regulation or order issued by the Securities and Exchange Commission thereunder,
in each case as in effect on the date hereof.

     6.13. Patents,  Etc. Except as set forth on Schedule 6.13, the Borrower and
each  Consolidated  Entity  owns or has the right to use,  under  valid  license
agreements or otherwise, all material patents, licenses, franchises, trademarks,
trademark rights, trade names, trade name rights, trade secrets,  service marks,
service  mark rights and  copyrights  necessary to or used in the conduct of its
businesses as now conducted and as contemplated  by the Loan Documents,  without
known conflict by, or with, any patent,  license,  franchise,  trademark,  trade
secret,  trade name, service mark,  copyright or other proprietary right of, any
other Person.



                                       56





     6.14. No Untrue  Statement.  Neither (a) this  Agreement nor any other Loan
Document or  certificate  or document  executed and delivered by or on behalf of
the Borrower or any  Consolidated  Entity in accordance  with or pursuant to any
Loan Document nor (b) any statement, representation, or warranty provided to the
Agent or any Lender in connection  with the  negotiation  or  preparation of the
Loan Documents  contains any  misrepresentation  or untrue statement of material
fact or omits to state a material fact necessary,  in light of the  circumstance
under which it was made, in order to make any such warranty,  representation  or
statement contained therein not misleading.

     6.15. No Consents,  Etc. Neither the respective businesses or properties of
the  Borrower  or any  Consolidated  Entity,  nor any  relationship  between the
Borrower or any Consolidated  Entity and any other Person,  nor any circumstance
in connection with the execution, delivery and performance of the Loan Documents
and the  transactions  contemplated  thereby,  is such as to  require a consent,
approval or authorization of, or filing, registration or qualification with, any
Governmental  Authority  or any other  Person on the part of the Borrower or any
Consolidated  Entity as a condition to the execution,  delivery and  performance
of, or  consummation  of the  transactions  contemplated  by, or the validity or
enforceability of, the Loan Documents, which, if not obtained or effected, would
be reasonably  likely to have a Material Adverse Effect, or if so, such consent,
approval,  authorization,  filing,  registration or qualification  has been duly
obtained or effected, as the case may be;

     6.16.  ERISA  Requirement.  (i) The  execution  and  delivery  of the  Loan
Documents  will not involve  any  prohibited  transaction  within the meaning of
ERISA,  (ii) the Borrower and each ERISA Affiliate has fulfilled its obligations
under the minimum funding  standards  imposed by ERISA and each is in compliance
in all material  respects with the applicable  provisions of ERISA, and (iii) no
"Reportable  Event," as defined  in  Section  4043(b) of Title IV of ERISA,  has
occurred with respect to any plan maintained by the Borrower or any of its ERISA
Affiliate.

     6.17. No Default.  As of the date hereof,  there does not exist any Default
or Event of Default.

     6.18. Hazardous Materials.  The Borrower and each Consolidated Entity is in
compliance  with all  applicable  Environmental  Laws in all material  respects.
Neither  the  Borrower  nor any  Consolidated  Entity has been  notified  of any
action,  suit,  proceeding or investigation  which, and neither the Borrower nor
any Consolidated Entity is aware of any facts which, (i) calls into question, or
could  reasonably be expected to call into question,  compliance in all material
respects by the Borrower or any Consolidated Entity with any Environmental Laws,
(ii)  which  seeks,  or could  reasonably  be  expected  to form the  basis of a
meritorious  proceeding,  to suspend,  revoke or terminate any material license,
permit or approval necessary for the generation, handling, storage, treatment or
disposal of any Hazardous Material, or (iii) seeks to cause, or could reasonably
be expected to form the basis of a meritorious proceeding to cause, any property
of the Borrower or any  Consolidated  Entity  material to the  operations of the
Borrower or such Consolidated Entity to be subject to any material  restrictions
on ownership, use, occupancy or transferability under any Environmental Law.



                                       57





     6.19. Employment Matters. (a) Except as set forth on Schedule 6.19, none of
the  employees  of the  Borrower  or any  Consolidated  Entity is subject to any
collective  bargaining  agreement  and there  are no  strikes,  work  stoppages,
election or  decertification  petitions or  proceedings,  unfair labor  charges,
equal  opportunity   proceedings,   or  other  material  labor/employee  related
controversies or proceedings  pending or, to the best knowledge of the Borrower,
threatened  against  the  Borrower  or any  Consolidated  Entity or between  the
Borrower  or any  Consolidated  Entity  and  any of its  employees,  other  than
employee grievances, controversies or proceedings arising in the ordinary course
of  business  which  could not  reasonably  be  likely,  individually  or in the
aggregate, to have a Material Adverse Effect; and

     (b) Except to the extent a failure to maintain  compliance would not have a
Material  Adverse  Effect,  the  Borrower  and each  Consolidated  Entity  is in
compliance  in all respects  with all  applicable  laws,  rules and  regulations
pertaining to labor or employment  matters,  including without  limitation those
pertaining  to wages,  hours,  occupational  safety  and  taxation  and there is
neither pending nor threatened any litigation,  administrative proceeding or, to
the knowledge of the  Borrower,  any  investigation,  in respect of such matters
which, if decided adversely, could reasonably be likely,  individually or in the
aggregate, to have a Material Adverse Effect.

     6.20. RICO. Neither the Borrower nor any Consolidated  Entity is engaged in
or has  engaged  in any  course  of  conduct  that  could  subject  any of their
respective  properties  to any  Lien,  seizure  or other  forfeiture  under  any
criminal law,  racketeer  influenced  and corrupt  organizations  law,  civil or
criminal, or other similar laws.

     6.21. Reimbursement from Third Party Payors. The accounts receivable of the
Borrower and each  Consolidated  Entity and each Contract Provider have been and
will  continue to be adjusted to reflect  reimbursement  policies of third party
payors such as Medicare,  Medicaid,  Blue Cross/Blue  Shield,  private insurance
companies,  health maintenance organizations,  preferred provider organizations,
alternative  delivery  systems,  managed care  systems,  government  contracting
agencies  and other third  party  payors.  In  particular,  accounts  receivable
relating  to such third  party  payors do not and shall not exceed  amounts  any
obligee is entitled to receive under any capitation  arrangement,  fee schedule,
discount formula,  cost-based reimbursement or other adjustment or limitation to
its usual charges.

     6.22.  Year 2000  Compliance.  The Borrower has (i)  initiated a review and
assessment  of all  areas  within  its and  each of its  Consolidated  Entities'
business and operations  (including  those affected by suppliers,  vendors,  and
customers) that could be adversely affected by the "Year 2000 Problem" (that is,
the  risk  that  computer  applications  used  by  the  Borrower  or  any of its
Consolidated  Entities (or  suppliers,  vendors and  customers) may be unable to
recognize and perform properly date-sensitive  functions involving certain dates
prior to and any date  after  December  31,  1999),  (ii)  developed  a plan and
timeline for  addressing  the Year 2000 Problem on a timely basis,  and (iii) to
date,  implemented  that plan in accordance  with that  timetable.  Based on the
foregoing, the Borrower believes that all computer applications (including those
of its suppliers,  vendors and customers) that are material to its or any of its
Consolidated  Entities'  business and operations  are  reasonably  expected on a
timely basis to be able to perform proper date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year 2000



                                       58





compliant"),  except to the extent that a failure to do so could not  reasonably
be expected to have a Material Adverse Effect.




                                       59





                                   ARTICLE VII

                              Affirmative Covenants

     Until  the  Revolving  Credit  Termination  Date  and  termination  of this
Agreement in accordance with the terms hereof, unless the Required Lenders shall
otherwise consent in writing, the Borrower will, and where applicable will cause
each Consolidated Entity to:

     7.1.  Financial  Statements,  Reports,  Etc. The Borrower  shall deliver or
cause to be delivered to the Agent and each Lender:

          (a) Not later  than 50 days  after the end of each of the first  three
     quarters of each Fiscal Year, a balance  sheet and a statement of income of
     the Borrower and its  Consolidated  Entities on a consolidated  basis and a
     statement of cash flow of the Borrower and its  Consolidated  Entities on a
     consolidated  basis for such calendar  quarter and for the period beginning
     on the first  day of such  Fiscal  Year and  ending on the last day of such
     quarter  (in  sufficient   detail  to  indicate  the  Borrower's  and  each
     Consolidated  Entity's compliance with the financial covenants set forth in
     Section  8.1),  together  with  statements  in  comparative  form  for  the
     corresponding  date or period in the preceding Fiscal Year as summarized in
     the Borrower's Form 10-Q for the corresponding  period, and certified as to
     fairness,  accuracy and completeness by the chief executive officer,  chief
     financial officer or Treasurer of the Borrower.

          (b) Not  later  than  100  days  after  the end of each  Fiscal  Year,
     financial  statements  (including a balance sheet, a statement of income, a
     statement of changes in shareholders'  equity and a statement of cash flow)
     of the Borrower and its Consolidated  Entities on a consolidated  basis for
     such Fiscal Year (in sufficient  detail to indicate the Borrower's and each
     Consolidated  Entity's compliance with the financial covenants set forth in
     Section 8.1), together with statements in comparative form as of the end of
     and for the preceding Fiscal Year as summarized in the Borrower's Form 10-K
     for the  corresponding  period,  and accompanied by an opinion of certified
     public  accountants  acceptable to the Agent,  which opinion shall state in
     effect that such  financial  statements  (A) were audited  using  generally
     accepted auditing standards, (B) were prepared in accordance with generally
     accepted  accounting  principles  applied on a  Consistent  Basis,  and (C)
     present  fairly the  financial  condition  and results of operations of the
     Borrower and its Consolidated Entities for the periods covered.

          (c) Together with the financial statements required by subsections (a)
     and (b) above a compliance certificate duly executed by the chief executive
     officer or chief financial officer or Treasurer of the Borrower in the form
     of Exhibit I ("Compliance Certificate").

          (d) Contemporaneously  with the distribution thereof to the Borrower's
     or any Consolidated Entity's stockholders or partners or the filing thereof
     with the Securities and Exchange Commission,  as the case may be, copies of
     all statements, reports, notices and filings distributed by the Borrower or
     any Consolidated Entity to its stockholders or



                                       60





     partners or filed with the  Securities and Exchange  Commission  (including
     reports on SEC Forms 10-K, 10-Q and 8-K).

          (e)  Promptly  after the  Borrower  knows or has reason to know of the
     occurrence of any "reportable event" under Section 4043 of ERISA applicable
     to the Borrower or any ERISA  Affiliate,  a certificate of the president or
     chief  financial  officer of the Borrower  setting  forth the details as to
     such  "reportable  event" and the  action  that the  Borrower  or the ERISA
     Affiliate has taken or will take with respect  thereto,  and promptly after
     the filing or receiving thereof, copies of all reports and notices that the
     Borrower and each  Consolidated  Entity files under ERISA with the Internal
     Revenue Service or the PBGC or the United States Department of Labor.

          (f) Promptly  after the Borrower or any of its  Consolidated  Entities
     becomes aware of the  commencement  thereof,  notice of any  investigation,
     action, suit or proceeding before any Governmental  Authority involving the
     condemnation  or taking  under the  power of  eminent  domain of any of its
     property  or  the   revocation  or  suspension  of  any  permit,   license,
     certificate  of need or other  governmental  requirement  applicable to any
     Facility.

          (g)  Within  10  days of the  receipt  by the  Borrower  or any of its
     Consolidated   Entities,   copies  of  all  material   deficiency  notices,
     compliance  orders or adverse reports issued by any Governmental  Authority
     or   accreditation   commission   having   jurisdiction   over   licensing,
     accreditation or operation of a Facility or by any  Governmental  Authority
     or private  insurance company pursuant to a provider  agreement,  which, if
     not promptly  complied  with or cured,  could result in the  suspension  or
     forfeiture  of any license,  certification  or  accreditation  necessary in
     order for such  Facility to carry on its business as then  conducted or the
     termination of any material insurance or reimbursement program available to
     such Facility.

          (h) Such other  information  regarding  any Facility or the  financial
     condition or operations of the Borrower or its Consolidated Entities as the
     Agent shall reasonably request from time to time or at any time.

     7.2.  Maintain  Properties.   Maintain  all  properties  necessary  to  its
operations  in good  working  order  and  condition,  make all  needed  repairs,
replacements and renewals to such  properties,  and maintain free from Liens all
trademarks,  trade names,  service marks,  patents,  copyrights,  trade secrets,
know-how,  and other  intellectual  property  and  proprietary  information  (or
adequate licenses thereto),  in each case as are reasonably necessary to conduct
its business as currently conducted or as contemplated hereby, all in accordance
with customary and prudent business practices.

     7.3. Existence, Qualification, Etc. Except as otherwise expressly permitted
under  Section 8.4, do or cause to be done all things  necessary to preserve and
keep in full  force  and  effect  its  existence  and all  material  rights  and
franchises,  and  maintain  its  license or  qualification  to do  business as a
foreign corporation and good standing in each jurisdiction in which its



                                       61





ownership or lease of property or the nature of its business  makes such license
or qualification necessary.

     7.4. Regulations and Taxes. Comply in all material respects with or contest
in good  faith all  statutes  and  governmental  regulations  and pay all taxes,
assessments,  governmental  charges,  claims for labor,  supplies,  rent and any
other  obligation  which,  if unpaid,  would  become a Lien  against  any of its
properties  except  liabilities  being  contested  in good faith by  appropriate
proceedings  diligently conducted and against which adequate reserves acceptable
to the Borrower's independent certified public accountants have been established
unless and until any Lien  resulting  therefrom  attaches to any of its property
and becomes enforceable by its creditors.

