Plan and Agreement of Merger - HealthSouth Corp. and Horizon/CMS Healthcare Corp.


                          PLAN AND AGREEMENT OF MERGER


         PLAN AND AGREEMENT OF MERGER (this "Plan of Merger"),  made and entered
into as of the 17th day of February, 1997, by and among HEALTHSOUTH Corporation,
a Delaware corporation ("HEALTHSOUTH"), REID ACQUISITION CORPORATION, a Delaware
corporation  (the  "Subsidiary"),  and  HORIZON/CMS  HEALTHCARE  CORPORATION,  a
Delaware  corporation  ("Horizon/CMS")  (the  Subsidiary and  Horizon/CMS  being
sometimes collectively referred to herein as the "Constituent Corporations").

                              W I T N E S S E T H:


         WHEREAS,  the  respective  Boards  of  Directors  of  HEALTHSOUTH,  the
Subsidiary and  Horizon/CMS  have approved the merger of the Subsidiary with and
into  Horizon/CMS  (the "Merger"),  upon the terms and subject to the conditions
set forth in this Plan of Merger,  whereby each share of Common Stock, par value
$.001 per share, of Horizon/CMS  (the  "Horizon/CMS  Common  Stock"),  not owned
directly or  indirectly  by  Horizon/CMS,  will be  converted  into the right to
receive the Merger Consideration (as hereinafter defined);

         WHEREAS, each of HEALTHSOUTH, the Subsidiary and Horizon/CMS desires to
make certain representations, warranties, covenants and agreements in connection
with the Merger and also to prescribe various conditions to the Merger; and

         WHEREAS,  for federal  income tax  purposes,  it is  intended  that the
Merger shall qualify as a reorganization  under the provisions of Section 368 of
the Internal Revenue Code of 1986, as amended.

         NOW,  THEREFORE,  in  consideration  of the  premises,  and the  mutual
covenants and agreements contained herein, the parties hereto do hereby agree as
follows:


Section 1.                 The Merger.

         1.1 The Merger. Upon the terms and conditions set forth in this Plan of
Merger,  and in  accordance  with  the  Delaware  General  Corporation  Law (the
"DGCL"),  the  Subsidiary  shall be  merged  with and  into  Horizon/CMS  at the
Effective Time (as defined in Section 1.3). At the Effective  Time, the separate
corporate existence of the Subsidiary shall cease and Horizon/CMS shall continue
as the  surviving  corporation  (the  "Surviving  Corporation")  under  the name
"Horizon/CMS  Healthcare  Corporation"  and shall  succeed to and assume all the
rights and  obligations of the Subsidiary and Horizon/CMS in accordance with the
DGCL.

         1.2 The Closing.  The closing of the Merger (the  "Closing")  will take
place at 10:00 a.m.  Central  Time on a date to be specified by the parties (the
"Closing Date"),  which (subject to satisfaction or waiver of the conditions set
forth in Sections  9.2 and 9.3) shall be no later than the second  business  day
after  satisfaction or waiver of the conditions set forth in Section 9.1, at the
offices  of Haskell  Slaughter  & Young,  L.L.C.,  Birmingham,  Alabama,  unless
another date or place is agreed to in writing by the parties hereto.

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         1.3 Effective  Time.  Subject to the provisions of this Plan of Merger,
the parties shall file a  certificate  of merger (the  "Certificate  of Merger")
executed in accordance  with the relevant  provisions of the DGCL and shall make
all other filings or recordings  required  under the DGCL as soon as practicable
on or after the Closing Date. The Merger shall become  effective at such time as
the Certificate of Merger is duly filed with the Delaware Secretary of State, or
at such other time as the  Subsidiary  and  Horizon/CMS  shall  agree  should be
specified in the Certificate of Merger (the "Effective Time").

         1.4 Effect of the Merger.  The Merger  shall have the effects set forth
in Section 259 of the DGCL.


Section 2.   EFFECT OF THE MERGER ON THE CAPITAL  STOCK OF THE  CONSTITUENT
             CORPORATIONS; EXCHANGE OF CERTIFICATES.


         2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of Horizon/CMS
Common Stock or any shares of capital stock of the Subsidiary:

         (a)  Subsidiary  Common  Stock.  Each  share  of  capital  stock of the
Subsidiary issued and outstanding  immediately prior to the Effective Time shall
be converted into one fully paid and nonassessable  share of common stock of the
Surviving Corporation.

         (b)  Cancellation of Treasury Stock.  Each share of Horizon/CMS  Common
Stock  that  is  owned  by  Horizon/CMS  or by any  wholly-owned  subsidiary  of
Horizon/CMS  shall  automatically  be  canceled  and  retired and shall cease to
exist,   and  no  Common  Stock,  par  value  $.01  per  share,  of  HEALTHSOUTH
("HEALTHSOUTH Common Stock"),  cash or other consideration shall be delivered in
exchange therefor.

         (c) Conversion of Horizon/CMS  Shares.  Subject to Section 2.2(e), each
issued and outstanding  share of Horizon/CMS  Common Stock (other than shares to
be canceled in accordance  with Section 2.1(b))  (collectively,  the "Exchanging
Horizon/CMS Shares") shall be converted into 0.42169 (the "Exchange Ratio") of a
share of  HEALTHSOUTH  Common  Stock,  as may be adjusted as provided in Section
2.1(e) below (the "Merger  Consideration").  All Exchanging  Horizon/CMS  Shares
shall,  upon conversion  thereof into shares of HEALTHSOUTH  Common Stock at the
Effective Time, cease to be outstanding and shall automatically be cancelled and
retired,  and each  certificate  previously  evidencing  Exchanging  Horizon/CMS
Shares  outstanding  immediately  prior to the Effective  Time  ("Certificates")
shall thereafter be deemed, for all purposes other than the payment of dividends
or distributions, to represent that number of shares of HEALTHSOUTH Common Stock
determined  pursuant  to the  Exchange  Ratio and, if  applicable,  the right to
receive cash  pursuant to Section 2.2.  The holders of  certificates  previously
evidencing  Exchanging  Horizon/CMS  Shares  shall cease to have any rights with
respect to such  Exchanging  Horizon/CMS  Shares  except as  otherwise  provided
herein or by law.

         (d)  Stock  Options,   Warrants  and  Convertible  Securities.  At  the
Effective Time, all rights with respect to Horizon/CMS  

                                      - 92 -


Common Stock pursuant to any Horizon/CMS stock options,  stock purchase warrants
or convertible  securities  which are  outstanding at the Effective Time (which,
for purposes of this Section 2.1(d), includes any rights to purchase Horizon/CMS
Common Stock  pursuant to  Horizon/CMS's  1996 Employee  Stock  Purchase  Plan),
whether or not then exercisable,  shall be converted into and become rights with
respect  to  HEALTHSOUTH   Common  Stock,  and  HEALTHSOUTH  shall  assume  each
Horizon/CMS stock option,  stock purchase warrant and convertible  security,  in
accordance with the terms of any stock option plan under which it was issued and
any stock option agreement,  warrant agreement or convertible  security by which
it  is  evidenced.   It  is  intended  that,  unless  otherwise  agreed  between
HEALTHSOUTH  and a  particular  optionee,  the  foregoing  provisions  shall  be
undertaken in a manner that will not constitute a "modification",  as defined in
Section 424 of the Code,  as to any stock  option which is an  "incentive  stock
option".  Each Horizon/CMS  stock option,  stock purchase warrant or convertible
security so assumed shall be exercisable for or convertible  into that number of
shares of  HEALTHSOUTH  Common Stock equal to the number of  Horizon/CMS  shares
subject  thereto  multiplied by the Exchange  Ratio,  and shall have an exercise
price per share or conversion price per share equal to the Horizon/CMS  exercise
price divided by the Exchange Ratio.

         (e) Anti-Dilution Provisions. If after the date hereof and prior to the
Effective  Time  HEALTHSOUTH  shall have  declared a stock  split  (including  a
reverse split) of HEALTHSOUTH Common Stock,  including the proposed  two-for-one
split  of the  HEALTHSOUTH  Common  Stock  scheduled  for  consideration  by the
stockholders of HEALTHSOUTH at a meeting  thereof  scheduled to be held on March
12,  1997,  or a dividend  payable in  HEALTHSOUTH  Common  Stock,  or any other
distribution  of  securities  or dividend (in cash or  otherwise)  to holders of
HEALTHSOUTH Common Stock with respect to their HEALTHSOUTH Common Stock or other
change or  reclassification  of the HEALTHSOUTH  Common Stock (including without
limitation such a distribution,  dividend or other change or reclassification of
the  HEALTHSOUTH  Common  Stock  made  in  connection  with a  recapitalization,
reclassification,  merger,  consolidation,   reorganization,   reclassification,
merger,  consolidation,  reorganization  or  similar  transaction)  then (i) the
Exchange  Ratio shall be  appropriately  adjusted to reflect such stock split or
dividend  or other  distribution  of  securities  and (ii) if such stock  split,
dividend or distribution has a record date prior to the Effective Time, then the
number of shares of HEALTHSOUTH  Common Stock to be issued upon  conversion of a
share  of  Horizon/CMS   Common  Stock  pursuant  to  Section  2.1(c)  shall  be
appropriately   adjusted  to  reflect  such  stock  split,   dividend  or  other
distribution of securities.

         2.2  Exchange  of  Certificates.  (a)  Exchange  Agent.  Prior  to  the
Effective  Time,  HEALTHSOUTH  shall enter into an  agreement  with such bank or
trust company as may be designated by HEALTHSOUTH  (the "Exchange  Agent") which
shall provide that HEALTH- SOUTH shall deposit with the Exchange Agent as of the
Effective Time, for the benefit of the holders of Exchanging Horizon/CMS Shares,
for exchange in  accordance  with this  Section 2,  through the Exchange  Agent,
certificates representing the shares of HEALTHSOUTH Common Stock (such shares of
HEALTHSOUTH  Common Stock,  together with any  dividends or  distributions  with
respect  thereto  with a record  date  after  the  Effective  Time and any other
property issuable pursuant to Section 2.1(e),  being hereinafter  referred to as
the "Exchange Fund") issuable pursuant to Section 2.1.