     7.5.  Insurance.  At all times maintain in force,  and pay all premiums and
costs related to, insurance coverages in amounts deemed by the management of the
Borrower  to be  sufficient  in  accordance  with usual and  customary  business
practices  and  any  other  coverages  required  under  applicable  governmental
requirements. The Borrower shall deliver to the Agent annually on or before each
anniversary date of this Agreement, and at such other time or times as the Agent
may request (but not more often than monthly), a certificate of the president or
chief financial  officer of the Borrower setting out in such detail as the Agent
may reasonably  require a description of all insurance  coverages  maintained by
the Borrower and each Consolidated Entity. The Agent shall have no obligation to
give the Borrower or any Consolidated Entity notice of any notification received
by the Agent with respect to any insurance policies or take any steps to protect
the Borrower's or any Consolidated Entity's interests under such policies.

     7.6. True Books.  Keep true books of record and account in which full, true
and correct  entries will be made of all of its dealings and  transactions,  and
set up on its books such  reserves as may be  required  by GAAP with  respect to
doubtful  accounts and all taxes,  assessments,  charges,  levies and claims and
with respect to its business in general, and include such reserves in interim as
well as year-end financial statements.

     7.7.  Right of  Inspection.  Permit any Person  designated  by the Agent to
visit and inspect any of the properties,  corporate books and financial  reports
of the  Borrower or any  Subsidiary  and to discuss its  affairs,  finances  and
accounts  with  its  principal   officers  and  independent   certified   public
accountants,   all  at  reasonable  times,  at  reasonable  intervals  and  with
reasonable prior notice.

     7.8. Observe all Laws. Conform to and duly observe,  and cause all Contract
Providers to conform to and duly  observe,  in all  material  respects all laws,
rules  and  regulations  and all  other  valid  requirements  of any  regulatory
authority  with  respect  to the  conduct  of its  business,  including  without
limitation   Titles  XVIII  and  XIX  of  the  Social  Security  Act,   Medicare
Regulations,  Medicaid  Regulations,  and all  laws,  rules and  regulations  of
Governmental  Authorities  pertaining to the licensing of professional and other
health care providers, except where the failure to do so could not reasonably be
likely to have a Material Adverse Effect.

     7.9. Governmental Licenses.  Obtain and maintain, and use reasonable effort
to cause all Contract Providers to obtain and maintain,  all licenses,  permits,
certifications and approvals of all applicable  Governmental  Authorities as are
required for the conduct of its



                                       62





business as  currently  conducted  and herein  contemplated,  including  without
limitation   professional   licenses,   Medicaid   Certifications  and  Medicare
Certifications, except where the failure to do so could not reasonably be likely
to have a Material Adverse Effect.

     7.10. Covenants Extending to Other Persons.  Cause each of its Consolidated
Entities to do with respect to itself, its business and its assets,  each of the
things  required  of the  Borrower in Sections  7.2 through  7.9,  7.15 and 7.16
inclusive.

     7.11.  Officer's  Knowledge of Default.  Upon any Executive  Officer of the
Borrower  obtaining  knowledge of any Default or Event of Default or any default
or  event  of  default  under  any  other  obligation  of  the  Borrower  or any
Consolidated Entity to any Lender, or any event, development or occurrence which
could  reasonably  be expected  to have a Material  Adverse  Effect,  cause such
Executive  Officer or an Authorized  Representative to promptly notify the Agent
of the nature  thereof,  the period of  existence  thereof,  and what action the
Borrower or such Consolidated Entity proposes to take with respect thereto.  The
Agent shall notify the Lenders of receipt of such notice.

     7.12.  Suits  or  Other  Proceedings.  Upon any  Executive  Officer  of the
Borrower  obtaining  knowledge  of any  litigation  or other  proceedings  being
instituted (i) against the Borrower or any Subsidiary, or any attachment,  levy,
execution or other process being  instituted  against any assets of the Borrower
or any Subsidiary or Controlled Partnership, which if adversely determined could
reasonably  be likely to have a  Material  Adverse  Effect or (ii)  against  the
Borrower,  any  Subsidiary  or any Contract  Provider  (but only with respect to
services provided to the Borrower or any Consolidated Entity) to suspend, revoke
or terminate any Medicaid Provider Agreement,  Medicaid Certification,  Medicare
Provider Agreement or Medicare  Certification,  which suspension,  revocation or
termination could reasonably be likely to have a Material Adverse Effect,  cause
such Executive  Officer or an Authorized  Representative  to promptly deliver to
the  Agent  written  notice  thereof  stating  the  nature  and  status  of such
litigation, dispute, proceeding, levy, execution or other process.

     7.13. Notice of Discharge of Hazardous Material or Environmental Complaint.
Promptly provide to the Agent true,  accurate and complete copies of any and all
notices,  complaints,  orders, directives,  claims, or citations received by the
Borrower or any  Consolidated  Entity  relating to any of the following which is
likely to have a Material Adverse Effect:  (a) violation or alleged violation by
the Borrower or any Consolidated Entity of any applicable Environmental Law; (b)
release or threatened release by the Borrower or any Consolidated  Entity, or at
any  Facility  or property  owned or leased or  operated by the  Borrower or any
Consolidated Entity, of any Hazardous Material,  except where occurring legally;
or (c) liability or alleged liability of the Borrower or any Consolidated Entity
for the costs of cleaning up,  removing,  remediating or responding to a release
of Hazardous Materials.

     7.14. Environmental  Compliance. If the Borrower or any Consolidated Entity
shall receive any letter, notice, complaint, order, directive, claim or citation
from any Governmental  Authority  alleging that the Borrower or any Consolidated
Entity has violated any Environmental Law or is liable for the costs of cleaning
up,  removing,  remediating  or responding  to a release of Hazardous  Materials
within the time period permitted by the applicable Environmental Law



                                       63





or the Governmental  Authority responsible for enforcing such Environmental Law,
remove or  remedy,  or cause  the  applicable  Consolidated  Entity to remove or
remedy,  such  violation  or release or satisfy such  liability  unless and only
during the period that the applicability of such  Environmental Law, the fact of
such  violation  or  liability  or what is  required  to remove  or remedy  such
violation  is being  contested by the  Borrower or the  applicable  Consolidated
Entity by  appropriate  proceedings  diligently  conducted and all reserves with
respect  thereto as may be required  under GAAP, if any, have been made,  and no
Lien in connection therewith shall have attached to any property of the Borrower
or the  applicable  Consolidated  Entity  which  shall have  become  enforceable
against creditors of such Person.

     7.15.  Continuation of Current  Business.  Not engage in any business other
than  the  business  now  being   conducted  by  the  Borrower   (including  its
Consolidated Entities) and other businesses directly related to such services.

     7.16.  Management  Contracts.  Not enter  into any  agreement  whereby  the
management,  supervision  or control of its  business or any  Facility  shall be
delegated  to or  placed  in any  persons  other  than  its  governing  body and
officers,  the Borrower or a Consolidated Entity,  except that management of the
Facility owned by Vanderbilt Stallworth  Rehabilitation Hospital, L.P. is vested
in part in a Governance  Committee  and in part in a Subsidiary  of the Borrower
pursuant  to the  applicable  limited  partnership  agreement  and a  management
agreement.

     7.17. Year 2000 Compliance.  The Borrower will promptly notify the Agent in
the event the Borrower  discovers or  determines  that any computer  application
(including those of its suppliers,  vendors,  and customers) that is material to
its or any of its  Consolidated  Entities'  business and operations  will not be
Year 2000 compliant, except to the extent that such failure could not reasonably
be expected to have a Material Adverse Effect.




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                                  ARTICLE VIII

                               Negative Covenants

     Until  the  Revolving  Credit  Termination  Date  and  termination  of this
Agreement in accordance with the terms hereof, unless the Required Lenders shall
otherwise  consent in writing,  the  Borrower  will not,  nor will it permit any
Consolidated Entity to:

     8.1. Financial Covenants.

          (a) Minimum Net Worth.  Permit  Consolidated Net Worth to be less than
     $2,750,000,000  plus (A) 50% of  Consolidated  Net Income (if  positive and
     including for purposes of this Section 8.1(a) only any extraordinary gain),
     on an  ongoing  basis for each  fiscal  quarter  beginning  with the fiscal
     quarter  ended  June  30,  1998,  plus  (B)  the  aggregate  amount  of all
     increases,  if any, in its capital accounts  resulting from the issuance of
     Capital Stock or conversion of debt into Capital Stock or other  securities
     properly  classified  as  equity  in  accordance  with  generally  accepted
     accounting  principles,  or from the sale or other  disposition of treasury
     shares,  from the date of this Agreement  through the date of determination
     plus (c) without  duplication,  any addition to Consolidated  Stockholders'
     Equity resulting from an Acquisition  after the Closing Date which shall be
     accounted for on a pooling-of-interests basis.

          (b) Consolidated EBITDA to Consolidated Interest Expense Ratio. Permit
     the ratio of Consolidated  EBITDA to Consolidated  Interest  Expense at any
     time to be less than or equal to 2.50 to 1.00.

          (c) Consolidated  Indebtedness to Consolidated  Total Capital.  Permit
     the ratio of Consolidated Indebtedness to Consolidated Total Capital at any
     time to equal or exceed 0.65 to 1.00.

     8.2.  Investments  and Loans.  Purchase  or  otherwise  acquire  any stock,
security,   obligation  or  evidence  of  indebtedness   of,  make  any  capital
contribution to, own any equity interest in, or make any loan or advance to, any
other Person; provided, however, that the Borrower and its Consolidated Entities
may (A)  continue  to hold all  stock of and own  partnership  interests  in the
Persons that  constitute  Consolidated  Entities on the Closing Date and Persons
that  thereafter  become  Consolidated  Entities  as a  result  of  Acquisitions
permitted under Section 8.8; (B) make Permitted Investments;  and (C) make other
investments in an amount not exceeding 15% of Consolidated Total Assets.

     8.3. Indebtedness.  Permit to exist Indebtedness,  howsoever evidenced,  of
Subsidiaries  and  Controlled  Partnerships  (exclusive of  Indebtedness  to the
Borrower)  in  an  aggregate  amount  at  any  time  exceeding  the  greater  of
$70,000,000  or 15% of  Consolidated  Tangible  Net Worth,  excluding,  however,
Indebtedness of Subsidiaries and Controlled Partnerships existing as of the date
hereof and described on Schedule 8.3.



                                       65





     8.4.  Disposition of Assets.  Sell, lease or otherwise dispose of assets in
excess of 15% of Consolidated Total Assets as at the Closing Date plus an amount
equal to 15% of assets acquired following the Closing Date.

     8.5.  Consolidation  or Merger.  Merge or  consolidate  with another Person
unless  (i) in the  case of a  merger  or  consolidation  of the  Borrower,  the
Borrower is the continuing or surviving entity,  (ii) in the case of a merger or
consolidation  involving a  Consolidated  Entity,  the  continuing  or surviving
entity  is  majority-owned  by  the  Borrower  (with  such  majority   ownership
constituting a controlling  interest),  and (iii) before and after giving effect
to the proposed  merger or  consolidation,  no Default or Event of Default shall
exist.

     8.6. Liens. Incur,  create,  assume or permit to exist any Lien upon any of
its accounts receivable,  contract rights, chattel paper, inventory,  equipment,
instruments,  general  intangibles  or other  personal  or real  property of any
character,  whether now owned or hereafter  acquired,  other than (i) Liens that
constitute  Permitted  Encumbrances,  and (ii) Liens on assets  which at no time
have a book value of greater than 5% of Consolidated Total Assets.

     8.7. Dividends and Distributions.  Permit any Consolidated  Entity to be or
become subject to any restrictions on the ability of such Consolidated Entity to
pay  dividends or to make  partnership  distributions  other than as required by
this Agreement or restrictions imposed by applicable law.

     8.8.  Acquisitions.  Enter  into any  agreement  to  acquire  any Person or
Facility  unless (i) the Person or Facility  to be acquired is in  substantially
the  same  line  of  business  presently  engaged  in by  the  Borrower  or  its
Consolidated  Entities, and (ii) if the Cost of Acquisition exceeds $150,000,000
the  Borrower  shall  have  furnished  to the  Agent  (A) pro  forma  historical
financial statements as of the end of the most recently completed Fiscal Year of
the Borrower and most recent  interim  fiscal  quarter,  if  applicable,  giving
effect to such  Acquisition  and (B) a  Compliance  Certificate  prepared  on an
historical pro forma basis giving effect to such Acquisition,  which certificate
shall  demonstrate  that no Default or Event of Default would exist  immediately
after giving effect thereto.

     8.9. Restricted Payments. Make any Restricted Payment or apply or set apart
any of their  assets  therefor  or agree to do any of the  foregoing;  provided,
however,  the Borrower may make the Restricted Payments in any Fiscal Year (on a
non-cumulative  basis,  with the effect that amounts not paid in any Fiscal Year
may not be carried over for payment in a subsequent period) if immediately prior
and immediately after giving effect thereto no Default or Event of Default shall
exist or occur and be continuing.