         (b) Exchange  Procedures.  As soon as reasonably  practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each  holder of  record  of a  Certificate  or  Certificates  (i) a letter of
transmittal  (which shall specify that delivery  shall be effected,  and risk of
loss  and  title  to  the  Certificates   shall  pass,  only  upon  delivery  of
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as HEALTHSOUTH may reasonably  specify) and (ii) instructions for use
in effecting the surrender of

                                      - 93 -


Certificates  in exchange for  certificates  representing  shares of HEALTHSOUTH
Common Stock.  Upon surrender of a Certificate for  cancellation to the Exchange
Agent or to such  other  agent or agents  as may be  appointed  by  HEALTHSOUTH,
together  with  such  letter  of  transmittal,  duly  executed,  and such  other
documents as may  reasonably  be required by the Exchange  Agent,  the holder of
such Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of HEALTHSOUTH  Common Stock which such
holder has the right to receive  pursuant to the  provisions  of this Section 2,
and the Certificate so surrendered shall forthwith be canceled.  In the event of
a transfer  of  ownership  of shares of  Horizon/CMS  Common  Stock which is not
registered in the transfer  records of Horizon/CMS,  a certificate  representing
the  proper  number  of shares of  HEALTHSOUTH  Common  Stock may be issued to a
person other than the person in whose name the  Certificate  so  surrendered  is
registered,  if such Certificate  shall be properly  endorsed or otherwise be in
proper form for transfer and the person  requesting  such payment  shall pay any
transfer  or other  taxes  required  by  reason  of the  issuance  of  shares of
HEALTHSOUTH  Common Stock to a person other than the  registered  holder of such
Certificate or establish to the  satisfaction  of HEALTHSOUTH  that such tax has
been paid or is not applicable.

         (c) Distributions  with Respect to Unexchanged  Shares. No dividends or
other  distributions with respect to HEALTHSOUTH Common Stock with a record date
after  the  Effective  Time of the  Merger  shall be paid to the  holder  of any
unsurrendered Certificate with respect to the shares of HEALTHSOUTH Common Stock
represented  thereby and no cash payment in lieu of  fractional  shares shall be
paid to any such holder pursuant to Section 2.2(e) until, in each such case, the
surrender of such  Certificate in accordance with this Section 2. Subject to the
effect of applicable laws,  following  surrender of any such Certificate,  there
shall be paid to the  holder of the  certificate  representing  whole  shares of
HEALTH- SOUTH Common Stock issued in exchange therefor, without interest, (i) at
the  time of  such  surrender,  the  amount  of any  cash  payable  in lieu of a
fractional  share of  HEALTHSOUTH  Common Stock to which such holder is entitled
pursuant to Section  2.2(e) and the amount of dividends  or other  distributions
with a record date after the  Effective  Time  theretofore  paid with respect to
such whole  shares of  HEALTHSOUTH  Common  Stock,  and (ii) at the  appropriate
payment date, the amount of dividends or other  distributions with a record date
after the  Effective  Time but prior to such  surrender  and with a payment date
subsequent  to such  surrender  payable  with  respect to such  whole  shares of
HEALTHSOUTH Common Stock.

         (d) No Further Ownership Rights in Exchanging  Horizon/CMS  Shares. All
shares of  HEALTHSOUTH  Common Stock issued upon the  conversion of  Horizon/CMS
Common Stock in accordance  with the terms of this Section 2 (including any cash
paid  pursuant to Section  2.2(c) or 2.2(e)) shall be deemed to have been issued
(and paid) in full  satisfaction  of all  rights  pertaining  to the  Exchanging
Horizon/CMS Shares. If, after the Effective Time,  Certificates are presented to
the Surviving  Corporation or the Exchange  Agent for any reason,  they shall be
canceled  and  exchanged  as  provided in this  Section 2,  except as  otherwise
provided by law.

         (e)  No  Fractional  Shares.  No  certificates  or  scrip  representing
fractional shares of HEALTHSOUTH Common Stock shall be issued upon the surrender
for exchange of  Certificates,  and such  fractional  share  interests  will not
entitle  the  owner  thereof  to  vote  or to any  rights  of a  stockholder  of
HEALTHSOUTH.  Notwithstanding  any other provision of this Plan of Merger,  each
holder of Exchanging  Horizon/CMS  Shares who would otherwise have been entitled
to receive a fraction of a share of HEALTHSOUTH  Common Stock (after taking into
account all  Exchanging  Horizon/CMS  Shares  delivered  by such  holder)  shall
receive,  in lieu thereof,  cash  (without  interest) in an amount equal to such
fractional part of a share of HEALTHSOUTH


                                      - 4 -


Common  Stock  multiplied  by the  closing  sale price per share of  HEALTHSOUTH
Common Stock on the date on which the Effective Time occurs,  as reported on the
New York Stock Exchange Composite Transactions Tape; provided, however, that, if
there is no sale of  HEALTHSOUTH  Common Stock on the New York Stock Exchange on
such date,  then the closing sale price per share on the next preceding  trading
day on which such a sale occurred.

         (f)  Termination  of Exchange  Fund.  Any portion of the Exchange  Fund
which remains  undistributed  to the holders of the  Certificates for six months
after the Effective Time shall be delivered to HEALTHSOUTH, upon demand, and any
holders of the Certificates who have not theretofore  complied with this Section
2 shall  thereafter look only to HEALTHSOUTH  for payment of HEALTHSOUTH  Common
Stock, any cash in lieu of fractional shares of HEALTHSOUTH Common Stock and any
dividends or distributions with respect to HEALTHSOUTH Common Stock.

         (g) No Liability. None of HEALTHSOUTH,  the Subsidiary,  Horizon/CMS or
the  Exchange  Agent  shall be liable to any  person in respect of any shares of
HEALTHSOUTH Common Stock (or dividends or distributions with respect thereto) or
cash from the  Exchange  Fund  delivered  to a public  official  pursuant to any
applicable abandoned property, escheat or similar law. If any Certificates shall
not have been  surrendered  prior to seven  years after the  Effective  Time (or
immediately  prior to such  earlier  date on which any shares of  HEALTH-  SOUTH
Common Stock, any cash in lieu of fractional shares of HEALTHSOUTH  Common Stock
or any dividends or  distributions  with respect to HEALTHSOUTH  Common Stock in
respect of such  Certificates  would otherwise escheat to or become the property
of any governmental  entity),  any such shares, cash, dividends or distributions
in respect of such  Certificates  shall,  to the extent  permitted by applicable
law,  become the property of the  Surviving  Corporation,  free and clear of all
claims or interest of any person previously entitled thereto.

         (h) Investment of Exchange Fund. The Exchange Agent may invest any cash
included in the Exchange  Fund in deposit  accounts or  short-term  money market
instruments,  as directed by  HEALTHSOUTH,  on a daily  basis.  Any interest and
other  income  resulting  from such  investments  shall be paid to  HEALTHSOUTH.
HEALTHSOUTH  shall deposit with the Exchange  Agent as part of the Exchange Fund
cash in an amount equal to any loss of principal resulting from such investments
promptly after the incurrence of such a loss.

         2.3  Certificate  of  Incorporation  of  Surviving   Corporation.   The
Certificate of Merger shall include such lawful  amendments  and  restatement of
the Certificate of Incorporation of Horizon/CMS as HEALTHSOUTH may desire,  such
amendments  and  restatement  to become  effective at the  Effective  Time.  The
Certificate of Incorporation of Horizon/CMS,  as so amended and restated,  shall
become the Certificate of  Incorporation  of the Surviving  Corporation from and
after the Effective Time and until thereafter amended as provided by law.

         2.4 Bylaws of the Surviving  Corporation.  The Bylaws of the Subsidiary
shall be the Bylaws of the  Surviving  Corporation  from and after the Effective
Time and until  thereafter  altered,  amended or repealed in accordance with the
laws of the State of Delaware, the Certificate of Incorporation of the Surviving
Corporation and the said Bylaws.

         2.5  Directors  of the  Surviving  Corporation.  The  Directors  of the
Subsidiary immediately prior to the Effective Time shall be the Directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.


                                      - 5 -



         2.6 Assets, Liabilities,  Reserves and Accounts. At the Effective Time,
the assets,  liabilities,  reserves and accounts of each of the  Subsidiary  and
Horizon/CMS  shall be taken up on the books of the Surviving  Corporation at the
amounts  at which  they  respectively  shall  be  carried  on the  books of said
corporations  immediately  prior to the Effective Time,  except as otherwise set
forth in the Plan of Merger and subject to such  adjustments,  or elimination of
intercompany  items,  as may be  appropriate  in giving  effect to the Merger in
accordance with generally accepted accounting principles.

         2.7  Corporate  Acts of the  Subsidiary.  All  corporate  acts,  plans,
policies,  approvals and authorizations of the Subsidiary, its sole stockholder,
its  Board  of  Directors,  committees  elected  or  appointed  by the  Board of
Directors, and all officers and agents, valid immediately prior to the Effective
Time, shall be those of the Surviving  Corporation and shall be as effective and
binding thereon as they were with respect to the Subsidiary. 


Section 3.    REPRESENTATIONS AND WARRANTIES OF HORIZON/CMS.

         Horizon/CMS  hereby  represents  and  warrants to  HEALTHSOUTH  and the
Subsidiary as follows:

         3.1  Organization,  Existence  and  Good  Standing.  Horizon/CMS  is  a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.  Horizon/CMS has all necessary  corporate power to own
its properties and assets and to carry on its business as presently conducted.

         3.2  Horizon/CMS  Capital  Stock.   Horizon/CMS's   authorized  capital
consists of 150,000,000  shares of Horizon/CMS Common Stock, par value $.001 per
share, of which 52,157,806  shares were issued and outstanding as of January 31,
1997,  and 641,413 shares were issued and held as treasury  shares,  and 500,000
shares of Preferred Stock,  par value $.001 per share,  none of which shares are
issued  and  outstanding  or held  as  treasury  stock.  All of the  issued  and
outstanding  shares of  Horizon/CMS  Common  Stock are duly and validly  issued,
fully  paid  and  nonassessable.  Except  as set  forth  on  Exhibit  3.2 to the
Disclosure Schedule delivered by Horizon/CMS to HEALTHSOUTH  simultaneously with
the  execution  and delivery  hereof (the  "Disclosure  Schedule")  or otherwise
disclosed  in the  Horizon/CMS  Annual  Report on Form 10-K for the fiscal  year
ended May 31, 1996 (the "Horizon/CMS 10- K") or the Horizon/CMS Quarterly Report
on Form 10-Q for the three months ended November 30, 1996, there are no options,
warrants, or similar rights granted by Horizon/CMS,  securities convertible into
or exchangeable  for Horizon/CMS  Common Stock, or any other agreements to which
Horizon/CMS  is a  party  providing  for  the  issuance  or  sale  by it of  any
additional  securities  which would remain in effect after the  Effective  Time.
There is no liability  for  dividends  declared or  accumulated  but unpaid with
respect to any of the shares of Horizon/CMS Common Stock.

         3.3 Horizon/CMS  Subsidiaries and Horizon/CMS Other Entities. (a) There
is included in the Disclosure  Schedule,  as Exhibit 3.3(a),  a true and correct
list  of  all   Subsidiaries  of  Horizon/CMS   (individually,   a  "Horizon/CMS
Subsidiary", and collectively,  the "Horizon/CMS Subsidiaries") and their states
of  incorporation.  Except as set forth on Exhibit 3.3(a),  Horizon/CMS does not
own  stock  in  and  does  not  control,  directly  or  indirectly,   any  other
corporation,  association or business  organization  other than the  Horizon/CMS
Other Entities (as defined below).

                                      - 6 -


         (b) There is included in the Disclosure Schedule,  as Exhibit 3.3(b), a
true and correct list of all general or limited  partnerships in which a general
partner is Horizon/CMS,  a Horizon/CMS Subsidiary, a Horizon/CMS LLC (as defined
below)  or  another  Horizon/CMS  Partnership   (individually,   a  "Horizon/CMS
Partnership" and collectively, the "Horizon/CMS Partnerships"),  and all limited
liability  companies in which  Horizon/CMS,  a Horizon/CMS  Subsidiary,  another
Horizon/CMS  LLC or a  Horizon/CMS  Partnership  is a  member  (individually,  a
"Horizon/CMS  LLC" and  collectively,  the "Horizon/CMS  LLCs") (the Horizon/CMS
Partnerships and the Horizon/CMS LLCs being collectively called the "Horizon/CMS
Other  Entities"),  and  their  states of  organization.  Except as set forth on
Exhibit  3.3(b),  neither  Horizon/CMS  nor any  Horizon/CMS  Subsidiary owns an
equity  interest in, nor does such entity control,  directly or indirectly,  any
other joint venture, limited liability company or partnership.

         3.4   Organization,   Existence  and  Good   Standing  of   Horizon/CMS
Subsidiaries and Horizon/CMS Other Entities.  (a) Each Horizon/CMS Subsidiary is
a corporation  duly organized,  validly  existing and in good standing under the
laws of its respective state of incorporation.  Each Horizon/CMS  Subsidiary has
all necessary  corporate  power to own its properties and assets and to carry on
its business as presently conducted.

         (b) Each  Horizon/CMS  Partnership  that is a  limited  partnership  is
validly formed,  each Horizon/CMS  Partnership that is a general partnership has
been duly organized,  and each Horizon/CMS Partnership is in good standing under
the laws of its respective state of organization.  Each Horizon/CMS  Partnership
has all necessary  partnership power to own its property and assets and to carry
on its business as presently conducted.

         (c) Each Horizon/CMS LLC is a limited  liability company validly formed
and in good standing  under the laws of its  respective  state of  organization.
Each  Horizon/CMS  LLC  has  all  necessary  organizational  power  to  own  its
properties and assets to carry on its business as presently conducted.

         3.5 Foreign  Qualifications.  Horizon/CMS,  each Horizon/CMS Subsidiary
and each Horizon/CMS Other Entity that is not a general partnership is qualified
to do business as a foreign corporation,  foreign limited partnership or foreign
limited liability  company,  as the case may be, and is in good standing in each
jurisdiction in which the nature or character of the property  owned,  leased or
operated  by it or the  nature  of the  business  transacted  by it  makes  such
qualification necessary, except where the failure to so qualify would not have a
material adverse effect on Horizon/CMS.

         3.6 Power and Authority.  Subject to the satisfaction of the conditions
precedent set forth  herein,  Horizon/CMS  has the  corporate  power to execute,
deliver and perform this Plan of Merger and all agreements  and other  documents
executed and  delivered  or to be executed and  delivered by it pursuant to this
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth herein, has taken all action required by its Certificate of Incorporation,
Bylaws or otherwise,  to authorize the  execution,  delivery and  performance of
this Plan of Merger and such related  documents.  The  execution and delivery of
this Plan of Merger does not and, subject to the receipt of required stockholder
and  regulatory  approvals  and  any  other  required  third-party  consents  or
approvals,  the  consummation of the Merger will not,  violate any provisions of
any statute or other law, any rule or regulation of any  governmental  agency or
authority, the Certificate of Incorporation of Horizon/CMS or any provisions of,
or result in the  acceleration  of any  obligation  under,  any mortgage,  lien,
lease, agreement,  instrument,  order, arbitration award, judgment or decree, to
which Horizon/CMS or any Horizon/CMS Subsidiary

                                      - 7 -



or Horizon/CMS  Other Entity is a party, or by which it is bound, or violate any
restrictions  of  any  kind  to  which  it is  subject  which,  if  violated  or
accelerated,  would have a material adverse effect on Horizon/CMS. The execution
and delivery of this Plan of Merger has been  approved by the Board of Directors
of  Horizon/CMS.  This Plan of Merger has been duly  executed  and  delivered by
Horizon/CMS  and,  assuming this Plan of Merger  constitutes a valid and binding
obligation of each of HEALTHSOUTH  and the  Subsidiary,  constitutes a valid and
binding obligation of Horizon/CMS, enforceable against Horizon/CMS in accordance
with its terms.

         3.7  Horizon/CMS  Public  Information;   Undisclosed  Liabilities.  (a)
Horizon/CMS has heretofore  furnished  HEALTHSOUTH with a true and complete copy
of each report, schedule,  registration statement and definitive proxy statement
filed by it with the Securities and Exchange Commission (the "SEC") (as any such
documents  have  since  the time of their  original  filing  been  amended,  the
"Horizon/CMS  Documents")  since  January 1, 1995,  which are all the  documents
(other than preliminary material) that it was required to file with the SEC from
such  date  through  the date of this  Plan of  Merger.  Except  as set forth in
Exhibit 3.7(a) to the Disclosure  Schedule,  as of their  respective  dates, the
Horizon/CMS Documents did not contain any untrue statements of material facts or
omit to state  material facts required to be stated therein or necessary to make
the  statements  therein,  in light of the  circumstances  under which they were
made, not misleading.  As of their respective  dates, the Horizon/CMS  Documents
complied  in all  material  respects  with the  applicable  requirements  of the
Securities Act of 1933, as amended,  and the Securities Exchange Act of 1934, as
amended,  and the rules and  regulations  promulgated  under such statutes.  The
financial statements contained in the Horizon/CMS  Documents,  together with the
notes  thereto,  have  been  prepared  in  accordance  with  generally  accepted
accounting  principles  consistently  followed  throughout the periods indicated
(except  as may be  indicated  in the  notes  thereto,  or,  in the  case of the
unaudited financial statements,  as permitted by Form 10-Q), except as set forth
in Exhibit 3.7(a) to the Disclosure  Schedule,  reflect all known liabilities of
Horizon/CMS  required to be stated therein,  including all such known contingent
liabilities as of the end of each period reflected  therein,  and present fairly
the  financial  condition  of  Horizon/CMS  at said  dates and the  consolidated
results of operations and cash flows of Horizon/CMS  for the periods then ended.
The  consolidated  balance sheet of Horizon/CMS at November 30, 1996 included in
the Horizon/CMS  Documents is herein  sometimes  referred to as the "Horizon/CMS
Balance Sheet".

         (b) Except as disclosed in the Horizon/CMS Documents or as set forth in
Exhibit  3.7(b) to the  Disclosure  Schedule  and  except  for  liabilities  and
obligations  incurred in the ordinary  course of business  consistent  with past
practices,  since the date of the Horizon/CMS Balance Sheet, neither Horizon/CMS
nor any of the Horizon/CMS  Subsidiaries or the Horizon/CMS  Other Entities have
incurred any  liabilities or obligations of any nature,  whether or not accrued,
contingent  or otherwise,  that have,  or would be reasonably  likely to have, a
material  adverse effect on Horizon/CMS.  Except as disclosed in the Horizon/CMS
Documents  or as set forth in  Exhibit  3.7(b) to the  Disclosure  Schedule  and
except for  liabilities  and  obligations  incurred  in the  ordinary  course of
business  consistent  with past  practices,  since  the date of the  Horizon/CMS
Balance Sheet,  neither  Horizon/CMS nor any of the Horizon/CMS  Subsidiaries or
the  Horizon/CMS  Other Entities have incurred any liabilities or obligations of
any nature,  whether or not  accrued,  contingent  or  otherwise,  that would be
required to be reflected or reserved against on a consolidated  balance sheet of
Horizon/CMS  (including the notes thereto) prepared in accordance with generally
accepted  accounting  principles as applied in preparing the Horizon/CMS Balance
Sheet.

                                      - 8 -


         3.8  Supporting  Information.  All  consolidated  historical  financial
information   provided  by  Horizon/CMS   to  HEALTHSOUTH  in  connection   with
HEALTHSOUTH's  due  diligence  investigation  prior to the date of this  Plan of
Merger, and all such information provided to HEALTHSOUTH on or after the date of
this Plan of Merger,  is  supported by detailed  information  at the facility or
operating  unit  level  and  is in  all  respects  consistent  with  and  fairly
reflective of such detailed information.