     8.10.  Compliance  with ERISA.  With respect to any Pension Plan,  Employee
Benefit Plan or Multiemployer Plan:

          (a) permit the occurrence of any Termination  Event which would result
     in a liability  on the part of the  Borrower or any ERISA  Affiliate to the
     PBGC which liability would have a Material Adverse Effect; or



                                       66





          (b) permit the  present  value of all  benefit  liabilities  under all
     Pension  Plans to exceed the  current  value of the assets of such  Pension
     Plans allocable to such benefit liabilities; or

          (c) permit any accumulated  funding  deficiency (as defined in Section
     302 of ERISA and Section 412 of the Code) with respect to any Pension Plan,
     whether or not waived; or

          (d) fail to make any contribution or payment to any Multiemployer Plan
     which the Borrower or any ERISA Affiliate may be required to make under any
     agreement  relating  to such  Multiemployer  Plan,  or any  law  pertaining
     thereto; or

          (e) engage, or permit any Subsidiary or any ERISA Affiliate to engage,
     in any prohibited transaction under Section 406 of ERISA or Section 4975 of
     the Code for which a civil penalty pursuant to Section 502(I) of ERISA or a
     tax pursuant to Section 4975 of the Code may be imposed; or

          (f) permit the  establishment  of any Employee  Benefit Plan providing
     post-retirement welfare benefits or establish or amend any Employee Benefit
     Plan which  establishment  or  amendment  could  result in liability to the
     Borrower or any ERISA  Affiliate or increase the obligation of the Borrower
     or any ERISA Affiliate to a Multiemployer Plan which liability or increase,
     individually or together with all similar liabilities and increases,  is in
     excess of $5,000,000; or

          (g) fail, or permit any Subsidiary or any ERISA  Affiliate to fail, to
     establish, maintain and operate each Employee Benefit Plan in compliance in
     all  material  respects  with  the  provisions  of  ERISA,  the  Code,  all
     applicable  Foreign  Benefit  Laws and all  other  applicable  laws and the
     regulations and interpretations thereof.

     8.11.  Fiscal Year.  Change its Fiscal Year (other than a change to conform
the fiscal year of a Consolidated Entity to that of the Borrower).

     8.12.  Dissolution,  etc. Wind up,  liquidate or dissolve  (voluntarily  or
involuntarily)  or commence or suffer any  proceedings  seeking any such winding
up,  liquidation  or  dissolution,   except  in  connection  with  a  merger  or
consolidation  permitted  pursuant  to Section 8.5 or where the  liquidation  or
dissolution of a Consolidated  Entity occurs in the ordinary  course of business
and does not have a Material Adverse Effect.

     8.13. Transactions with Affiliates. Other than transactions permitted under
Sections  8.2 and 8.5,  enter  into any  transaction  after  the  Closing  Date,
including,  without  limitation,  the  purchase,  sale,  lease  or  exchange  of
property,  real or personal, or the rendering of any service, with any Affiliate
of the  Borrower,  except  (a) that such  Persons  may  render  services  to the
Borrower for compensation at the same rates generally paid by Persons engaged in
the same or similar  businesses for the same or similar  services,  (b) that the
Borrower may render services to such Persons for  compensation at the same rates
generally  charged by the Borrower and (c) in either case in the ordinary course
of business and pursuant to the reasonable requirements of the



                                       67





Borrower's  business consistent with past practice of the Borrower and upon fair
and reasonable terms no less favorable to the Borrower than would be obtained in
a comparable arm's-length transaction with a Person not an Affiliate;






                                       68





                                   ARTICLE IX

                       Events of Default and Acceleration

     9.1. Events of Default.  If any one or more of the following events (herein
called "Events of Default")  shall occur for any reason  whatsoever (and whether
such  occurrence  shall be voluntary or involuntary or come about or be effected
by operation of law or pursuant to or in compliance with any judgment, decree or
order  of any  court  or any  order,  rule  or  regulation  of any  Governmental
Authority), that is to say:

          (a) the Borrower shall fail to pay (i) when due any principal  payable
     under the  terms of any Note or any  Reimbursement  Obligation  or (ii) not
     later than five  Business  Days of the date when due any  interest  or fees
     payable under the terms of any Note or any other amount  payable under this
     Agreement or any other of the other Obligations or any other amount owed to
     the  Agent  or any of the  Lenders  under  or in  connection  with the Loan
     Documents; or

          (b)  The  Borrower  or  any  Material   Group  shall  default  in  the
     performance or observance of any other  provision of this Agreement  (other
     than the provisions of Article VII and Article VIII),  except as covered by
     clause (a) above,  and shall not cure such default within thirty days after
     the first to occur of (i) the date the Agent or any Lender gives written or
     telephonic  notice of such  default  to the  Borrower  or (ii) the date the
     Borrower otherwise has notice thereof; or

          (c) the Borrower or any Material Group shall default in the observance
     or performance of any provision in Article VII or Article VIII; or

          (d)  the  Agent  shall   reasonably   determine  that  any  statement,
     certification,  representation  or warranty  contained herein, or in any of
     the other Loan Documents or in any report, financial statement, certificate
     or other instrument delivered to the Agent or any Lender by or on behalf of
     the Borrower or any  Consolidated  Entity,  was misleading or untrue in any
     material respect at the time it was made or deemed made; or

          (e)  default  shall be made  (i) in the  payment  of any  Indebtedness
     exceeding  $5,000,000  (other than the  Obligations) of the Borrower or any
     Consolidated  Entity  when due or (ii) in the  performance,  observance  or
     fulfillment  of  any  term  or  covenant  contained  in  any  agreement  or
     instrument  under or pursuant to which any such  Indebtedness may have been
     issued,  created,  assumed,  guaranteed  or  secured  by  Borrower  or  any
     Consolidated  Entity,  if the effect of such  default  in the  performance,
     observance  or   fulfillment   is  to  accelerate   the  maturity  of  such
     Indebtedness or to permit the holder thereof to cause such  Indebtedness to
     become  due prior to its stated  maturity,  and such  default  shall not be
     cured within 10 days after the  occurrence of such default,  and the amount
     of the Indebtedness involved exceeds $5,000,000; or

          (f) the Borrower or any  Material  Group shall fail to pay or admit in
     writing its inability to pay its or their debts generally as they come due,
     or a receiver, trustee,



                                       69





     liquidator  or other  custodian  shall be appointed for the Borrower or any
     Material  Group or for any of the  property of the Borrower or any Material
     Group or a petition in bankruptcy,  or under any  insolvency  law, shall be
     filed by or against the Borrower or any  Material  Group or the Borrower or
     any Material  Group shall apply for the benefit of, or take  advantage  of,
     any law for relief of debtors,  or enter into an arrangement or composition
     with, or make an assignment for the benefit of, creditors; or

          (g) final judgment for the payment of money in excess of any aggregate
     of $500,000 shall be rendered  against the Borrower or any Material  Group,
     and the same shall remain undischarged for a period of 30 days during which
     execution shall not be effectively stayed; or

          (h) an event of  default,  as therein  defined,  shall occur under any
     other Loan Document; or

          (i)  any  of  the  Notes  or LC  Account  Agreement  shall  be  deemed
     unenforceable  by a court of competent  jurisdiction  or shall no longer be
     effective; or

          (j) the Borrower or any Consolidated  Entity shall,  other than in the
     ordinary course of business (as determined by past practices),  suspend all
     or any part of its  operations  material to the conduct of the  business of
     the Borrower and its Consolidated Entities,  taken as a whole, for a period
     of more than 60 days;

          (k) the  Borrower or any  Consolidated  Entity shall breach any of the
     material terms or conditions of any agreement  under which any Rate Hedging
     Obligations  are created and such breach  shall  continue  beyond any grace
     period,  if any,  relating thereto pursuant to the terms of such agreement,
     or the  Borrower or any  Consolidated  Entity  shall  disaffirm  or seek to
     disaffirm any such agreement or any of its obligations thereunder;

          (l) there shall occur (i) any cancellation,  revocation, suspension or
     termination of any Medicare  Certification,  Medicare  Provider  Agreement,
     Medicaid   Certification  or  Medicaid  Provider  Agreement  affecting  the
     Borrower,  any Subsidiary or any Contract Provider, or (ii) the loss of any
     other permits, licenses,  authorizations,  certifications or approvals from
     any federal,  state or local  Governmental  Authority or termination of any
     contract  with any such  authority,  in  either  case  which  cancellation,
     revocation,  suspension,  termination  or  loss  (X)  in  the  case  of any
     suspension or temporary  loss only,  continues for a period greater than 60
     days and (Y) results in the  suspension or termination of operations of the
     Borrower  or any  Subsidiary  or in the  failure  of  the  Borrower  or any
     Subsidiaries  or any  Contract  Provider to be eligible to  participate  in
     Medicare  or  Medicaid  programs  or to  accept  assignments  of  rights to
     reimbursement under Medicaid  Regulations or Medicare  Regulations,  if and
     only if such Person,  in the ordinary  course of business,  participates in
     the  Medicare or  Medicare  programs  or accepts  assignments  of rights to
     reimbursement  thereunder;  provided that any such events described in this
     Section  9.1(l)  shall  constitute  an Event of Default  only if such event
     shall  result  either  singly  or in  the  aggregate  in  the  termination,
     cancellation, suspension or material impairment of operations



                                       70





     or rights to reimbursement which produce 5% or more of the Borrower's gross
     revenues (on an annualized basis); or

          (m) there shall occur a Change of Control;

then, and in any such event and at any time thereafter, if such Event of Default
or any other Event of Default shall then be  continuing  and shall have not been
waived,

          (A)  either or both of the  following  actions  may be taken:  (i) the
     Agent, with the consent of the Required Lenders,  may, and at the direction
     of the Required  Lenders  shall,  declare any obligation of the Lenders and
     the Issuing Bank to make further  Loans or to issue  additional  Letters of
     Credit terminated,  whereupon the obligation of each Lender to make further
     Loans  and of the  Issuing  Bank to  issue  additional  Letters  of  Credit
     hereunder  shall  terminate  immediately,  and (ii) the Agent  shall at the
     direction of the Required  Lenders,  at their option,  declare by notice to
     the  Borrower  any or all of the  Obligations  to be  immediately  due  and
     payable, and the same, including all interest accrued thereon and all other
     obligations of the Borrower to the Agent and the Lenders,  shall  forthwith
     become immediately due and payable without  presentment,  demand,  protest,
     notice or other  formality of any kind,  all of which are hereby  expressly
     waived,  anything  contained  herein or in any  instrument  evidencing  the
     Obligations  to  the  contrary  notwithstanding;  provided,  however,  that
     notwithstanding  the above,  if there shall occur an Event of Default under
     clause (f) above,  then the  obligation of the Lenders to make Loans and of
     the Issuing Bank to issue Letters of Credit  hereunder shall  automatically
     terminate and any and all of the  Obligations  shall be immediately due and
     payable  without the  necessity  of any action by the Agent or the Required
     Lenders or notice to the Agent or the Lenders; and

          (B) the  Borrower  shall,  upon  demand of the  Agent or the  Required
     Lenders,  deposit cash with the Agent in an amount  equal to the  aggregate
     amount  remaining  undrawn  under all  outstanding  Letters of  Credit,  as
     collateral  security for the  repayment of any future  drawings or payments
     under such Letters of Credit,  and such amounts  shall be held by the Agent
     pursuant to the terms of the LC Account Agreement; and

          (C) the Agent and each of the Lenders shall have all of the rights and
     remedies available under the Loan Documents or under any applicable law.

     9.2.  Agent to Act. In case any one or more  Events of Default  shall occur
and be continuing and not have been waived,  the Agent may, and at the direction
of the Required  Lenders  shall,  proceed to protect and enforce their rights or
remedies either by suit in equity or by action at law, or both,  whether for the
specific  performance of any covenant,  agreement or other  provision  contained
herein  or in  any  other  Loan  Document,  or to  enforce  the  payment  of the
Obligations or any other legal or equitable right or remedy.

     9.3.  Cumulative  Rights.  No right or  remedy  herein  conferred  upon the
Lenders or the Agent is intended to be exclusive of any other rights or remedies
contained  herein or in any other Loan Document,  and every such right or remedy
shall be cumulative and shall be in addition to



                                       71





every  other  such  right or  remedy  contained  herein  and  therein  or now or
hereafter existing at law or in equity or by statute, or otherwise.

     9.4. No Waiver. No course of dealing between the Borrower and any Lender or
the  Agent or any  failure  or delay on the part of any  Lender  or the Agent in
exercising any rights or remedies under any Loan Document or otherwise available
to it shall  operate  as a waiver  of any  rights or  remedies  and no single or
partial exercise of any rights or remedies shall operate as a waiver or preclude
the exercise of any other  rights or remedies  hereunder or of the same right or
remedy on a future occasion.

     9.5.  Allocation  of Proceeds.  If an Event of Default has occurred and not
been waived, and the maturity of the Notes has been accelerated pursuant to this
Article  IX, all  payments  received by the Agent  hereunder,  in respect of any
principal of or interest on the  Obligations or any other amounts payable by the
Borrower hereunder, shall be applied by the Agent in the following order:

          (i)  amounts due to the  Lenders  pursuant to Section  2.10 or Section
     11.6;

          (ii) amounts due to the Agent and the Issuing Bank pursuant to Section
     10.8, Section 3.3 and Section 3.4;

          (iii)  payments  of  interest,  to be  applied  pro rata  based on the
     proportion   which  the   principal   amount  of   outstanding   Loans  and
     Reimbursement  Obligations  of  each  Lender  bears  to  the  total  of all
     outstanding Loans and Reimbursement Obligations;

          (iv)  payments  of  principal,  to be  applied  pro rata  based on the
     proportion   which  the   principal   amount  of   outstanding   Loans  and
     Reimbursement  Obligations  of  each  Lender  bears  to  the  total  of all
     outstanding Loans and Reimbursement Obligations;

          (v) payment of cash amounts to the Agent pursuant to Section 9.1(B);

          (vi) payments of all other amounts due under this  Agreement,  if any,
     to be applied in  accordance  with each Lender's pro rata share of all such
     other amounts due to the Lenders; and

          (vii) any surplus  remaining after application as provided for herein,
     to the Borrower or otherwise as may be required by applicable law.