         3.9 Legal Proceedings. Except as disclosed in the Horizon/CMS Documents
or  on  Exhibit  3.9  to  the  Disclosure  Schedule,  there  is  no  litigation,
governmental investigation or other proceeding pending or, so far as is known to
Horizon/CMS,  threatened  against or relating to Horizon/CMS or the  Horizon/CMS
Subsidiaries or the Horizon/CMS Other Entities,  their respective  properties or
businesses,  or the transactions contemplated by this Plan of Merger, except for
litigation,  governmental  investigations  or other  proceedings that would not,
individually or in the aggregate, have a material adverse effect on Horizon/CMS.

         3.10 Contracts,  etc. (a) Except as set forth on Exhibit 3.10(a) to the
Disclosure Schedule, all material contracts, leases, agreements and arrangements
to which Horizon/CMS or any of the Horizon/CMS Subsidiaries or Horizon/CMS Other
Entities is a party are legally valid and binding in accordance with their terms
and in full force and effect, and, to the knowledge of Horizon/CMS,  no party is
in default  thereunder,  and no event has occurred which, but for the passage of
time or the giving of notice or both,  would  constitute  a default  thereunder,
except,  in each case,  where the  invalidity or  unenforceablity  of the lease,
contract,  agreement  or  arrangement  or the  default or breach  thereunder  or
thereof would not,  individually  or in the aggregate,  have a material  adverse
effect on Horizon/CMS.

         (b) Except as set forth on Exhibit 3.10(b) to the Disclosure  Schedule,
no contract or agreement to which  Horizon/CMS or any Horizon/CMS  Subsidiary or
Horizon/CMS Other Entity is a party will, by its terms, terminate as a result of
the  transactions  contemplated  hereby or require any consent  from any obligor
thereto  in order to  remain  in full  force and  effect  immediately  after the
Effective  Time,  except for contracts or agreements  which, if terminated or if
their  enforceability  were  otherwise  adversely  affected,  would  not  have a
material adverse effect on Horizon/CMS.

         (c) Except as set forth on Exhibit 3.10(c) to the Disclosure  Schedule,
none of Horizon/CMS,  any Horizon/CMS Subsidiary or any Horizon/CMS Other Entity
has  granted any right of first  refusal or similar  right in favor of any third
party  with  respect to any  material  portion  of its  properties  or assets or
entered into any non-competition  agreement or similar agreement  restricting in
any  material  manner its  ability  to engage in any  material  business  in any
location.

         3.11 Subsequent Events.  Except as (a) set forth on Exhibit 3.11 to the
Disclosure Schedule, (b) disclosed in the Horizon/CMS Documents (c) contemplated
by this Plan of Merger or (d) otherwise  consented to in writing by HEALTHSOUTH,
none of Horizon/CMS, any Horizon/CMS Subsidiary nor any Horizon/CMS Other Entity
has, since the date of the Horizon/CMS Balance Sheet:

                  (i) Incurred any material adverse change;

                                      - 9 -


                  (ii)  except as  required  hereby,  amended  its  Articles  or
         Certificate of Incorporation or Bylaws, if any;

                  (iii)  extended  credit to anyone or guaranteed the obligation
         of any  person,  firm or  corporation  (other than  Horizon/CMS  or any
         Horizon/CMS  Subsidiary or Horizon/CMS Other Entity) in an amount that,
         in either  case,  is material  to  Horizon/CMS  except in the  ordinary
         course of business consistent with prior practice;

                  (iv) discharged or satisfied any material lien or encumbrance,
         or paid or satisfied any material  obligation  or liability  (absolute,
         accrued,  contingent or otherwise) other than (a) liabilities  shown or
         reflected on the Horizon/CMS Balance Sheet or (b) liabilities  incurred
         since the date of the Horizon/CMS  Balance Sheet in the ordinary course
         of  business,  which  discharge or  satisfaction  would have a material
         adverse effect on Horizon/CMS;

                  (v)  increased  or  established  any  reserve for taxes or any
         other liability on its books or otherwise provided therefor which would
         have a material adverse effect on Horizon/CMS, except as relates to the
         consolidated results of operations of Horizon/CMS since the date of the
         Horizon/CMS Balance Sheet;

                  (vi) sold or transferred any of its material assets,  tangible
         or  intangible,  cancelled  any material  debts or claims held by it or
         waived any of its material  rights,  except in the  ordinary  course of
         business;

                  (vii) mortgaged, pledged or subjected to any security interest
         any of its  material  assets,  tangible  or  intangible,  other than as
         required under the existing provisions of Horizon/CMS's  primary credit
         facility;

                  (viii)  entered  into  any  employment  contract  which is not
         terminable upon notice of 30 days or less, at will, and without penalty
         to  Horizon/CMS  except as  provided  herein or granted  any general or
         uniform  increase  in the  rates of pay of  employees  or  granted  any
         increase in salary  payable or to become  payable by Horizon/CMS to any
         officer  of  Horizon/CMS  or,  by means of any bonus or  pension  plan,
         contract or other commitment, increased the compensation of any officer
         of   Horizon/CMS   or  entered  into  any   agreements   providing  for
         compensation to any officer or employee of Horizon/CMS, any Horizon/CMS
         Subsidiary  or any  Horizon/CMS  Other  Entity  based  upon a change in
         control of Horizon/CMS;

                  (ix) made any  contribution,  payment or  distribution  to the
         trustee under any Horizon/CMS  Plan (as such term is defined in Section
         3.15 herein), other than any such contribution, payment or distribution
         that is in accordance with Horizon/CMS's past practice,  or established
         or terminated any Horizon/CMS Plan;

                  (x) issued any capital stock or other equity securities, other
         than  stock  options  granted  to  officers,  employees,  directors  or
         consultants  of  Horizon/CMS  or

                                     - 10 -


         warrants  granted to third  parties  and shares of  Horizon/CMS  Common
         Stock  issuable  upon the exercise  thereof,  all of which  options and
         warrants  are  disclosed on Exhibit 3.2 to the  Disclosure  Schedule or
         reflected in the Horizon/CMS Documents; or

                  (xi)  except for this Plan of Merger  and any other  agreement
         executed and  delivered  pursuant to this Plan of Merger,  entered into
         any material  transaction other than in the ordinary course of business
         or permitted  under other Sections  hereof or entered into any contract
         or  agreement  in the  ordinary  course of business (i) which cannot be
         performed  within  three  months  or less or (ii)  which  involves  the
         expenditure by Horizon/CMS of over $250,000.

         3.12 Accounts  Receivable.  (a) Since the date of the Horizon/CMS 10-K,
Horizon/CMS  has not changed any material  principle or practice with respect to
the recordation of accounts  receivable or the calculation of reserves therefor,
or  any  material  collection,   discount  or  write-off  policy  or  procedure.
Horizon/CMS  (including  the  Horizon/CMS  Subsidiaries  and  Horizon/CMS  Other
Entities) is in  compliance  with the terms and  conditions  of all  third-party
payor  arrangements  relating to its accounts  receivable,  except to the extent
that such noncompliance would not have a material adverse effect on Horizon/CMS.

         (b)  Without  limiting  the  generality  of  the  foregoing,   each  of
Horizon/CMS and the Horizon/CMS  Subsidiaries and the Horizon/CMS Other Entities
is in compliance with all Medicare and Medicaid provider  agreements to which it
is a party,  except  to the  extent  that  such  noncompliance  would not have a
material adverse effect on Horizon/CMS.

         3.13 Tax Returns.  Horizon/CMS and each of the Horizon/CMS Subsidiaries
and the  Horizon/CMS  Other  Entities  has filed all tax returns  required to be
filed by it or requests for extensions to file such returns or reports have been
timely  filed and granted and have not  expired,  except to the extent that such
failures  to file,  taken  together,  do not have a material  adverse  effect on
Horizon/CMS. Horizon/CMS or the applicable entity has made all payments shown as
due on such  returns.  Except as set  forth on  Exhibit  3.13 to the  Disclosure
Schedule,  neither  Horizon/CMS  nor any  Horizon/CMS  Subsidiary or Horizon/CMS
Other  Entity  has been  notified  that any tax  returns of  Horizon/CMS  or any
Horizon/CMS  Subsidiary or Horizon/CMS Other Entity are currently under audit by
the Internal  Revenue  Service or any state or local tax agency.  No  agreements
have been made by  Horizon/CMS  for the  extension  of time or the waiver of the
statute of limitations  for the  assessment or payment of any federal,  state or
local taxes.

         3.14  Commissions  and Fees.  Except for fees payable to Merrill Lynch,
Pierce,  Fenner & Smith  Incorporated  ("Merrill Lynch") as indicated in Exhibit
3.14 to the  Disclosure  Schedule,  there  are no  valid  claims  for  brokerage
commissions  or finder's or similar  fees in  connection  with the  transactions
contemplated  by this Plan of  Merger  which  may be now or  hereafter  asserted
against  HEALTHSOUTH  resulting  from any  action  taken by  Horizon/CMS  or its
officers or Directors, or any of them.

         3.15 Employee  Benefit  Plans;  Employment  Matters.  (a) Except as set
forth  in  Exhibit  3.15  to the  Disclosure  Schedule  or as  described  in the
Horizon/CMS Documents,  Horizon/CMS has

                                     - 11 -


neither  established nor maintains nor is obligated to make  contributions to or
under or  otherwise  participate  in (a) any  bonus or other  type of  incentive
compensation  plan,  program,   agreement,   policy,  commitment,   contract  or
arrangement  (whether or not set forth in a written document),  (b) any pension,
profit-sharing,  retirement or other plan,  program or  arrangement,  or (c) any
other employee  benefit plan,  fund or program,  including,  but not limited to,
those described in Section 3(3) of ERISA. Except as set forth in Exhibit 3.15 to
the Disclosure Schedule, all such plans (individually,  a "Horizon/CMS Plan" and
collectively,  the  "Horizon/CMS  Plans") have been operated and administered in
accordance  with, as applicable,  ERISA,  the Internal  Revenue Code of 1986, as
amended,  Title VII of the Civil Rights Act of 1964,  as amended,  the Equal Pay
Act of 1967, as amended,  the Age  Discrimination  in Employment Act of 1967, as
amended, and the related rules and regulations adopted by those federal agencies
responsible  for the  administration  of such laws.  No act or failure to act by
Horizon/CMS  has resulted in a  "prohibited  transaction"  (as defined in ERISA)
with  respect to the  Horizon/CMS  Plans that is not subject to a  statutory  or
regulatory  exception.  Except as set forth in  Exhibit  3.15 to the  Disclosure
Schedule,  no "reportable event" (as defined in ERISA) has occurred with respect
to any of the Horizon/CMS Plans which is subject to Title IV of ERISA. Except as
set  forth in  Exhibit  3.15 to the  Disclosure  Schedule,  Horizon/CMS  has not
previously  made,  is not currently  making,  and is not obligated in any way to
make, any  contributions  to any  multi-employer  plan within the meaning of the
Multi-Employer Pension Plan Amendments Act of 1980.

         (b) Except as set forth in Exhibit 3.15 to the  Disclosure  Schedule or
described in the Horizon/CMS  Documents,  Horizon/CMS is not a party to any oral
or written (i) union, guild or collective  bargaining  agreement which agreement
covers  employees in the United States (nor is it aware of any union  organizing
activity  currently being  conducted in respect to any of its  employees),  (ii)
agreement with any executive officer or other key employee the benefits of which
are  contingent,  or the terms of which are altered,  upon the  occurrence  of a
transaction of the nature contemplated by this Plan of Merger and which provides
for the payment of in excess of $50,000,  or (iii) agreement or plan,  including
any stock option plan, stock appreciation rights plan,  restricted stock plan or
stock  purchase  plan,  any of the benefits of which will be  increased,  or the
vesting the benefits of which will be  accelerated,  by the occurrence of any of
the transactions  contemplated by this Plan of Merger or the value of any of the
benefits  of which will be  calculated  on the basis of any of the  transactions
contemplated by this Plan of Merger.

         3.16  Compliance  with Laws in General.  Except as set forth on Exhibit
3.16 to the  Disclosure  Schedule or  disclosed  in the  Horizon/CMS  Documents,
Horizon/CMS has not received any notices of violations of any federal, state and
local laws,  regulations and ordinances relating to its business and operations,
including,  without  limitation,  the  Occupational  Safety and Health Act,  the
Americans with  Disabilities  Act, the Medicare or applicable  Medicaid statutes
and regulations and any  Environmental  Laws, which  violation,  if established,
would have a material effect on Horizon/CMS.

         3.17  Licenses,  Accreditation  and  Regulatory  Approvals.  Except  as
disclosed  in  the  Horizon/CMS  Documents,   Horizon/CMS  and  the  Horizon/CMS
Subsidiaries  and  Horizon/CMS  Other  Entities  hold  all  licenses,   permits,
certificates  of need and other  regulatory  approvals which are required by law
with  respect  to  their  businesses,  operations  and  facilities  as they  are
currently  or


                                     - 12 -

presently  conducted  or  operated,  except  where the  failure to possess  such
licenses would not have a material adverse effect on Horizon/CMS  (collectively,
the "Horizon/CMS  Licenses").  Except with respect to those Horizon/CMS Licenses
for which renewal  applications have been filed by Horizon/CMS,  the Horizon/CMS
Subisidiaries or the Horizon/CMS Other Entities and which are being processed by
the applicable regulatory authorities, all such Horizon/CMS Licenses are in full
force  and  effect,  and  Horizon/CMS  is in  substantial  compliance  with  all
conditions and  requirements of the Horizon/CMS  Licenses and with all rules and
regulations relating thereto.  Horizon/CMS, the Horizon/CMS Subsidiaries and the
Horizon/CMS  Other Entities are, to the extent  applicable to their  operations,
(i)  eligible  to  receive  payment  under  Titles  XVIII and XIX of the  Social
Security  Act,  (ii)  providers  under  existing  provider  agreements  with the
Medicare program through the applicable  intermediaries and (iii) in substantial
compliance with the conditions of  participation  in the Medicare program except
for such  matters as would not have a material  adverse  effect on  Horizon/CMS.
Except to the extent that the failure to timely make such filings would not have
a  material  adverse  effect on  Horizon/CMS,  and  except as  disclosed  in the
Horizon/CMS  Documents,   Horizon/CMS,  the  Horizon/CMS  Subsidiaries  and  the
Horizon/CMS  Other  Entities  have timely filed all  requisite  claims and other
reports required to be filed in connection with the Medicare, Medicaid and other
governmental  health  programs  due on or before the date  hereof,  all of which
were, when filed,  complete and correct in all material respects.  Except as set
forth on Exhibit 3.17 to the Disclosure  Schedule,  there are no current claims,
actions  or  appeals  pending,  and  neither  Horizon/CMS  nor  the  Horizon/CMS
Subsidiaries nor the Horizon/CMS Other Entities have filed any claims or reports
which would result in such claims,  actions or appeals,  before any  commission,
board or agency, including, without limitation, any intermediary or carrier, the
Provider  Reimbursement  Review  Board or the  Administrator  of the Health Care
Financing   Administration   with  respect  to  any  Medicare  claims,   or  any
disallowances  in  connection  with any  audit of  claims,  which  would  have a
material  adverse effect on Horizon/CMS.  The amounts  established as provisions
for adjustments by Medicare,  Medicaid and other third-party payors set forth in
the  Horizon/CMS  Balance  Sheet are  sufficient  to pay any  amounts  for which
Horizon/CMS believes it will be liable. To the knowledge of Horizon/CMS,  except
to the extent that alleged  violations  have been  disclosed in the  Horizon/CMS
Documents,   neither  Horizon/CMS  nor  the  Horizon/CMS  Subsidiaries  nor  the
Horizon/CMS  Other  Entities nor their  respective  employees  have  committed a
violation of the Medicare and Medicaid fraud and abuse  provisions of the Social
Security  Act or any  similar  provisions  of any  federal,  state or local  law
relating to  referrals  or billings  for  healthcare  services.  Except for such
litigation as would not, if resolved adversely to Horizon/CMS or any Horizon/CMS
Subsidiary  or  Horizon/CMS  Other  Entity,  have a material  adverse  effect on
Horizon/CMS,  any and all past litigation  concerning such Horizon/CMS Licenses,
and  all  claims  and  causes  of  action  raised  therein,  have  been  finally
adjudicated  or settled.  Except as indicated in Exhibit 3.17 to the  Disclosure
Schedule,  no such  License  has been  revoked,  conditioned  (except  as may be
customary) or restricted,  and no action (equitable,  legal or  administrative),
arbitration  or other process is pending,  or to the  knowledge of  Horizon/CMS,
threatened,  which in any way  challenges  the  validity of, or seeks to revoke,
condition or restrict any such License.  Subject to compliance  with  applicable
securities laws, the Hart  Scott-Rodino  Antitrust  Improvements Act of 1976, as
amended  (the "HSR  Act"),  and state or local  statutes,  rules or  regulations
requiring notice,  approval,  or other action upon the occurrence of a change in
control of  Horizon/CMS  or any of the  Horizon/CMS  Subsidiaries  or any of the
Horizon/CMS Other Entities,  the consummation of the Merger will not violate any
law or regulation

                                     - 13 -


to which  Horizon/CMS  is  subject  which,  if  violated,  would have a material
adverse effect on Horizon/CMS.

         3.18 Vote Required.  The affirmative  vote of the holders of a majority
of the  outstanding  shares of the  Horizon/CMS  Common  Stock  entitled to vote
thereon is the only vote of the  holders  of any class or series of  Horizon/CMS
capital  stock  necessary  to approve  this Plan of  Merger,  the Merger and the
transactions contemplated hereby.

         3.19  Opinion  of  Financial   Advisor.   The  Board  of  Directors  of
Horizon/CMS  has received the oral opinion of Merrill  Lynch to the effect that,
as of the date of this Plan of Merger, the Exchange Ratio is fair to the holders
of  Horizon/CMS  Common Stock from a financial  point of view, a written copy of
which opinion will be delivered by Horizon/CMS to HEALTHSOUTH  prior to the date
on which the definitive  proxy  materials for the Proxy Statement (as defined in
Section 7.4(a)) are filed with the SEC.


Section 4.   REPRESENTATIONS AND WARRANTIES OF THE SUBSIDIARY AND HEALTHSOUTH.

         The Subsidiary and HEALTHSOUTH, jointly and severally, hereby represent
and warrant to Horizon/CMS as follows:

         4.1  Organization,  Existence and Capital  Stock.  The  Subsidiary is a
corporation  duly  organized and validly  existing and is in good standing under
the laws of the State of Delaware. The Subsidiary's  authorized capital consists
of 1,000 shares of Common Stock,  par value $.01 per share,  all of which shares
are issued and  registered in the name of  HEALTHSOUTH.  The Subsidiary has not,
within  the two years  immediately  preceding  the date of this Plan of  Merger,
owned, directly or indirectly, any shares of Horizon/CMS Common Stock.

         4.2 Power and Authority. The Subsidiary has corporate power to execute,
deliver and perform this Plan of Merger and all agreements  and other  documents
executed and delivered,  or to be executed and delivered, by it pursuant to this
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth  herein,  has  taken all  actions  required  by law,  its  Certificate  of
Incorporation,  its Bylaws or otherwise, to authorize the execution and delivery
of this Plan of Merger and such related documents. The execution and delivery of
this Plan of Merger does not and, subject to the receipt of required stockholder
and  regulatory  approvals  and  any  other  required  third-party  consents  or
approvals,  the consummation of the Merger contemplated hereby will not, violate
any  provisions  of, any  statute or other law,  any rule or  regulation  of any
governmental agency or authority,  the Certificate of Incorporation or Bylaws of
the  Subsidiary,  or  mortgage,  lien,  lease,  agreement,   instrument,  order,
arbitration  award,  judgment or decree to which the Subsidiary is a party or by
which it is bound,  violate any restrictions of any kind to which the Subsidiary
is subject,  or result in the creation of any lien,  charge or encumbrance  upon
any of the property or assets of the  Subsidiary.  The execution and delivery of
this  Plan of  Merger  has  been  approved  by the  Board  of  Directors  of the
Subsidiary.