                                       72





                                    ARTICLE X

                                    The Agent

     10.1. Appointment,  Powers, and Immunities.  Each Lender hereby irrevocably
appoints and  authorizes  the Agent to act as its agent under this Agreement and
the other Loan  Documents  with such powers and  discretion as are  specifically
delegated  to the  Agent  by the  terms of this  Agreement  and the  other  Loan
Documents, together with such other powers as are reasonably incidental thereto.
The Agent (which term as used in this sentence and in Section 10.5 and the first
sentence of Section 10.6 hereof shall include its affiliates and its own and its
affiliates' officers, directors,  employees, and agents): (a) shall not have any
duties or  responsibilities  except those  expressly set forth in this Agreement
and  shall  not be a  trustee  or  fiduciary  for any  Lender;  (b) shall not be
responsible  to the  Lenders  for any  recital,  statement,  representation,  or
warranty  (whether  written  or  oral)  made in or in  connection  with any Loan
Document or any certificate or other document referred to or provided for in, or
received by any of them under,  any Loan Document,  or for the value,  validity,
effectiveness, genuineness, enforceability, or sufficiency of any Loan Document,
or any other document  referred to or provided for therein or for any failure by
any  Person  to  perform  any of its  obligations  thereunder;  (c) shall not be
responsible  for or have any duty to  ascertain,  inquire  into,  or verify  the
performance  or  observance  of any covenants or agreements by any Person or the
satisfaction  of any condition or to inspect the property  (including  the books
and records) of any Person; (d) shall not be required to initiate or conduct any
litigation or collection  proceedings under any Loan Document; and (e) shall not
be  responsible  for any  action  taken or omitted to be taken by it under or in
connection  with any Loan  Document,  except for its own  negligence  or willful
misconduct.  The Agent may employ agents and  attorneys-in-fact and shall not be
responsible   for  the   negligence   or   misconduct  of  any  such  agents  or
attorneys-in-fact  selected by it with  reasonable  care. The  Co-Arrangers  and
Syndication  Agents shall have no  responsibilities  under this Agreement  other
than as a Lender.

     10.2.  Reliance  by Agent.  The Agent  shall be  entitled  to rely upon any
certification,  notice, instrument,  writing, or other communication (including,
without limitation, any thereof by telephone or telefacsimile) believed by it to
be genuine and correct and to have been signed,  sent or made by or on behalf of
the proper Person or Persons,  and upon advice and  statements of legal counsel,
independent accountants,  and other experts selected by the Agent. The Agent may
deem and treat  the payee of any Note as the  holder  thereof  for all  purposes
hereof  unless  and until the Agent  receives  and  accepts  an  Assignment  and
Acceptance  executed in accordance  with Section 11.1 hereof.  As to any matters
not expressly provided for by this Agreement, the Agent shall not be required to
exercise any  discretion or take any action,  but shall be required to act or to
refrain  from acting (and shall be fully  protected  in so acting or  refraining
from  acting)  upon  the  instructions  of  the  Required   Lenders,   and  such
instructions shall be binding on all of the Lenders; provided, however, that the
Agent  shall  not be  required  to take any  action  that  exposes  the Agent to
personal liability or that is contrary to any Loan Document or applicable law or
unless it shall first be indemnified to its  satisfaction by the Lenders against
any and all  liability  and  expense  which may be  incurred  by it by reason of
taking any such action.

     10.3.  Defaults.  The Agent shall not be deemed to have knowledge or notice
of the occurrence of a Default or Event of Default unless the Agent has received
written notice from



                                       73






a Lender or the Borrower specifying such Default or Event of Default and stating
that such notice is a "Notice of Default".  In the event that the Agent receives
such a notice of the  occurrence  of a Default  or Event of  Default,  the Agent
shall give prompt  notice  thereof to the Lenders.  The Agent shall  (subject to
Section  10.2  hereof) take such action with respect to such Default or Event of
Default as shall reasonably be directed by the Required Lenders,  provided that,
unless and until the Agent shall have  received such  directions,  the Agent may
(but shall not be obligated  to) take such  action,  or refrain from taking such
action,  with  respect  to such  Default  or Event of  Default  as it shall deem
advisable in the best interest of the Lenders.

     10.4. Rights as Lender. With respect to its Revolving Credit Commitment and
the Loans made by it,  NationsBank  (and any  successor  acting as Agent) in its
capacity as a Lender  hereunder shall have the same rights and powers  hereunder
as any other  Lender and may  exercise  the same as though it were not acting as
the  Agent,  and the term  "Lender"  or  "Lenders"  shall,  unless  the  context
otherwise indicates,  include the Agent in its individual capacity.  NationsBank
(and any successor  acting as Agent) and its affiliates  may (without  having to
account  therefor  to any  Lender)  accept  deposits  from,  lend money to, make
investments  in,  provide  services  to,  and  generally  engage  in any kind of
lending,  trust, or other business with the Borrower or any of its  Subsidiaries
or  affiliates  as if it were not  acting as  Agent,  and  NationsBank  (and any
successor  acting  as  Agent)  and its  affiliates  may  accept  fees and  other
consideration  from the Borrower or any of its  Subsidiaries  or affiliates  for
services in  connection  with this  Agreement  or  otherwise  without  having to
account for the same to the Lenders.

     10.5.  Indemnification.  The Lenders  agree to indemnify  the Agent (to the
extent not  reimbursed  under  Section 11.12  hereof,  but without  limiting the
obligations of the Borrower under such Section) ratably in accordance with their
respective   Revolving  Credit   Commitments,   for  any  and  all  liabilities,
obligations,  losses, damages, penalties,  actions, judgments, suits, reasonable
costs and expenses (including attorneys' fees), or disbursements of any kind and
nature  whatsoever that may be imposed on,  incurred by or asserted  against the
Agent  (including  by any  Lender) in any way  relating to or arising out of any
Loan Document or the  transactions  contemplated  thereby or any action taken or
omitted by the Agent under any Loan  Document;  provided that no Lender shall be
liable  for any of the  foregoing  to the  extent  they  arise  from  the  gross
negligence  or  willful  misconduct  of the  Person to be  indemnified.  Without
limitation of the foregoing,  each Lender agrees to reimburse the Agent promptly
upon  demand  for its  ratable  share of any costs or  expenses  payable  by the
Borrower  under  Section  11.6,  to the  extent  that the Agent is not  promptly
reimbursed for such costs and expenses by the Borrower. The agreements contained
in this Section shall survive payment in full of the Loans and all other amounts
payable under this Agreement.

     10.6.Non-Reliance  on Agent and Other  Lenders.  Each Lender agrees that it
has,  independently  and without reliance on the Agent or any other Lender,  and
based on such documents and information as it has deemed  appropriate,  made its
own credit analysis of the Borrower and its  Subsidiaries  and decision to enter
into this Agreement and that it will,  independently  and without  reliance upon
the Agent or any other Lender, and based on such documents and information as it
shall  deem  appropriate  at the time,  continue  to make its own  analysis  and
decisions in taking or not taking  action under the Loan  Documents.  Except for
notices,  reports, and other documents and information  expressly required to be
furnished to the



                                       74





Lenders  by  the  Agent  hereunder,  the  Agent  shall  not  have  any  duty  or
responsibility  to  provide  any  Lender  with any  credit or other  information
concerning the affairs,  financial condition, or business of the Borrower or any
of its Subsidiaries or affiliates that may come into the possession of the Agent
or any of its affiliates.

     10.7.  Resignation  of Agent.  The  Agent may  resign at any time by giving
notice thereof to the Lenders and the Borrower.  Upon any such resignation,  the
Required  Lenders  shall have the right to appoint a successor  Agent subject to
the  approval of the  Borrower  so long as no Default or Event of Default  shall
have occurred and be continuing,  such approval not to be unreasonably withheld.
If no successor  Agent shall have been so appointed by the Required  Lenders and
shall have accepted such appointment  within thirty (30) days after the retiring
Agent's giving of notice of resignation,  then the retiring Agent may, on behalf
of the  Lenders,  appoint a successor  Agent which  shall be a  commercial  bank
organized under the laws of the United States of America having combined capital
and surplus of at least $100,000,000.  Upon the acceptance of any appointment as
Agent hereunder by a successor,  such successor  shall thereupon  succeed to and
become vested with all the rights, powers, discretion, privileges, and duties of
the retiring  Agent,  and the retiring Agent shall be discharged from its duties
and obligations  hereunder.  After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article X shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.

     10.8.  Fees.  The Borrower  agrees to pay to the Agent,  for its individual
account, an annual Administrative  Agent's fee as from time to time agreed to by
the Borrower and Agent in writing.






                                       75





                                   ARTICLE XI

                                  Miscellaneous

     11.1. Assignments and Participations.  (a) Each Lender may assign to one or
more  Eligible  Assignees all or a portion of its rights and  obligations  under
this Agreement  (including,  without limitation,  all or a portion of its Loans,
its Note, and its Revolving Credit Commitment); provided, however, that

          (i) each such assignment shall be to an Eligible Assignee;

          (ii)  except  in the case of an  assignment  to  another  Lender or an
assignment of all of a Lender's rights and obligations under this Agreement, any
such partial assignment shall be in an amount at least equal to $5,000,000 or an
integral multiple of $1,000,000 in excess thereof;

          (iii) each such assignment by a Lender shall be of a constant, and not
varying,  percentage of all of its rights and  obligations  under this Agreement
and the Note; and

          (iv) the parties to such  assignment  shall execute and deliver to the
Agent for its  acceptance an Assignment  and Acceptance in the form of Exhibit B
hereto,  together with any Note subject to such  assignment and a processing fee
of $3,000.

Upon execution,  delivery, and acceptance of such Assignment and Acceptance, the
assignee  thereunder  shall  be a  party  hereto  and,  to the  extent  of  such
assignment, have the obligations, rights, and benefits of a Lender hereunder and
the assigning  Lender shall,  to the extent of such  assignment,  relinquish its
rights and be  released  from its  obligations  under this  Agreement.  Upon the
consummation of any assignment pursuant to this Section, the assignor, the Agent
and the Borrower shall make appropriate  arrangements so that, if required,  new
Notes are  issued to the  assignor  and the  assignee.  If the  assignee  is not
incorporated  under the laws of the United States of America or a state thereof,
it shall  deliver to the  Borrower and the Agent  certification  as to exemption
from deduction or withholding of Taxes in accordance with Section 4.6.

     (b) The Agent shall  maintain at its address  referred to in Section 11.2 a
copy of each  Assignment  and  Acceptance  delivered to and accepted by it and a
register for the  recordation  of the names and addresses of the Lenders and the
Revolving Credit Commitment of, and principal amount of the Loans owing to, each
Lender from time to time (the "Register").  The entries in the Register shall be
conclusive  and  binding  for  all  purposes,  absent  manifest  error,  and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender  hereunder for all purposes of this  Agreement.  The
Register  shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.

     (c) Upon its  receipt  of an  Assignment  and  Acceptance  executed  by the
parties  thereto,  together with any Note subject to such assignment and payment
of the processing  fee, the Agent shall,  if such  Assignment and Acceptance has
been completed and is in substantially the form



                                       76





of Exhibit B hereto, (i) accept such Assignment and Acceptance,  (ii) record the
information  contained  therein in the  Register  and (iii) give  prompt  notice
thereof to the parties thereto.

     (d) Each Lender may sell  participations to one or more Persons in all or a
portion  of its  rights,  obligations  or  rights  and  obligations  under  this
Agreement  (including all or a portion of its Revolving Credit Commitment or its
Loans); provided, however, that (i) any such participation in a Revolving Credit
Commitment,  but  not its  Loans,  shall  be in an  amount  at  least  equal  to
$5,000,000 or an integral  multiple of $1,000,000 in excess  thereof,  (ii) such
Lender's  obligations  under this Agreement shall remain  unchanged,  (iii) such
Lender shall  remain  solely  responsible  to the other  parties  hereto for the
performance of such  obligations,  (iv) the participant shall be entitled to the
benefit of the yield protection provisions contained in Article IV and the right
of set-off  contained in Section 11.4,  and (v) the Borrower  shall  continue to
deal solely and  directly  with such  Lender in  connection  with such  Lender's
rights and obligations  under this  Agreement,  and such Lender shall retain the
sole right to enforce the obligations of the Borrower  relating to its Loans and
its Note and to approve any amendment,  modification, or waiver of any provision
of this Agreement (other than amendments,  modifications,  or waivers decreasing
the  amount of  principal  of or the rate at which  interest  is payable on such
Loans or Note,  extending any scheduled principal payment date or date fixed for
the payment of interest on such Loans or Note, or extending its Revolving Credit
Commitment).

     (e)  Notwithstanding  any other provision set forth in this Agreement,  any
Lender may at any time assign and pledge all or any portion of its Loans and its
Note to any Federal Reserve Bank as collateral security pursuant to Regulation A
and  any  Operating  Circular  issued  by such  Federal  Reserve  Bank.  No such
assignment shall release the assigning Lender from its obligations hereunder.

     (f) Any Lender may furnish any  information  concerning the Borrower or any
of its  Subsidiaries  in the  possession  of such  Lender  from  time to time to
assignees and participants  (including  prospective assignees and participants);
provided,  however  that such Lender  shall (a) take  reasonable  and  customary
measures to safeguard the confidentiality of non-public information,  (b) advise
such  assignees  or  participants  of the  confidentiality  of  such  non-public
information  and (c) obtain the agreement of such assignees or  participants  to
maintain the confidentiality thereof.