                                     - 14 -


         4.3 No  Subsidiaries.  The Subsidiary  does not own any equity interest
in,  and does  not  control  directly  or  indirectly,  any  other  corporation,
association or business organization. The Subsidiary is not a party to any joint
venture or partnership.

         4.4 Legal  Proceedings.  There  are no  actions,  suits or  proceedings
pending or threatened against the Subsidiary,  at law or in equity,  relating to
or affecting the Subsidiary,  including the Merger. The Subsidiary does not know
or have any reasonable grounds to know of any justification for any such action,
suit or proceeding.

         4.5 No Contracts or  Liabilities.  Other than the  obligations  created
under this Plan of Merger,  the Subsidiary is not obligated under any contracts,
claims, leases, liabilities (contingent or otherwise), loans or otherwise.

Section 5.        REPRESENTATIONS AND WARRANTIES OF HEALTHSOUTH.

         HEALTHSOUTH hereby represents and warrants to Horizon/CMS as follows:

         5.1  Organization,  Existence  and  Good  Standing.  HEALTHSOUTH  is  a
corporation  duly  organized and validly  existing and is in good standing under
the laws of the State of Delaware. HEALTHSOUTH has all necessary corporate power
to own its  properties  and assets  and to carry on its  business  as  presently
conducted.  HEALTHSOUTH is duly qualified to do business and is in good standing
in all  jurisdictions  in which the character of the property  owned,  leased or
operated  or the nature of the  business  transacted  by it makes  qualification
necessary.

         5.2 Power and Authority.  HEALTHSOUTH  has corporate  power to execute,
deliver and perform this Plan of Merger and all agreements  and other  documents
executed and delivered,  or to be executed and delivered, by it pursuant to this
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth  herein  has  taken  all  actions  required  by law,  its  Certificate  of
Incorporation,  its Bylaws or otherwise, to authorize the execution and delivery
of this Plan of Merger and such related documents. The execution and delivery of
this Plan of Merger does not and, subject to the receipt of required stockholder
and  regulatory  approvals  and  any  other  required  third-party  consents  or
approvals,  the consummation of the Merger contemplated hereby will not, violate
any  provisions  of, any  statute or other law,  any rule or  regulation  of any
governmental agency or authority,  the Certificate of Incorporation or Bylaws of
HEALTHSOUTH,  or  any  provision  of,  or  result  in  the  acceleration  of any
obligation  under, any mortgage,  lien,  lease,  agreement,  instrument,  order,
arbitration  award,  judgment or decree to which  HEALTHSOUTH or any HEALTHSOUTH
Subsidiary  or  HEALTHSOUTH  Other  Entity (as such terms are defined in Section
5.6(b)) is a party or by which it is bound,  or violate any  restrictions of any
kind to which HEALTHSOUTH is subject. The execution and delivery of this Plan of
Merger  has been  approved  by the Board of  Directors  of  HEALTHSOUTH,  and no
approval  by the holders of  HEALTHSOUTH  Common  Stock is required by law,  the
Certificate of Incorporation or Bylaws of HEALTHSOUTH, the rules of the New York
Stock Exchange, Inc. (the "Exchange") or otherwise. This Plan of Merger has been
duly executed and delivered by HEALTHSOUTH and the Subsidiary and, assuming this
Plan of  Merger  constitutes  a valid and  binding  obligation  of  Horizon/CMS,
constitutes a valid and binding  obligation of 


                                     - 15 -


HEALTHSOUTH  and  the  Subsidiary,   enforceable  against  HEALTHSOUTH  and  the
Subsidiary in accordance with its terms.

         5.3  HEALTHSOUTH  Common Stock. On the Closing Date,  HEALTHSOUTH  will
have a sufficient  number of authorized but unissued  and/or  treasury shares of
its Common Stock  available  for issuance to the holders of  Horizon/CMS  Common
Stock in accordance with the provisions of this Plan of Merger.  The HEALTHSOUTH
Common  Stock  to be  issued  pursuant  to this  Plan of  Merger  will,  when so
delivered,  be (i) duly and validly issued,  fully paid and nonassessable,  (ii)
issued pursuant to an effective  registration statement under the Securities Act
of 1933,  as amended,  and (iii)  authorized  for listing on the  Exchange  upon
official notice of issuance.

         5.4 Capitalization.  HEALTHSOUTH's authorized capital stock consists of
1,500,000  shares of  Preferred  Stock,  par value $.10 per  share,  of which no
shares are  issued and  outstanding,  and no shares  are held in  treasury,  and
250,000,000  shares  of  Common  Stock,  par  value  $.01  per  share,  of which
156,114,869  shares are issued and  outstanding,  and 93,000  shares are held in
treasury. HEALTHSOUTH has called a special meeting of its stockholders for March
12,  1997,  to approve an  amendment  to its  Certificate  of  Incorporation  to
increase  its  authorized  number  of  shares  of  HEALTHSOUTH  Common  Stock to
500,000,000.  All of the issued and  outstanding  shares of  HEALTHSOUTH  Common
Stock have been duly and validly  issued and are fully paid and  non-assessable.
Except as disclosed in the HEALTHSOUTH Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, as amended (the  "HEALTHSOUTH  10-K"),  and except
for shares of HEALTHSOUTH  Common Stock reserved for issuance in connection with
(i) its  pending  acquisition  of  Health  Images,  Inc.  and (ii) its  proposed
two-for-one  stock  split to be  effected  March 13,  1997 in the form of a 100%
stock  dividend  (subject  to the  approval  of the  proposed  amendment  to its
Certificate of Incorporation  described above), there are no options,  warrants,
convertible  debentures or similar  rights  granted by  HEALTHSOUTH or any other
agreements to which HEALTHSOUTH is a party providing for the issuance or sale by
it of any  additional  securities,  other  than  stock  options  granted  in the
ordinary course since such date. There is no liability for dividends declared or
accumulated but unpaid with respect to any shares of HEALTHSOUTH Common Stock.

         5.5 Subsidiary  Common Stock.  HEALTHSOUTH  owns,  beneficially  and of
record,  all of the issued and  outstanding  shares of Subsidiary  Common Stock,
which are validly issued and outstanding, fully paid and nonassessable, free and
clear of all liens and  encumbrances.  HEALTHSOUTH  has the  corporate  power to
endorse and surrender such Subsidiary  Shares for cancellation  pursuant to this
Plan of Merger. HEALTHSOUTH has taken all such actions as may be required in its
capacity as the sole stockholder of the Subsidiary to approve the Merger.

         5.6 HEALTHSOUTH  Documents.  (a)  HEALTHSOUTH has heretofore  furnished
Horizon/CMS with a true and complete copy of each report, schedule, registration
statement and definitive  proxy  statement filed by it with the SEC (as any such
documents  have  since  the time of their  original  filing  been  amended,  the
"HEALTHSOUTH  Documents")  since  January 1, 1995,  which are all the  documents
(other  than  preliminary  material)  that it was  required to file with the SEC
since such date. As of their respective dates, the HEALTHSOUTH Documents did not
contain any untrue  statements of material facts or omit to state material facts
required to be stated


                                     - 16 -


therein  or  necessary  to  make  the  statements   therein,  in  light  of  the
circumstances under which they were made, not misleading. As of their respective
dates,  the  HEALTHSOUTH  Documents  complied in all material  respects with the
applicable  requirements  of the  Securities  Act of 1933,  as amended,  and the
Securities  Exchange  Act of 1934,  as  amended,  and the rules and  regulations
promulgated  under such  statutes.  The  financial  statements  contained in the
HEALTHSOUTH  Documents,  together with the notes thereto,  have been prepared in
accordance with generally accepted accounting  principles  consistently followed
throughout  the  periods  indicated  (except  as may be  indicated  in the notes
thereto, or, in the case of the unaudited financial statements,  as permitted by
Form 10-Q),  reflect all known liabilities of HEALTHSOUTH  required to be stated
therein, including all known contingent liabilities as of the end of each period
reflected therein,  and present fairly the financial condition of HEALTHSOUTH at
said  dates  and the  consolidated  results  of  operations  and  cash  flows of
HEALTHSOUTH  for the  periods  then ended.  The  consolidated  balance  sheet of
HEALTHSOUTH at December 31, 1996 included in the HEALTHSOUTH Documents is herein
sometimes referred to as the "HEALTHSOUTH Balance Sheet".

         (b) Except as disclosed  in the  HEALTHSOUTH  Documents  and except for
liabilities  and  obligations  incurred  in  the  ordinary  course  of  business
consistent with past practices, since the date of the HEALTHSOUTH Balance Sheet,
neither  HEALTHSOUTH nor any of the HEALTHSOUTH  Subsidiaries or the HEALTHSOUTH
Other  Entities  have incurred any  liabilities  or  obligations  of any nature,
whether  or not  accrued,  contingent  or  otherwise,  that  have,  or  would be
reasonably  likely to have, a material adverse effect on HEALTHSOUTH or would be
required to be reflected or reserved against on a consolidated  balance sheet of
HEALTHSOUTH  (including the notes thereto) prepared in accordance with generally
accepted  accounting  principles as applied in preparing the HEALTHSOUTH Balance
Sheet. As used in this Plan of Merger, the term "HEALTHSOUTH Subsidiaries" means
Subsidiaries of HEALTHSOUTH, and the term "HEALTHSOUTH Other Entities" means any
general or limited partnerships in which HEALTHSOUTH,  a HEALTHSOUTH Subsidiary,
or any other  HEALTHSOUTH  Other  Entity is a general  partner  and any  limited
liability companies in which HEALTHSOUTH,  a HEALTHSOUTH Subsidiary or any other
HEALTHSOUTH Other Entity is a member.

         5.7  Supporting  Information.  All  consolidated  historical  financial
information   provided  by  HEALTHSOUTH   to  Horizon/CMS  in  connection   with
Horizon/CMS's  due  diligence  investigation  prior to the date of this  Plan of
Merger, and all such information provided to Horizon/CMS on or after the date of
this Plan of Merger,  is  supported by detailed  information  at the facility or
operating  unit  level  and  is in  all  respects  consistent  with  and  fairly
reflective of such detailed information.