     11.2.  Notices.  Any  notice  shall be  conclusively  deemed  to have  been
received by any party hereto and be effective (i) on the day on which  delivered
(including hand delivery by commercial  courier  service) to such party (against
receipt  therefor),  (ii) on the date of receipt at such address,  telefacsimile
number or telex  number as may from time to time be  specified  by such party in
written notice to the other parties hereto or otherwise  received),  in the case
of notice by telegram,  telefacsimile or telex,  respectively (where the receipt
of such message is verified by return), or (iii) on the fifth Business Day after
the day on which mailed, if sent prepaid by certified or registered mail, return
receipt  requested,  in each case delivered,  transmitted or mailed, as the case
may be, to the address,  telex number or telefacsimile  number,  as appropriate,
set forth below or such other  address or number as such party shall  specify by
notice hereunder:



                                       77





          (a)  if to the Borrower:

               Michael D. Martin, Executive Vice President, Chief
                  Financial Officer and Treasurer

               HEALTHSOUTH Corporation
               One HealthSouth Parkway
               Birmingham, Alabama  35243

               with a copy to:

               William W. Horton
               HEALTHSOUTH Corporation
               One HealthSouth Parkway
               Birmingham, Alabama  35243

          (b)  if to the Agent at:

               One Independence Center, 15th Floor
               101 North Tryon Street
               Charlotte, North Carolina  28255
               Attention:  Agency Services
               Reference: HEALTHSOUTH Corporation

          (c)  if to the Lenders:

               At the addresses  set forth on the signature  pages hereof and on
               the signature page of each Assignment and Acceptance.

     11.3. No Waiver.  No failure or delay on the part of the Agent,  any Lender
or the Borrower in the exercise of any right, power or privilege hereunder shall
operate as a waiver of any such  right,  power or  privilege  nor shall any such
failure or delay preclude any other or further exercise thereof.  The rights and
remedies  herein  provided  are  cumulative  and not  exclusive of any rights or
remedies provided by law.

     11.4. Rights of Setoff; Adjustments. (a) The Borrower agrees that the Agent
and each Lender shall have a Lien for all the  Obligations  of the Borrower upon
all deposits or deposit  accounts,  of any kind, or any interest in any deposits
or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or
assigned to the Agent or such Lender or otherwise in the  possession  or control
of the Agent or such Lender (other than for safekeeping) for any purpose for the
account or benefit of the  Borrower  and  including  any  balance of any deposit
account or of any credit of the Borrower with the Agent or such Lender,  whether
now existing or hereafter  established,  hereby  authorizing  the Agent and each
Lender at any time or times  from and after the  occurrence  of a Default  or an
Event of Default with or without  prior notice to set off against and apply such
balances or any part thereof to such of the  Obligations  of the Borrower to the
Lenders then past due and in such amounts as they may elect,  and whether or not
the collateral or the  responsibility of other Person primarily,  secondarily or
otherwise liable may be



                                       78





deemed  adequate.  For the  purposes  of this  paragraph,  all  remittances  and
property  shall be deemed to be in the possession of the Agent or such Lender as
soon as the  same may be put in  transit  to it by mail or  carrier  or by other
bailee.

     (b) If any Lender (a  "benefited  Lender")  shall at any time  receive  any
payment of all or part of the Loans owing to it, or interest thereon, or receive
any collateral in respect  thereof  (whether  voluntarily or  involuntarily,  by
set-off,  or  otherwise),  in a greater  proportion  than any such payment to or
collateral  received  by any other  Lender,  if any,  in  respect  of such other
Lender's Loans owing to it, or interest  thereon,  such benefitted  Lender shall
purchase  for cash  from the  other  Lenders a  participating  interest  in such
portion of each such other  Lender's  Loans owing to it, or shall  provide  such
other Lenders with the benefits of any such collateral, or the proceeds thereof,
as shall be  necessary  to cause  such  benefitted  Lender to share  the  excess
payment or benefits of such  collateral  or  proceeds  ratably  with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter  recovered  from such  benefitted  Lender,  such purchase
shall be rescinded,  and the purchase price and benefits returned, to the extent
of such recovery,  but without interest.  The Borrower agrees that any Lender so
purchasing a  participation  from a Lender pursuant to this Section 11.4 may, to
the  fullest  extent  permitted  by law,  exercise  all of its rights of payment
(including the right of set-off) with respect to such  participation as fully as
if such  Person were the direct  creditor of the  Borrower in the amount of such
participation.

     11.5. Survival. All covenants,  agreements,  representations and warranties
made  herein  shall  survive  the  making  by the  Lenders  of the Loans and the
issuance of the Letters of Credit and the  execution and delivery to the Lenders
of this  Agreement and the Notes and shall  continue in full force and effect so
long as any of Obligations  remain  outstanding or any Lender has any commitment
hereunder or the Borrower has continuing  obligations hereunder unless otherwise
provided  herein.  Whenever  in this  Agreement  any of the  parties  hereto  is
referred  to,  such  reference  shall be deemed to include  the  successors  and
permitted assigns of such party and all covenants,  provisions and agreements by
or on behalf of the Borrower  which are  contained in the Loan  Documents  shall
inure to the benefit of the successors  and permitted  assigns of the Lenders or
any of them.

     11.6.  Expenses.  The Borrower agrees (a) to pay or reimburse the Agent for
all its reasonable and customary  out-of-pocket  costs and expenses  incurred in
connection  with  the  preparation,   negotiation  and  execution  of,  and  any
amendment,  supplement or  modification  to, this  Agreement or any of the other
Loan Documents, and the consummation of the transactions contemplated hereby and
thereby,  including,  without limitation,  the reasonable and customary fees and
disbursements  of counsel to the Agent,  (b) to pay or reimburse  the Agent and,
after an Event of  Default,  each  Lender  for all  their  reasonable  costs and
expenses  incurred in connection  with the  enforcement or  preservation  of any
rights under this Agreement,  including without limitation,  the reasonable fees
and disbursements of their counsel,  (c) to pay, indemnify and hold harmless the
Agent and each Lender from any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any failure of Borrower to pay or
delay of Borrower in paying,  documentary,  stamp, excise, withholding and other
similar  taxes,  if any,  which may be  payable or  determined  to be payable in
connection with the execution and delivery of, or consummation of any amendment,
supplement or modification of, or any waiver or consent under or in respect



                                       79





of,  this  Agreement,  and (d) from and  after  the  occurrence  of any Event of
Default to pay, and  indemnify  and hold harmless the Agent and each Lender from
and  against,  any and all  other  liabilities,  obligations,  losses,  damages,
penalties,  actions,  judgments,  suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery,  enforcement,
performance and  administration  of this Agreement or in any respect relating to
the   transactions   contemplated   hereby  or  thereby,   (all  the  foregoing,
collectively,  the  "indemnified  liabilities");  provided,  however,  that  the
Borrower  shall  have  no  obligation  hereunder  with  respect  to  indemnified
liabilities  arising from (i) the willful  misconduct or negligence of the party
seeking  indemnification,  (ii) legal proceedings commenced against the Agent or
any Lender by any security  holder or creditor  thereof arising out of and based
upon rights afforded any such security holder or creditor solely in its capacity
as such,  (iii) any taxes  imposed  upon the Agent or any Lender  other than the
documentary,  stamp,  excise,  withholding and similar taxes described in clause
(c) above or any tax resulting  from any change  described in Section 4.1, which
tax would be payable to Lenders by  Borrower  pursuant to Article IV, (iv) taxes
imposed as a result of a transfer or  assignment of any Note,  participation  or
assignment of a portion of its rights, (v) any taxes imposed upon any transferee
of any  Note,  or (vi) by reason of the  failure  of the Agent or any  Lender to
perform its or their  obligations  under this Agreement.  The agreements in this
subsection shall survive the Revolving Credit Termination Date.

     11.7.  Amendments and Waivers. Any provision of this Agreement or any other
Loan Document may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required  Lenders  (and,  if
Article X or the  rights or duties  of the Agent are  affected  thereby,  by the
Agent);  provided that no such  amendment or waiver shall,  unless signed by all
the Lenders,  (i) increase the  Revolving  Credit  Commitments  or the Letter of
Credit  Commitment  of the  Lenders,  (ii)  reduce the  principal  of or rate of
interest  on any Loan or any  fees or other  amounts  payable  hereunder,  (iii)
postpone  any  date  fixed  for the  payment  of any  scheduled  installment  of
principal  of or  interest  on any  Loan or any fees or  other  amounts  payable
hereunder or for termination of any Revolving Credit Commitment, (iv) change the
percentage of the Revolving Credit Commitments or of the unpaid principal amount
of the Notes, or the percentage of Lenders that constitute  Required  Lenders or
(v) amend the definition of "Required Lenders" or amend Section 11.15.

     11.8.  Counterparts.  This  Agreement  may be  executed  in any  number  of
counterparts,  each of which when so executed and  delivered  shall be deemed an
original,  and it shall not be necessary  in making  proof of this  Agreement to
produce or account for more than one such fully- executed counterpart.

     11.9. Waivers by Borrower.  IN ANY LITIGATION IN ANY COURT WITH RESPECT TO,
IN CONNECTION  WITH,  OR ARISING OUT OF THIS  AGREEMENT,  THE LOANS,  ANY OF THE
NOTES, ANY OF THE OTHER LOAN DOCUMENTS,  THE  OBLIGATIONS,  OR ANY INSTRUMENT OR
DOCUMENT  DELIVERED  PURSUANT TO THIS  AGREEMENT,  OR THE VALIDITY,  PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE
HOWSOEVER  ARISING  BETWEEN  THE  BORROWER  AND THE  LENDERS OR THE  AGENT,  THE
BORROWER AND EACH LENDER AND THE AGENT HEREBY WAIVE, TO THE EXTENT  PERMITTED BY
LAW, TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION.



                                       80





     The  Borrower,  the Agent and the Lenders  believe  that,  inasmuch as this
Agreement and the  transactions  contemplated  hereby have been entered into and
consummated  outside  the  State  of  Alabama,   such  transactions   constitute
transactions  in interstate  commerce,  so that neither the Agent nor any of the
Lenders is required, solely by entering into this Agreement and consummating the
transactions  contemplated  hereby,  to  qualify  to do  business  as a  foreign
corporation within the State of Alabama. Notwithstanding the foregoing, however,
the Borrower hereby  irrevocably waives all rights that it may have to raise, in
any action  brought by any of the  Lenders or the Agent to enforce the rights of
the Lenders and the Agent hereunder or under any of the other Loan Documents, or
the  obligations of the Borrower  hereunder or thereunder,  any defense which is
based  upon the  failure  of any of the  Lenders  or the Agent to  qualify to do
business as a foreign  corporation in the State of Alabama,  including,  but not
limited to, any defenses based upon ss. 232 of the Alabama Constitution of 1901,
ss.  10-2B-15.01  of the Code of  Alabama  (1975) or ss.  40-14-4 of the Code of
Alabama (1975), or any successor provision to any thereof.  The foregoing waiver
is made knowingly and voluntarily and is a material inducement for the Agent and
the Lenders to enter into the transactions contemplated by this Agreement or any
of the other Loan Documents.

     11.10. Termination.  The termination of this Agreement shall not affect any
rights  of the  Borrower,  the  Lenders  or the Agent or any  obligation  of the
Borrower,  the Lenders or the Agent, arising prior to the effective date of such
termination,  and the  provisions  hereof shall  continue to be fully  operative
until all  transactions  entered into or rights created or obligations  incurred
prior to such  termination  have been fully disposed of, concluded or liquidated
and the  Obligations  arising  prior  to or after  such  termination  have  been
irrevocably paid in full. The rights granted to the Agent for the benefit of the
Lenders  hereunder  and under the other Loan  Documents  shall  continue in full
force and effect,  notwithstanding the termination of this Agreement,  until all
of the Obligations  have been paid in full after the  termination  hereof or the
Borrower  has  furnished  the  Lenders  and the  Agent  with an  indemnification
satisfactory   to  the  Agent  and  each  Lender  with  respect   thereto.   All
representations,  warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until payment in full of the Obligations unless
otherwise provided herein.  Notwithstanding  the foregoing,  if after receipt of
any payment of all or any part of the Obligations,  any Lender is for any reason
compelled  to  surrender  such  payment to any Person  because  such  payment is
determined  to be void or  voidable as a  preference,  impermissible  setoff,  a
diversion of trust funds or for any other reason,  this Agreement shall continue
in full force and the Borrower shall be liable to, and shall  indemnify and hold
such Lender  harmless  for,  the amount of such payment  surrendered  until such
Lender shall have been finally and  irrevocably  paid in full. The provisions of
the  foregoing  sentence  shall  be and  remain  effective  notwithstanding  any
contrary  action which may have been taken by the Lenders in reliance  upon such
payment, and any such contrary action so taken shall be without prejudice to the
Lenders'  rights  under  this  Agreement  and  shall  be  deemed  to  have  been
conditioned upon such payment having become final and irrevocable.

     11.11.  Governing Law. ALL DOCUMENTS  EXECUTED PURSUANT TO THE TRANSACTIONS
CONTEMPLATED HEREIN, INCLUDING,  WITHOUT LIMITATION,  THIS AGREEMENT AND EACH OF
THE OTHER LOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER, AND FOR ALL
PURPOSES  SHALL BE CONSTRUED IN ACCORDANCE  WITH, THE INTERNAL LAWS AND JUDICIAL
DECISIONS OF THE STATE OF NORTH  CAROLINA.  THE BORROWER  HEREBY  SUBMITS TO THE
JURISDICTION AND VENUE OF THE STATE



                                       81





AND FEDERAL  COURTS OF NORTH  CAROLINA FOR THE  PURPOSES OF  RESOLVING  DISPUTES
HEREUNDER  OR  ARISING  OUT OF THE  TRANSACTION  CONTEMPLATED  HEREBY OR FOR THE
PURPOSES OF COLLECTION.