         5.8  Investment   Intent.   HEALTHSOUTH  is  acquiring  the  shares  of
Horizon/CMS  Common Stock  hereunder  for its own account and not with a view to
the  distribution  or  sale  thereof,  and  HEALTHSOUTH  has  no  understanding,
agreement or arrangement to sell, distribute, partition or otherwise transfer or
assign all or any part of the shares of  Horizon/CMS  Common  Stock to any other
person, firm or corporation.

         5.9  Legal   Proceedings.   Except  as  disclosed  in  the  HEALTHSOUTH
Documents, there is no material litigation,  governmental investigation or other
proceeding pending or, so far as is known to HEALTHSOUTH,  threatened against or
relating to HEALTHSOUTH,  the 

                                     - 17 -


HEALTHSOUTH  Subsidiaries or the HEALTHSOUTH  Other Entities,  their  respective
properties  or  businesses,  or the  transactions  contemplated  by this Plan of
Merger, except for litigation,  governmental investigations or other proceedings
that would not, individually or in the aggregate, have a material adverse effect
on HEALTHSOUTH.

         5.10  Subsequent  Events.   Except  as  disclosed  in  the  HEALTHSOUTH
Documents,  none of HEALTHSOUTH,  any HEALTHSOUTH Subsidiary nor any HEALTHSOUTH
Other Entity has, since the date of the HEALTHSOUTH Balance Sheet:

                  (i)      Incurred any material adverse change;

                  (ii)  subject  to  the  proposed  amendment  to  HEALTHSOUTH's
         Certificate of  Incorporation  described in Section 5.4 above,  amended
         its Articles or Certificate of Incorporation or Bylaws, if any;

                  (iii)  extended  credit to anyone or guaranteed the obligation
         of any person,  firm or  corporation in an amount that, in either case,
         is material to  HEALTHSOUTH  except in the ordinary  course of business
         consistent with prior practice;

                  (iv) discharged or satisfied any material lien or encumbrance,
         or paid or satisfied any material  obligation  or liability  (absolute,
         accrued,  contingent or otherwise) other than (a) liabilities  shown or
         reflected on the HEALTHSOUTH Balance Sheet or (b) liabilities  incurred
         since the date of the HEALTHSOUTH  Balance Sheet in the ordinary course
         of  business,  which  discharge or  satisfaction  would have a material
         adverse effect on HEALTHSOUTH;

                  (v)  increased  or  established  any  reserve for taxes or any
         other liability on its books or otherwise  provided therefor that would
         have a material adverse effect on HEALTHSOUTH, except as relates to the
         consolidated results of operations of HEALTHSOUTH since the date of the
         HEALTHSOUTH Balance Sheet;

                  (vi) sold or transferred any of its material assets,  tangible
         or  intangible,  cancelled  any material  debts or claims held by it or
         waived any of its material  rights,  except in the  ordinary  course of
         business;

                  (vii) mortgaged, pledged or subjected to any security interest
         any of its material assets, tangible or intangible;

                  (viii)  issued or agreed to issue any  capital  stock or other
         equity  securities with respect to any merger,  consolidation  or other
         business  combination  with  any  corporation  or other  entity  or the
         acquisition  of all or any  significant  part of the  assets or capital
         stock or other equity  interests of any  corporation  or other  entity,
         which merger,  consolidation,  business  combination  or acquisition is
         material to HEALTHSOUTH; or


                                     - 18 -


                  (ix)  except for this Plan of Merger  and any other  agreement
         executed and  delivered  pursuant to this Plan of Merger,  entered into
         any material  transaction other than in the ordinary course of business
         or permitted under other Sections hereof.

         5.11 Tax Returns.  HEALTHSOUTH and each of the HEALTHSOUTH Subsidiaries
and HEALTHSOUTH Other Entities has filed all tax returns required to be filed by
it or requests for  extensions  to file such returns or reports have been timely
filed and granted and have not expired,  except to the extent that such failures
to file,  taken together,  do not have a material adverse effect on HEALTHSOUTH.
HEALTHSOUTH or the applicable  entity has made all payments shown as due on such
returns.  Except for audits of  HEALTHSOUTH's  1992 and 1993 federal  income tax
returns and  certain  state and local tax audits not  material  to  HEALTHSOUTH,
neither  HEALTHSOUTH nor any HEALTHSOUTH  Subsidiary or HEALTHSOUTH Other Entity
has been  notified  that  any tax  returns  of  HEALTHSOUTH  or any  HEALTHSOUTH
Subsidiary or HEALTHSOUTH Other Entity are currently under audit by the Internal
Revenue  Service or any state or local tax agency.  No agreements have been made
by  HEALTHSOUTH  for the  extension  of time or the  waiver  of the  statute  of
limitations for the assessment or payment of any federal, state or local taxes.

         5.12 Accounts  Receivable.  (a) Since the date of the HEALTHSOUTH 10-K,
HEALTHSOUTH  has not changed any material  principle or practice with respect to
the recordation of accounts  receivable or the calculation of reserves therefor,
or  any  material  collection,   discount  or  write-off  policy  or  procedure.
HEALTHSOUTH  (including  the  HEALTHSOUTH  Subsidiaries  and  HEALTHSOUTH  Other
Entities) is in  compliance  with the terms and  conditions  of all  third-party
payor  arrangements  relating to its accounts  receivable,  except to the extent
that such noncompliance would not have a material adverse effect on HEALTHSOUTH.

         (b)  Without  limiting  the  generality  of  the  foregoing,   each  of
HEALTHSOUTH and the HEALTHSOUTH  Subsidiaries and the HEALTHSOUTH Other Entities
is in compliance with all Medicare and Medicaid provider  agreements to which it
is a party,  except  to the  extent  that  such  noncompliance  would not have a
material adverse effect on HEALTHSOUTH.

         5.13  Employee  Benefit  Plans;   Employment  Matters.  (a)  Except  as
described in the HEALTHSOUTH Documents,  HEALTHSOUTH has neither established nor
maintains  nor is  obligated  to make  contributions  to or under  or  otherwise
participate  in (a) any  bonus or other  type of  incentive  compensation  plan,
program, agreement, policy, commitment,  contract or arrangement (whether or not
set forth in a written document), (b) any pension, profit-sharing, retirement or
other plan, program or arrangement, or (c) any other employee benefit plan, fund
or program,  including,  but not limited to, those  described in Section 3(3) of
ERISA. All such plans (individually,  a "HEALTHSOUTH Plan" and collectively, the
"HEALTHSOUTH  Plans") have been operated and administered in accordance with, as
applicable,  ERISA, the Internal Revenue Code of 1986, as amended,  Title VII of
the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended,
the Age  Discrimination  in Employment Act of 1967, as amended,  and the related
rules and  regulations  adopted by those federal  agencies  responsible  for the
administration  of  such  laws.  No act or  failure  to act by  HEALTHSOUTH  has
resulted in a "prohibited transaction" (as defined in ERISA) with respect to the
HEALTHSOUTH Plans that is not subject to a statutory or regulatory exception. 

                                     - 19 -


No "reportable  event" (as defined in ERISA) has occurred with respect to any of
the HEALTHSOUTH Plans which is subject to Title IV of ERISA. Except with respect
to  certain  employees  at  its  Toms  River,  New  Jersey  inpatient  facility,
HEALTHSOUTH  has  not  previously  made,  is not  currently  making,  and is not
obligated  in any way to make,  any  contributions  to any  multi-employer  plan
within the meaning of the Multi-Employer Pension Plan Amendments Act of 1980.

         (b) Except as described in the  HEALTHSOUTH  Documents,  HEALTHSOUTH is
not a party  to any  oral or  written  union,  guild  or  collective  bargaining
agreement which agreement covers employees in the United States (nor is it aware
of any union organizing  activity currently being conducted in respect to any of
its employees), other than a collective bargaining agreement covering certain of
its employees at its Toms River, New Jersey inpatient facility.

         5.14  Compliance  with  Laws in  General.  Except as  disclosed  in the
HEALTHSOUTH Documents, HEALTHSOUTH has not received any notices of violations of
any federal,  state and local laws,  regulations and ordinances  relating to its
business and operations,  including, without limitation, the Occupational Safety
and Health Act, the Americans with  Disabilities Act, the Medicare or applicable
Medicaid statutes and regulations and any  Environmental  Laws, which violation,
if established, would have a material effect on HEALTHSOUTH.

         5.15  Licenses,  Accreditation  and  Regulatory  Approvals.  Except  as
disclosed  in  the  HEALTHSOUTH  Documents,   HEALTHSOUTH  and  the  HEALTHSOUTH
Subsidiaries  and  HEALTHSOUTH  Other  Entities  hold  all  licenses,   permits,
certificates  of need and other  regulatory  approvals which are required by law
with  respect  to  their  businesses,  operations  and  facilities  as they  are
currently  or  presently  conducted  or  operated,  except  where the failure to
possess such licenses  would not have a material  adverse  effect on HEALTHSOUTH
(collectively,  the  "HEALTHSOUTH  Licenses").  Except  with  respect  to  those
HEALTHSOUTH   Licenses  for  which  renewal  applications  have  been  filed  by
HEALTHSOUTH, the HEALTHSOUTH Subisidiaries or the HEALTHSOUTH Other Entities and
which are being  processed by the applicable  regulatory  authorities,  all such
HEALTHSOUTH  Licenses  are in full  force  and  effect,  and  HEALTHSOUTH  is in
substantial  compliance with all conditions and  requirements of the HEALTHSOUTH
Licenses and with all rules and regulations relating thereto.  HEALTHSOUTH,  the
HEALTHSOUTH  Subsidiaries and the HEALTHSOUTH  Other Entities are, to the extent
applicable  to their  operations,  (i) eligible to receive  payment under Titles
XVIII and XIX of the Social Security Act, (ii) providers under existing provider
agreements with the Medicare program through the applicable  intermediaries  and
(iii) in  substantial  compliance  with the conditions of  participation  in the
Medicare  program  except for such matters as would not have a material  adverse
effect on HEALTHSOUTH. Except to the extent that the failure to timely make such
filings would not have a material  adverse effect on  HEALTHSOUTH,  HEALTHSOUTH,
the  HEALTHSOUTH  Subsidiaries  and the  HEALTHSOUTH  Other Entities have timely
filed all requisite  claims and other reports required to be filed in connection
with the Medicare,  Medicaid and other  governmental  health  programs due on or
before the date hereof,  all of which were, when filed,  complete and correct in
all material respects.  There are no current claims, actions or appeals pending,
and neither  HEALTHSOUTH  nor the HEALTHSOUTH  Subsidiaries  nor the HEALTHSOUTH
Other  Entities  have  filed any claims or reports  which  would  result in such
claims, actions or appeals, before any commission,  board or agency,  including,
without  limitation,  any  