     11.12.  Indemnification.  In consideration of the execution and delivery of
this  Agreement by the Agent and each Lender and the  extension of the Revolving
Credit  Commitments,  and so long as the Agent and Lenders have fulfilled  their
obligations  hereunder,  the Borrower hereby  indemnifies,  exonerates and holds
free and  harmless  the  Agent  and  each  Lender  and each of their  respective
officers,  directors,  employees,  affiliates  and  agents  (collectively,   the
"Indemnified  Parties") from and against any and all actions,  causes of action,
claims, suits, losses, costs,  liabilities and damages, and expenses incurred in
connection  therewith  (irrespective of whether any such Indemnified  Party is a
party to the action for which  indemnification  hereunder is sought),  including
reasonable  attorneys' fees and  disbursements  (collectively,  the "Indemnified
Liabilities"),  incurred by the  Indemnified  Parties or any of them as a result
of, or arising out of, or relating to, any of the following:

          (a) any  transaction  financed  or to be financed in whole or in part,
     directly or  indirectly,  with the proceeds of any Loan or supported by any
     Letter of Credit;

          (b) the entering into and  performance of this Agreement and any other
     Loan Document by any of the Indemnified Parties;

          (c) provided  Lenders have no ownership  interest in real  property of
     Borrower,  any  investigation,  litigation  or  proceeding  related  to any
     environmental  cleanup,  audit,  compliance or other matter relating to the
     protection of the  environment or the release by the Borrower or any of its
     Subsidiaries or Controlled Partnerships of any hazardous waste material; or

          (d) provided  Lenders have no ownership  interest in real  property of
     Borrower,  the  presence  on or under,  or the  escape,  seepage,  leakage,
     spillage,  discharge,  emission,  discharging  or  releases  from  any real
     property  owned or operated by the Borrower or any Subsidiary or Controlled
     Partnership  of  any  hazardous  waste  material   (including  any  losses,
     liabilities,  damages,  injuries,  costs,  expenses  or claims  asserted or
     arising under any environmental laws),  regardless of whether caused by, or
     within the  control  of, the  Borrower  or such  Subsidiary  or  Controlled
     Partnerships,

except  for any  such  Indemnified  Liabilities  arising  for the  account  of a
particular  Indemnified  Party by reason  of the  relevant  Indemnified  Party's
negligence  or willful  misconduct,  and if and to the extent that the foregoing
undertaking may be unenforceable  for any reason,  the Borrower hereby agrees to
make the maximum  contribution  to the payment and  satisfaction  of each of the
Indemnified   Liabilities   which  is  permissible  under  applicable  law.  The
agreements in this Section 11.12 shall survive the Revolving Credit  Termination
Date.

     11.13.  Agreement  Controls.  In the event that any term of any of the Loan
Documents  other than this Agreement  conflicts with any term of this Agreement,
the terms and provisions of this Agreement shall control.



                                       82





     11.14.  Integration.  This Agreement and the other Loan Documents represent
the final  agreement  between  the parties as to the  subject  matter  hereof or
thereof and may not be  contradicted by evidence of prior,  contemporaneous,  or
subsequent oral agreements of the parties.  There are no oral agreements between
the parties.

     11.15.  Successors and Assigns.  This  Agreement  shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that the Borrower may not assign or transfer its
rights or obligations  hereunder  without the prior written consent of the Agent
and all Lenders. The Agent and the Lenders may assign or transfer their interest
hereunder but only as provided herein.

     11.16.  Severability.  If any provision of this Agreement or the other Loan
Documents  shall be determined to be illegal or invalid as to one or more of the
parties  hereto,  then such provision shall remain in effect with respect to all
parties,  if any, as to whom such provision is neither illegal nor invalid,  and
in any event all other  provisions  hereof shall remain effective and binding on
the parties hereto.

     11.17.  Usury Savings Clause.  Notwithstanding  any other provision herein,
the  aggregate  interest  rate  charged  under any of the Notes,  including  all
charges or fees in connection  therewith  deemed in the nature of interest under
North  Carolina law,  shall not exceed the Highest  Lawful Rate (as such term is
defined  below).  If the rate of  interest  (determined  without  regard  to the
preceding  sentence) under this Agreement at any time exceeds the Highest Lawful
Rate (as defined  below),  the  outstanding  amount of the Loans made  hereunder
shall  bear  interest  at the  Highest  Lawful  Rate  until the total  amount of
interest due hereunder  equals the amount of interest  which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at all
times been in effect.  In addition,  if when the Loans made hereunder are repaid
in full the total  interest  due  hereunder  (taking  into  account the increase
provided for above) is less than the total  amount of interest  which would have
been due  hereunder if the stated rates of interest set forth in this  Agreement
had at all times  been in  effect,  then to the  extent  permitted  by law,  the
Borrower  shall pay to the Agent an amount equal to the  difference  between the
amount of the  interest  paid and the amount of  interest  which would have been
paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding
the  foregoing,  it is the  intention of the Lenders and the Borrower to conform
strictly to any applicable usury laws. Accordingly, if any Lender contracts for,
charges, or receives any consideration  which constitutes  interest in excess of
the Highest  Lawful Rate,  then any such excess shall be canceled  automatically
and,  if  previously  paid,  shall at such  Lender's  option be  applied  to the
outstanding  amount of the Loans made  hereunder or be refunded to the Borrower.
As used in this  paragraph,  the term  "Highest  Lawful Rate"  means,  as to any
Lender,  the maximum lawful interest rate, if any, that at any time or from time
to time may be contracted for, charged, or received under the laws applicable to
such  Lender  which are  presently  in effect or, to the extent  allowed by law,
under such  applicable  laws which may  hereafter be in effect and which allow a
higher maximum nonusurious interest rate than applicable laws now allow.



                                       83





     IN WITNESS  WHEREOF,  the parties hereto have caused this  instrument to be
made, executed and delivered by their duly authorized officers as of the day and
year first above written.

                                       HEALTHSOUTH CORPORATION

WITNESS:

    /S/  WILLIAM W. HORTON
    ----------------------
                                       By:    /S/  LEIF M. MURPHY
                                          --------------------------------------
    /S/  TAMMY TURNER                  Name:  Leif M. Murphy
    ----------------------             Title: Vice President - Finance









                                 Signature Page






                                       NATIONSBANK, NATIONAL ASSOCIATION
                                       as Agent for the Lenders

                                       By:    /S/  MICHAEL S. SYLVESTER
                                          --------------------------------------
                                       Name:    Michael S. Sylvester
                                       Title:      Vice President


                                       NATIONSBANK, NATIONAL ASSOCIATION

                                       By:    /S/  MICHAEL S. SYLVESTER
                                          --------------------------------------
                                       Name:    Michael S. Sylvester
                                       Title:      Vice President

                                         Applicable Lending Office:
                                           101 North Tryon Street, 15th Floor
                                           Charlotte, North Carolina 28255

                                         Wire Transfer Instructions:
                                           NationsBank, N.A.
                                           Charlotte, North Carolina
                                           ABA #053000196
                                           Account #136621-2250600
                                           Attention: Corporate Credit Services
                                           Reference: HEALTHSOUTH Corporation










                                 Signature Page






                                       SCOTIABANC INC.

                                       By:    /S/  DANA MALONEY
                                          --------------------------------------
                                       Name:    Dana Maloney
                                       Title:      Relationship Manager


                                       Lending Office:
                                       600 Peachtree Street, N.E.
                                       Suite 2700
                                       Atlanta, Georgia 30308

                                       Wire Transfer Instructions:
                                       The Bank of Nova Scotia - NY
                                       New York, New York
                                       ABA #026002532
                                       F/C - The Bank of Nova Scotia - Atlanta
                                       Account #0606634
                                       Attention: ATL/Loan Operations
                                       Reference: HEALTHSOUTH Corporation








                                 Signature Page






                                     DEUTSCHE BANK AG NEW YORK BRANCH
                                     AND/OR CAYMAN ISLANDS BRANCH

                                     By:    /S/  SUSAN L. PEARSON
                                        --------------------------------------
                                     Name:    Susan L. Pearson
                                     Title:      Director


                                     By:    /S/  ROBERT WOOD
                                        --------------------------------------
                                     Name:       Robert Wood
                                     Title:      Director

                                     Lending Office:
                                     31 West 52nd Street
                                     New York, New York 10019

                                     Wire Transfer Instructions:
                                     Deutsche Bank AG
                                     New York Branch
                                     ABA #026003780
                                     Reference: HEALTHSOUTH Corporation







                                 Signature Page






                                     MORGAN GUARANTY TRUST COMPANY
                                     OF NEW YORK

                                     By:    /S/  DIANA H. IMHOF
                                        --------------------------------------
                                     Name:       Diana H. Imhof
                                     Title:      Vice President

                                     Lending Office:
                                     60 Wall Street
                                     New York, New York 10260-0060

                                     Wire Transfer Instructions:
                                     Morgan Guaranty Trust Company of New York
                                     New York, New York
                                     ABA #021000238
                                     For Credit to: Loan Department
                                     A/C #999-99-090
                                     Attention: Corporate Processing - Mod 23
                                     Reference: HEALTHSOUTH Corporation








                                 Signature Page






                                     WACHOVIA BANK, N.A.

                                     By:    /S/  JOHN C. COVENTRY
                                        --------------------------------------
                                     Name:    John C. Coventry
                                     Title:      Banking Officer

                                     Lending Office:
                                     191 Peachtree Street, N.E., 29th Floor
                                     Atlanta, Georgia 30303

                                     Wire Transfer Instructions:
                                     Wachovia Bank, N.A.
                                     Atlanta, Georgia
                                     ABA #061 000 010
                                     Account #18-171-498
                                     Account Name: FW Money Transfer Suspense
                                     Attention: Katrina Durrah
                                     Reference: HEALTHSOUTH Corporation









                                 Signature Page





                                     FIRST UNION NATIONAL BANK

                                     By:    /S/    JOSEPH H. TOWELL
                                        --------------------------------------
                                     Name:    Joseph H. Towell
                                     Title:      Senior Vice President

                                     Lending Office:
                                     One First Union Center, Floor TW5
                                     Charlotte, North Carolina 28288-0735

                                     Wire Transfer Instructions:
                                     First Union National Bank
                                     Charlotte, North Carolina
                                     ABA #053000219
                                     Account #465906 0001802
                                     Attention: Sue Patterson
                                     Reference: HEALTHSOUTH Corporation










                                 Signature Page





                                    THE BANK OF TOKYO-MITSUBISHI LTD.,
                                    NY BRANCH

                                    By:    /S/  DOUGLAS J. WEIR
                                       -----------------------------------------
                                    Name:       Douglas J. Weir
                                    Title:      Vice President

                                    Lending Office:
                                    1251 Avenue of the Americas, 12th Floor
                                    New York, New York 10020-1104

                                    Wire Transfer Instructions:
                                    The Bank of Tokyo-Mitsubishi Ltd., NY Branch
                                    ABA #0260-0963-2
                                    Short Name: BK Tokyo Mitsubishi Ltd.
                                    Further Credit to: Loan Operations Dept.
                                    CIF #97770191
                                    Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                     PNC BANK, NATIONAL ASSOCIATION

                                     By:    /S/  BENJAMIN A. WILLINGHAM
                                        ----------------------------------------
                                     Name:       Benjamin A. Willingham
                                     Title:      Vice President

                                     Lending Office:
                                     500 W. Jefferson, 2nd Floor
                                     Louisville, Kentucky 40202

                                     Wire Transfer Instructions:
                                     PNC Bank
                                     Louisville, Kentucky
                                     ABA #083 000 108
                                     Account #3000991434
                                     Attention: Commercial Loan Operations
                                     Reference: HEALTHSOUTH Corporation






                                 Signature Page





                                     MELLON BANK, N.A.

                                     By:    /S/  MARSHA WICKER
                                        ----------------------------------------
                                     Name:       Marsha Wicker
                                     Title:      Vice President

                                     Lending Office:
                                     One Mellon Bank Center, Room 370
                                     Pittsburgh, Pennsylvania 15258

                                     Wire Transfer Instructions:
                                     Mellon Bank, N.A.
                                     Pittsburgh, Pennsylvania
                                     ABA #0430-0026-1
                                     Account #____________
                                     Attention: _______________________
                                     Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                  AMSOUTH BANK

                                  By:    /S/  ALLISON J. SANDERS
                                     ----------------------------------------
                                  Name:       Allison J. Sanders
                                  Title:      Vice President

                                  Lending Office:
                                  1900 5th Avenue, North
                                  Birmingham, Alabama 35203

                                  Wire Transfer Instructions:
                                  AmSouth Bank
                                  Birmingham, Alabama
                                  ABA #062000019
                                  Corporate Clearing Account #0011-0245-0400-100
                                  Attention: Kristi Mann
                                  Reference: HEALTHSOUTH Corporation







                                 Signature Page






                                 SUNTRUST BANK, NASHVILLE, N.A.

                                 By:    /S/  MARK D. MATTSON
                                    --------------------------------------------
                                 Name:       Mark D. Mattson
                                 Title:      Vice President

                                 Lending Office:
                                 201 4th Avenue, North
                                 Nashville, Tennessee 37219

                                 Wire Transfer Instructions:
                                 SunTrust Bank, Nashville, N.A.
                                 Nashville, Tennessee
                                 ABA #064000046
                                 Account #9191004800
                                 Account Name: Commercial Loan Wire Wash Account
                                 Attention: Leigh Anne Gregory
                                 Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                       FLEET NATIONAL BANK

                                       By:    /S/  CAROL PAIGE
                                          --------------------------------------
                                       Name:       Carol Paige
                                       Title:      Senior Vice President

                                       Lending Office:
                                       One Federal Street, MAOFD07B
                                       Boston, Massachusetts 02110

                                       Wire Transfer Instructions:
                                       Fleet National Bank
                                       Boston, Massachusetts
                                       ABA #011000138
                                       Account #1510351-03156
                                       Account Name: G/L
                                       Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                       NATIONAL CITY BANK OF KENTUCKY

                                       By:    /S/  RODERIC M. BROWN
                                          --------------------------------------
                                       Name:       Roderic M. Brown
                                       Title:      Vice President

                                       Lending Office:
                                       101 S. 5th Street
                                       Louisville, Kentucky 40202

                                       Wire Transfer Instructions:
                                       National City Bank of Kentucky
                                       Louisville, Kentucky
                                       ABA #083000056
                                       Account G/L #151804
                                       Attention: Tami Boston - CLO Dept.
                                       Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                       THE BANK OF NEW YORK

                                       By:    /S/  ANN MARIE HUGHES
                                          --------------------------------------
                                       Name:       Ann Marie Hughes
                                       Title:      Vice President

                                       Lending Office:
                                       One Wall Street, 22nd Floor
                                       New York, new York 10286

                                       Wire Transfer Instructions:
                                       Bank of New York
                                       New York, New York
                                       ABA #021 000 018
                                       Account #GLA 111556
                                       Attention: Loan Department
                                       Reference: HEALTHSOUTH Corporation
                                       Attention: Lorna Alleyne - Southern








                                 Signature Page





                                   COOPERATIEVE CENTRALE RAIFFEISEN-
                                   BOERENLEENBANK BA "RABOBANK
                                   NEDERLAND" NEW YORK BRANCH

                                   By: /S/ TERRELL BOYLE    /S/ IAN REECE
                                      ------------------------------------------
                                   Name:   Terrell Boyle     Ian Reece
                                   Title:  Vice President  Senior Credit Officer

                                   Lending Office:
                                   1201 W. Peachtree Street
                                   Suite 3450
                                   Atlanta, Georgia 30309

                                   Wire Transfer Instructions:
                                   The Bank of New York
                                      for the account of Rabobank Nederland
                                   New York, New York
                                   ABA #021-000-018
                                   Account #802-6002-533
                                   Account Name: Rabobank Nederland
                                   Attention: Corporate Services Dept.
                                   Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                       FIRST AMERICAN NATIONAL BANK

                                       By:    /S/  ALLISON JONES
                                          --------------------------------------
                                       Name:       Allison Jones
                                       Title:      Senior Vice President

                                       Lending Office:
                                       First American Center, NA-0203
                                       Nashville, Tennessee 37237

                                       Wire Transfer Instructions:
                                       First American National Bank
                                       Nashville, Tennessee
                                       ABA #064 000 017
                                       Account #0901256
                                       Account Name: WTCA
                                       Attention: Tina Callahan
                                       Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                       HIBERNIA NATIONAL BANK

                                       By:    /S/ CHRISTOPOHER B. PITRE
                                          --------------------------------------
                                       Name:       Christopher B. Pitre
                                       Title:      Vice President

                                       Lending Office:
                                       313 Carondelet Street
                                       New Orleans, Louisiana 70124

                                       Wire Transfer Instructions:
                                       Hibernia National Bank
                                       New Orleans, Louisiana
                                       ABA #065000090
                                       Account #36615-0520
                                       Attention: National Accounts
                                       Reference: HEALTHSOUTH Corporation








                                 Signature Page






                                       BANCA COMMERCIALE ITALIANA
                                       NEW YORK BRANCH

                                       By:    /S/  CHARLES DOUGHERTY
                                          --------------------------------------
                                       Name:       Charles Dougherty
                                       Title:      Vice President


                                       By:    /S/ KAREN PURELIS
                                          --------------------------------------
                                       Name:       Karen Purelis
                                       Title:      Vice President

                                       Lending Office:
                                       1 William Street
                                       New York, New York 10004

                                       Wire Transfer Instructions:
                                       Via Fed Wire:
                                       ABA #026005319
                                       Account: BCA Italiana
                                       Attention: Loan Dept./Alex Papace
                                       Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                       THE FIRST NATIONAL BANK OF CHICAGO

                                       By:    /S/  ERIK C. RACK
                                          --------------------------------------
                                       Name:       Erik C. Rack
                                       Title:      Assistant Vice President

                                       Lending Office:
                                       One First National Plaza, Suite 0091/8
                                       Chicago, Illinois 60670

                                       Wire Transfer Instructions:
                                       First National Bank of Chicago
                                       Chicago, Illinois
                                       ABA #071000013
                                       Account #7521 7653
                                       Account Name: DES Income Clearing A/C
                                       Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                       MICHIGAN NATIONAL BANK

                                       By:    /S/  NERAN SHAYA
                                          --------------------------------------
                                       Name:       Neran Shaya
                                       Title:      Relationship Manager

                                       Lending Office:
                                       27777 Inkster Road
                                       Farmington Hills, Michigan 48334

                                       Wire Transfer Instructions:
                                       Michigan National Bank
                                       Farmington Hills, Michigan
                                       ABA #072000805
                                       Account #115710-917000
                                       Account Name: Clearing Account
                                       Attention: Sylvia Mills
                                       Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                     SOUTHTRUST BANK, N.A.

                                     By:    /S/  COLE TAYLOR
                                        ----------------------------------------
                                     Name:       Cole Taylor
                                     Title:      Group Vice President

                                     Lending Office:
                                     420 N. 20th Street
                                     Birmingham, Alabama 35203

                                     Wire Transfer Instructions:
                                     SouthTrust Bank, N.A.
                                     Birmingham, Alabama
                                     ABA #062000080
                                     Account #131009
                                     Attention: Commercial Loan Operations Dept.
                                     Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                       SUMMIT BANK

                                       By:    /S/  BRUCE A. GRAY
                                          --------------------------------------
                                       Name:    Bruce A. Gray
                                       Title:      Vice President

                                       Lending Office:
                                       750 Walnut Avenue, 3rd Floor
                                       Cranford, New Jersey 07016

                                       Wire Transfer Instructions:
                                       Summit Bank
                                       ABA #021202162
                                       CL02 AC47902
                                       Attention: Commercial Loan Division
                                       Reference: HEALTHSOUTH Corporation








                                 Signature Page






                       WELLS FARGO BANK, N.A.

                       By: /s/ Donald A. Hartmann    /s/ Steven A. Newell
                          ------------------------------------------------------
                       Name: Donald A. Hartmann          Steven A. Newell
                       Title:  Senior Vice President    Assistant Vice President

                       Lending Office:
                       420 Montgomery Street, 9th Floor
                       MAC 0101-091
                       San Francisco, California 94163

                       Wire Transfer Instructions:
                       Wells Fargo Bank, N.A.
                       San Francisco, California
                       ABA #121-000-248
                       Account #271-2507201
                       Credit to: MEMSYN
                       Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                      FIFTH THIRD BANK

                                      By:    /S/  ANNE KOCH
                                         ---------------------------------------
                                      Name:       Anne Koch
                                      Title:      National Lending Officer

                                      Lending Office:
                                      38 Fountain Square Plaza, Mail Drop 109054
                                      Cincinnati, Ohio 45263

                                      Wire Transfer Instructions:
                                      Fifth Third Bancorp
                                      ABA #042 000 314
                                      Account #72876175
                                      Attention: Commercial Loan
                                      Reference: HEALTHSOUTH Corporation








                                 Signature Page





                                       WESTPAC BANKING CORPORATION

                                       By:    /S/  KATE V. PERRY
                                          --------------------------------------
                                       Name:       Kate V. Perry
                                       Title:      Assistant Vice President

                                       Lending Office:
                                       575 Fifth Avenue
                                       New York, New York 10017

                                       Wire Transfer Instructions:
                                       Chase Manhattan Bank
                                       New York, New York
                                       ABA #021-000-021
                                       Account #001-1-910460
                                       Account Name: Westpac Bkg Corp.
                                                     Grand Cayman Branch
                                       Attention: Loan Services
                                       Reference: HEALTHSOUTH Corporation








                                 Signature Page






                                    EXHIBIT A

                        Applicable Commitment Percentages

Applicable Revolving Credit Commitment Lender Commitment Percentage ------ ---------- ---------- NationsBank, National Association $150,000,000.00 8.571428571% Scotiabanc Inc. 150,000,000.00 8.571428571% Deutsche Bank AG New York Branch and/or Cayman Islands Branch 150,000,000.00 8.571428571% Morgan Guaranty Trust Company of New York 150,000,000.00 8.571428571% Wachovia Bank, N.A. 135,000,000.00 7.714285714% First Union National Bank 135,000,000.00 7.714285714% The Bank of Tokyo-Mitsubishi Ltd., NY Branch 100,000,000.00 5.714285714% PNC Bank, National Association 100,000,000.00 5.714285714% Mellon Bank, N.A. 100,000,000.00 5.714285714% AmSouth Bank 100,000,000.00 5.714285714% SunTrust Bank, Nashville, N.A. 75,000,000.00 4.285714285% Fleet National Bank 50,000,000.00 2.857142857% National City Bank of Kentucky 50,000,000.00 2.857142857% The Bank of New York 50,000,000.00 2.857142857% Cooperatieve Centrale Raiffeisen- Boerenleenbank BA "Rabobank Nederland" New York Branch 25,000,000.00 1.428571428% First American National Bank 25,000,000.00 1.428571428%
A-1
Applicable Revolving Credit Commitment Lender Commitment Percentage ------ ---------- ---------- Hibernia National Bank 25,000,000.00 1.428571428% Banca Commerciale Italiana New York Branch 25,000,000.00 1.428571428% The First National Bank of Chicago 25,000,000.00 1.428571428% Michigan National Bank 25,000,000.00 1.428571428% SouthTrust Bank, N.A. 25,000,000.00 1.428571428% Summit Bank 25,000,000.00 1.428571428% Wells Fargo Bank, N.A. 25,000,000.00 1.428571428% Fifth Third Bank 15,000,000.00 .857142857% Westpac Banking Corporation 15,000,000.00 .857142857% ------------- ------------ $1,750,000,000.00 100%
A-2 EXHIBIT B Form of Assignment and Acceptance Reference is made to the Credit Agreement dated as of June 23, 1998 (the "Credit Agreement") among HEALTHSOUTH Corporation, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement) and NationsBank, National Association, as agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. The "Assignor" and the "Assignee" referred to on Schedule 1 agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, without recourse and without representation or warranty except as expressly set forth herein, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents as of the date hereof equal to the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Credit Agreement and the other Loan Documents. After giving effect to such sale and assignment, the Assignee's Revolving Credit Commitment and the amount of the Loans owing to the Assignee will be as set forth on Schedule 1. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under the Loan Documents or any other instrument or document furnished pursuant thereto; and (iv) attaches the Revolving Note and Competitive Bid Note held by the Assignor and requests that the Agent exchange such Revolving Note and Competitive Bid Note for new Notes payable to the order of the Assignee in an amount equal to the Revolving Credit Commitment assumed by the Assignee pursuant hereto and to the Assignor in an amount equal to the Revolving Credit Commitment retained by the Assignor, if any, as specified on Schedule 1. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 7.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated B-1 to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service or other forms required under Section 4.6. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the "Effective Date") shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1. 5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of North Carolina. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telefacsimile shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. B-2 SCHEDULE 1 to ASSIGNMENT AND ACCEPTANCE Percentage interest assigned: ________% Assignee's Revolving Credit Commitment: $_______ Aggregate outstanding principal amount of Syndicated Loans assigned: $_______ Aggregate Outstanding principal amount of Competitive Bid loans assigned: $_______ Principal amount of Revolving Note payable to Assignee: $_______ Principal amount of Competitive Bid Note payable to Assignee: $_______ Principal amount of Note payable to Assignor: $_______ Principal amount of Competitive Bid Note payable to Assignor $_______ Effective Date (if other than date of acceptance by Agent): *_______, 19__ [NAME OF ASSIGNOR], as Assignor By: ---------------------------- Title: Dated: _______________, 19 _ [NAME OF ASSIGNEE], as Assignee By: Title: B-3 Applicable Lending Office: * This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Agent. Accepted [and Approved] ** this ___ day of ___________, 19 _ NATIONSBANK, NATIONAL ASSOCIATION By:_______________________ Title: [Approved this ____ day of ____________, 19__ HEALTHSOUTH Corporation By:_______________________]** Title: **Required if the Assignee is an Eligible Assignee solely by reason of clause (iii) of the definition of "Eligible Assignee". B-4 EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative Reference is hereby made to the Credit Agreement dated as of June 23, 1998, as amended (the "Agreement"), among HEALTHSOUTH Corporation, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Agreement), and NationsBank, National Association, as Agent for the Lenders ("Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower hereby nominates, constitutes and appoints each individual named below as an Authorized Representative under the Loan Documents, and hereby represents and warrants that (i) set forth opposite each such individual's name is a true and correct statement of such individual's office (to which such individual has been duly elected or appointed), a genuine specimen signature of such individual and an address for the giving of notice, and (ii) each such individual has been duly authorized by the Borrower to act as Authorized Representative under the Loan Documents: Name and Address Office Specimen Signature ----------------- ------------------- ------------------- ----------------- ----------------- ----------------- ------------------- ------------------- ----------------- ----------------- ----------------- ------------------- ------------------- ----------------- ----------------- Borrower hereby revokes (effective upon receipt hereof by the Agent) the prior appointment of ________________ as an Authorized Representative. This the ___ day of __________________, 19__. HEALTHSOUTH CORPORATION By: ----------------------- Name: --------------------- Title: -------------------- C-1 EXHIBIT D Form of Borrowing Notice To: NationsBank, National Association, as Agent Independence Center, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Agency Services Telefacsimile: (704) 386-9923 Reference is hereby made to the Credit Agreement dated as of June 23, 1998, as amended (the "Agreement"), among HEALTHSOUTH Corporation (the "Borrower"), the Lenders (as defined in the Agreement), and NationsBank, National Association, as Agent for the Lenders ("Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower through its Authorized Representative hereby gives notice to the Agent that Loans of the Type and amount set forth below be made on the date indicated: Type Loan Interest Aggregate (check one) Period(1) Amount(2) Date of Loan(3) ----------- --------- --------- --------------- Base Rate --- Eurodollar Rate ___ ---------- (1) For any Eurodollar Rate Loan, one, two, three or six months. (2) Must be $5,000,000 or if greater an integral multiple of $1,000,000. (3) At least three (3) Business Days later if a Eurodollar Rate Loan; The Borrower hereby requests that the proceeds of Loans described in this Borrowing Notice be made available to the Borrower as follows: [insert transmittal instructions] . The undersigned hereby certifies that: 1. No Default or Event of Default exists either now or after giving effect to the borrowing described herein; and 2. All the representations and warranties set forth in Article VI of the Agreement and in the other Loan Documents (other than those expressly stated to refer to a particular D-1 date) are true and correct as of the date hereof except that the reference to the financial statements in Section 6.6(a) of the Agreement are to those financial statements most recently delivered to you pursuant to Section 7.1 of the Agreement (it being understood that any financial statements delivered pursuant to Section 7.1(b) have not been certified by independent public accountants). 3. All conditions contained in the Agreement to the making of any Loan requested hereby have been met or satisfied in full . HEALTHSOUTH CORPORATION BY: ______________________________ Authorized Representative DATE: ____________________________ D-2 EXHIBIT E Form of Interest Rate Selection Notice To: NationsBank, National Association (Carolinas), as Agent Independence Center, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Agency Services Telefacsimile: (704) 386-9923 Reference is hereby made to the Credit Agreement dated as of June 23, 1998, as amended (the "Agreement"), among HEALTHSOUTH Corporation (the "Borrower"), the Lenders (as defined in the Agreement), and NationsBank, National Association, as Agent for the Lenders ("Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower through its Authorized Representative hereby gives notice to the Agent of the following selection of a type of Loan and Interest Period: Type Loan Interest Aggregate Date of (check one) Period(1) Amount(2) Conversion(3) ----------- --------- --------- ------------- Loan Base Rate Loan ___ Eurodollar Rate Loan ___ ---------- (1) For any Eurodollar Rate Loan one, two, three or six months. (2) Must be $5,000,000 or if greater an integral multiple of $1,000,000. (3) At least three (3) Business Days later if a Eurodollar Rate Loan. HEALTHSOUTH CORPORATION BY: __________________________ Authorized Representative DATE: ______________________ E-1 EXHIBIT F Form of Revolving Note Promissory Note (Syndicated Loan) $______________ Birmingham, Alabama June 23, 1998 FOR VALUE RECEIVED, HEALTHSOUTH Corporation, a Delaware corporation having its principal place of business located in Birmingham, Alabama (the "Borrower"), hereby promises to pay to the order of _______________________________________________ (the "Lender"), in its individual capacity, at the office of NATIONSBANK, NATIONAL ASSOCIATION, as agent for the Lenders (the "Agent"), located at One Independence Center, 101 North Tryon Street, NC1-001- 15-04, Charlotte, North Carolina 28255 (or at such other place or places as the Agent may designate in writing) at the times set forth in the Credit Agreement dated as of June 23, 1998 among the Borrower, the financial institutions party thereto, as amended (collectively, the "Lenders") and the Agent (the "Agreement" -- all capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement), in lawful money of the United States of America, in immediately available funds, the principal amount of ________________________________________ DOLLARS ($__________) or, if less than such principal amount, the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to the Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates provided in Article II of the Agreement. All or any portion of the principal amount of Loans may be prepaid as provided in the Agreement. If any amount payable under this Note is not paid when due, the then remaining principal amount and accrued but unpaid interest shall bear interest which shall be payable on demand at the rates per annum set forth in the proviso to Section 2.3(a) of the Agreement. Further, in the event of such acceleration, this Note shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees, and interest due hereunder thereon at the rates set forth above. Interest hereunder shall be computed as provided in the Agreement. F-1 This Note is one of the Notes referred to in the Agreement and is issued pursuant to and entitled to the benefits of the Agreement to which reference is hereby made for a more complete statement of the terms and conditions upon which the Loans evidenced hereby were or are made and are to be repaid. This Note is subject to certain restrictions on transfer or assignment as provided in the Agreement. All Persons bound on this obligation, whether primarily or secondarily liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive to the full extent permitted by law the benefits of all provisions of law for stay or delay of execution or sale of property or other satisfaction of judgment against any of them on account of liability hereon until judgment be obtained and execution issues against any other of them and returned satisfied or until it can be shown that the maker or any other party hereto had no property available for the satisfaction of the debt evidenced by this instrument, or until any other proceedings can be had against any of them, also their right, if any, to require the holder hereof to hold as security for this Note any collateral deposited by any of said Persons as security. Protest, notice of protest, notice of dishonor, diligence, presentment or any other formality are hereby waived by all parties bound hereon. IN WITNESS WHEREOF, the Borrower has caused this Note to be made, executed and delivered by its duly authorized representative as of the date and year first above written, all pursuant to authority duly granted. HEALTHSOUTH CORPORATION WITNESS: ______________________ By: ___________________________________ ______________________ Name: _________________________________ Title: ________________________________ F-2 EXHIBIT G Investments See attached. G-1 EXHIBIT H Form of Opinion of Borrower's Counsel See attached. H-1 EXHIBIT I Compliance Certificate NationsBank, National Association, as Agent Independence Center, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Agency Services Telefacsimile: (704) 386-9923 Reference is hereby made to the Credit Agreement dated as of June 23, 1998, as amended (the "Agreement"), among HEALTHSOUTH Corporation (the "Borrower"), the Lenders (as defined in the Agreement) and NationsBank, National Association, as Agent for the Lenders ("Agent"). Capitalized terms used but not otherwise defined herein shall have the respective meanings therefor set forth in the Agreement. The undersigned, a duly authorized and acting Authorized Representative, hereby certifies to you as of __________ (the "Determination Date") as follows: I. Calculations: 1. Consolidated Net Worth A. Consolidated Net Worth at Determination Date $___________ B. Consolidated Net Worth Required a) At Closing Date $___________ b) Consolidated Net Income for successive fiscal quarters x 50% ___________ c) Net proceeds of any sale of Capital Stock ___________ d) Additions resulting from "pooling of interests" ___________ e) (a) + (b) + (c) + (d) (Required) $___________ I-1 2. Consolidated EBITDA to Consolidated Interest Expense A. Consolidated Net Income ___________ B. Consolidated Interest Expense ___________ C. Consolidated Income Tax Expense ___________ D. Consolidated Amortization Expense ___________ E. Consolidated Depreciation Expense ___________ F. Minority Interest in Consolidated Entities ___________ G. 2A + 2B + 2C + 2D + 2E + 2F ___________ H. Ratio of 2G to 2B ___ to 1.00 Required: Not less than 2.50 to 1.00 3. Consolidated Indebtedness to Consolidated Total Capital A. Consolidated Indebtedness ___________ B. Consolidated Total Capital ___________ C. Ratio of 3A to 3B ___ to 1.00 Required: Not to exceed .65 to 1.00 II. No Default A. Since __________ (the date of the last similar certification), (a) the Borrower has not defaulted in the keeping, observance, performance or fulfillment of its obligations pursuant to any of the Loan Documents; and (b) no Default or Event of Default has occurred and is continuing. B. If a Default or Event of Default has occurred since __________ (the date of the last similar certification), the Borrower proposes to take the following action with respect to such Default or Event of Default:______________________________________________________________ _________________________________________________________________. (Note, if no Default or Event of Default has occurred, insert "Not Applicable"). The Determination Date is the date of the last required financial statements submitted to the Lenders in accordance with Section 9.1 of the Agreement. I-2 IN WITNESS WHEREOF, I have executed this Certificate this _____ day of __________, 19___. By:_____________________________ Authorized Representative Name:___________________________ Title:__________________________ I-3 EXHIBIT J Executive Officers J-1 EXHIBIT K Form of Competitive Bid Quote Request [Date] To: NationsBank, N.A. From: HEALTHSOUTH Corporation Re: Competitive Bid Quote Request Pursuant to Section 2.2 of the Credit Agreement dated as of June 23, 1998 (as modified and supplemented from time to time, the "Credit Agreement") among HEALTHSOUTH Corporation, the Lenders named therein and NationsBank, N.A. as Agent, we hereby give notice that we request Competitive Bid Quotes for the following proposed Competitive Bid Borrowing(s): Borrowing Quotation Interest Date Date 1 Amount2 Type 3 Period 4 --------- --------- ------- -------- -------- Terms used herein have the meanings assigned to them in the Credit Agreement. HEALTHSOUTH CORPORATION By:________________________ Title: -------- 1 For use if an Absolute Rate in an Absolute Rate Auction is requested to be submitted before the Borrowing Date. 2 Each amount must be $10,000,000 or a larger integral multiple of $1,000,000. 3 Insert either "Eurodollar Margin" (in the case of Eurodollar Market Loans) or "Absolute Rate" (in the case of Absolute Rate Loans). 4 One, two three or six months, in the case of a Eurodollar Market Loan or, in the case of an Absolute Rate Loan, a period of up to 180 days after the making of such Absolute Rate Loan and ending on a Business Day. K-1 EXHIBIT L Form of Competitive Bid Quote To: NationsBank, N.A., as Agent Attention: Re: Competitive Bid Quote to HEALTHSOUTH Corporation (the "Borrower") This Competitive Bid Quote is given in accordance with Section 2.2(c) of the Credit Agreement dated as of June 23, 1998 (as modified and supplemented from time to time, the "Credit Agreement") among HEALTHSOUTH Corporation, the lenders named therein and NationsBank, N.A., as agent. Terms defined in the Credit Agreement are used herein as defined therein. In response to the Borrower's invitation dated __________, 199_, we hereby make the following Competitive Bid Quote(s) on the following terms: 1. Quoting Bank: 2. Person to contact at Quoting Bank: 3. We hereby offer to make Competitive Bid Loan(s) in the following principal amount[s], for the following Interest Period(s) and at the following rate(s): Borrowing Quotation Interest Date Date 1 Amount 2 Type 3 Period 4 Rate 5 --------- --------- -------- ------ -------- ------ -------- 1 As specified in the related Competitive Bid Quote Request. 2 The principal amount bid for each Interest Period may not exceed the principal amount requested. Bids must be made for at least $5,000,000 or a larger integral multiple of $1,000,000. 3 Indicate "Eurodollar Margin" (in the case of Eurodollar Market Loans) or "Absolute Rate" (in the case of Absolute Rate Loans). 4 One, two, three or six months, in the case of a Eurodollar Market Loan or, in the case of an Absolute Rate Loan, a period of up to 180 days after the making of such Absolute Rate Loan and ending on a Business Day, as specified in the related Competitive Bid Quote Request. L-1 We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement, irrevocably obligate[s] us to make the Competitive Bid Loan(s) for which any offer(s) (is/are) accepted, in whole or in part (subject to the third sentence of Section 2.2(e) of the Credit Agreement). Very truly yours, [NAME OF BANK] By:_____________________________ Authorized Officer Dated: __________, ____ ---------- 5 For a Eurodollar Market Loan, specify margin over or under the Interbank Offered Rate adjusted for the Eurodollar Reserve Percentage determined for the applicable Interest Period. Specify percentage (rounded to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". For an Absolute Rate Loan, specify rate of interest per annum (rounded to the nearest 1/10,000 of 1%). L-2 EXHIBIT M Form of Competitive Bid Note PROMISSORY NOTE $_____________1 June 23, 1998 FOR VALUE RECEIVED, HEALTHSOUTH CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to the order of ____________________________2 (the "Lender"), for account of its Applicable Lending Office provided for by the Credit Agreement referred to below, at the principal office of NationsBank, N.A., One Independence Center, 101 North Tryon Street, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such other place or places as the Agent may designate in writing) at the times set forth in the Credit Agreement (as herein defined), the aggregate unpaid principal amount of the Competitive Bid Loans made by the Lender to the Borrower under the Credit Agreement, in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Competitive Bid Loan, at such office, in like money and funds, for the period commencing on the date of such Competitive Bid Loan until such Competitive Bid Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, Type, interest rate and maturity date of each Competitive Bid Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Borrower on its books and, prior to any transfer of this Note, endorsed by the Borrower on the schedule attached hereto or any continuation thereof, provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing under the Credit Agreement or hereunder in respect of the Competitive Bid Loans made by the Lender. This Note is one of the Competitive Bid Notes referred to in the Credit Agreement dated as of June 23, 1998 (as modified and supplemented from time to time, the "Credit Agreement") among the Borrower, the Lenders named therein and NationsBank, N.A., as Agent, and evidences Competitive Bid Loans made by the Lender thereunder. Terms used but not defined in this Note have the respective meanings assigned to them in the Credit Agreement. ---------- 1 Insert the amount of Lender's Revolving Credit Commitment. 2 Insert name of Lender in capital letters. M-1 The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Competitive Bid Loans upon the terms and conditions specified therein. In the event this Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorney's fees. Except as permitted by Section 11.1 of the Credit Agreement, this Note may not be assigned by the Lender to any other Person. This Note shall be governed by, and construed in accordance with, the law of the State of North Carolina. WITNESS: HEALTHSOUTH CORPORATION ____________________________ By:_________________________________ ____________________________ Name:_______________________________ Title:______________________________ M-2 SCHEDULE OF COMPETITIVE BID LOANS This Note evidences Competitive Bid Loans made under the within-described Credit Agreement to the Borrower, on the dates, in the principal amounts, of the Types, bearing interest at the rates and maturing on the dates set forth below, subject to the payments and prepayments of principal set forth below:
Principal Date Amount Type Maturity Amount Unpaid of of of Interest Date of Paid or Principal Notation Loan Loan Loan Rate Loan Prepaid Amount Made by ---- -------- ---- -------- -------- ------- -------- -------
M-3