                                     - 20 -


intermediary  or  carrier,  the  Provider  Reimbursement  Review  Board  or  the
Administrator  of the Health Care Financing  Administration  with respect to any
Medicare  claims,  or any  disallowances in connection with any audit of claims,
which  would  have  a  material  adverse  effect  on  HEALTHSOUTH.  The  amounts
established  as  provisions  for  adjustments  by  Medicare,  Medicaid and other
third-party payors set forth in the HEALTHSOUTH  Balance Sheet are sufficient to
pay any  amounts  for  which  HEALTHSOUTH  believes  it will be  liable.  To the
knowledge of HEALTHSOUTH,  neither HEALTHSOUTH nor the HEALTHSOUTH  Subsidiaries
nor the HEALTHSOUTH Other Entities nor their respective employees have committed
a violation  of the  Medicare and  Medicaid  fraud and abuse  provisions  of the
Social Security Act or any similar provisions of any federal, state or local law
relating to  referrals  or billings  for  healthcare  services.  Except for such
litigation as would not, if resolved adversely to HEALTHSOUTH or any HEALTHSOUTH
Subsidiary  or  HEALTHSOUTH  Other  Entity,  have a material  adverse  effect on
HEALTHSOUTH,  any and all past litigation  concerning such HEALTHSOUTH Licenses,
and  all  claims  and  causes  of  action  raised  therein,  have  been  finally
adjudicated or settled. No such License has been revoked, conditioned (except as
may  be  customary)  or  restricted,   and  no  action   (equitable,   legal  or
administrative), arbitration or other process is pending, or to the knowledge of
HEALTHSOUTH,  threatened,  which in any way challenges the validity of, or seeks
to revoke,  condition or restrict any such License.  Subject to compliance  with
applicable  securities laws, the HSR Act, and state or local statutes,  rules or
regulations requiring notice, approval, or other action upon the occurrence of a
change in control of Horizon/CMS or any of the  Horizon/CMS  Subsidiaries or any
of the  Horizon/CMS  Other  Entities,  the  consummation  of the Merger will not
violate  any law or  regulation  to  which  HEALTHSOUTH  is  subject  which,  if
violated, would have a material adverse effect on HEALTHSOUTH.


Section 6.        ACCESS TO INFORMATION AND DOCUMENTS.

         6.1 Access to  Information.  Between  the date  hereof and the  Closing
Date, each of Horizon/CMS  and HEALTHSOUTH  will give to the other party and its
counsel, accountants and other representatives full access to all the personnel,
properties,  documents,  contracts,  personnel  files and other  records of such
party and shall  furnish the other party with copies of such  documents and with
such  information  with  respect to the affairs of such party as the other party
may from time to time  reasonably  request.  Each party will  disclose  and make
available  to the other  party and its  representatives  all  books,  contracts,
accounts, personnel records, letters of intent, papers, records,  communications
with regulatory  authorities  and other  documents  relating to the business and
operations  of such party.  In  addition,  Horizon/CMS  shall make  available to
HEALTHSOUTH all such banking,  investment and financial  information as shall be
necessary  to  allow  for the  efficient  integration  of  Horizon/CMS  banking,
investment and financial arrangements with those of HEALTHSOUTH at the Effective
Time.

         6.2 Return of Records. If the transactions  contemplated hereby are not
consummated  and this Plan of Merger  terminates,  each party agrees to promptly
return all  documents,  contracts,  records or properties of the other party and
all copies  thereof  furnished  pursuant  to this  Section 6 or  otherwise.  All
information  disclosed by any party or any  affiliate or  representative  of any
party shall 

                                     - 21 -


be   deemed   to  be   "Confidential   Information"   under  the  terms  of  the
Confidentiality  Agreement  dated  January 27,  1997,  between  Horizon/CMS  and
HEALTHSOUTH, (the "Confidentiality Agreement").

         6.3 Effect of Access.  (a) Nothing contained in this Section 6 shall be
deemed  to create  any duty or  responsibility  on the part of  either  party to
investigate or evaluate the value,  validity or  enforceability of any contract,
lease or other asset included in the assets of the other party.

         (b) With  respect  to  matters  as to which any party has made  express
representations  or  warranties  herein,  the other  party or  parties  shall be
entitled to rely upon such express  representations and warranties  irrespective
of any investigations  made by such party or parties,  except to the extent that
such  investigations  result in actual knowledge by such party or parties of the
inaccuracy or falsehood of particular representations and warranties.


Section 7.        COVENANTS.

         7.1  Preservation of Business.  Horizon/CMS  will use its  commercially
reasonable efforts to preserve the business  organization of Horizon/CMS intact,
to keep available to HEALTHSOUTH  and the Surviving  Corporation the services of
the present key employees of  Horizon/CMS,  and to preserve for  HEALTHSOUTH and
the Surviving  Corporation  the goodwill of the suppliers,  customers and others
having business relations with Horizon/CMS.

         7.2 Material  Transactions.  From the date hereof  until the  Effective
Time, Horizon/CMS will not (other than as required pursuant to the terms of this
Plan of Merger and the  related  documents,  and other than with  respect to (i)
transactions  for which binding  commitments have been entered into prior to the
date hereof which are  described on Exhibit 7.2 to the  Disclosure  Schedule and
(ii) such  other  matters as are  described  on  Exhibit  7.2 to the  Disclosure
Schedule), without first obtaining the written consent of HEALTHSOUTH,  take any
action of a character described in Sections 3.11(ii) to 3.11(xi), inclusive.

         7.3  Meeting of  Horizon/CMS  Stockholders.  Horizon/CMS  will take all
steps necessary in accordance with its Certificate of  Incorporation  and Bylaws
to call,  give notice of,  convene and hold a meeting of its  stockholders  (the
"Special  Meeting")  as soon  as  practicable  after  the  effectiveness  of the
Registration  Statement  (as defined in Section 7.4 hereof),  for the purpose of
considering  the  approval  of this Plan of Merger  and the  Merger and for such
other  purposes as may be necessary.  Unless this Plan of Merger shall have been
validly  terminated as provided  herein,  the Board of Directors of  Horizon/CMS
(subject to the  provisions  of Section  8.1(d)  hereof)  will (i)  recommend to
Horizon/CMS  stockholders the approval of this Plan of Merger,  the transactions
contemplated hereby and any other matters to be submitted to the stockholders in
connection therewith, to the extent that such approval is required by applicable
law in order to  consummate  the  Merger,  and (ii) use  reasonable,  good faith
efforts to obtain the  approval  by  Horizon/CMS'  stockholders  of this Plan of
Merger and the transactions contemplated hereby.

         7.4 Registration Statement. (a) HEALTHSOUTH shall prepare and file with
the  SEC and any  other  applicable  regulatory  bodies,  as soon as  reasonably
practicable,  a Registration

                                     - 22 -


Statement on Form S-4 with respect to the shares of HEALTHSOUTH  Common Stock to
be issued in the  Merger  (the  "Registration  Statement"),  and will  otherwise
proceed  promptly to satisfy the requirements of the Securities Act of 1933 (the
"Securities Act"),  including Rule 145 thereunder.  Such Registration  Statement
shall  contain  a  proxy  statement  of  Horizon/CMS  (the  "Proxy   Statement")
containing the information  required by the Securities Exchange Act of 1934 (the
"Exchange  Act").  HEALTHSOUTH  shall  take all  reasonable  steps to cause  the
Registration   Statement  to  be  declared   effective   and  to  maintain  such
effectiveness  until all of the shares  covered  thereby have been  distributed.
HEALTHSOUTH shall promptly amend or supplement the Registration Statement to the
extent  necessary in order to make the  statements  therein not misleading or to
correct any misstatements  which have become false or misleading.  HEALTH- SOUTH
shall  provide  Horizon/CMS  with  copies of all filings  made  pursuant to this
Section 7.4 and shall consult with Horizon/CMS on responses to any comments made
by the Staff of the SEC with respect thereto.

         (b) The  information  specifically  designated  as  being  supplied  by
Horizon/CMS for inclusion in the  Registration  Statement shall not, at the time
the Registration  Statement is declared effective,  contain any untrue statement
of a material  fact or omit to state any  material  fact  required  to be stated
therein or necessary in order to make the statements therein not misleading. The
information  specifically  designated  as  being  supplied  by  Horizon/CMS  for
inclusion in the Proxy  Statement shall not, at the date the Proxy Statement (or
any  amendment  thereof or  supplement  thereto)  is first  mailed to holders of
Horizon/CMS  Common  Stock,  contain any untrue  statement of a material fact or
omit to state any material  fact  required to be stated  therein or necessary in
order to make the statements  therein,  in the light of the circumstances  under
which they are made, not misleading.  If at any time prior to the Effective Time
any event or circumstance relating to Horizon/CMS, or its officers or directors,
should be  discovered  by  Horizon/CMS  that is required,  under the  applicable
provisions of the Securities Act or Exchange Act or the rules and regulations of
the SEC thereunder to be set forth in an amendment to the Registration Statement
or a supplement to the Proxy  Statement,  Horizon/CMS  shall  promptly so inform
HEALTHSOUTH.  All documents,  if any, that Horizon/CMS is responsible for filing
with the SEC in connection with the transactions contemplated herein will comply
as  to  form  and  substance  in  all  material  respects  with  the  applicable
requirements of the Securities Act and the rules and regulations  thereunder and
the Exchange Act and the rules and regulations thereunder.

         (c) The  information  specifically  designated  as  being  supplied  by
HEALTHSOUTH for inclusion in the  Registration  Statement shall not, at the time
the Registration  Statement is declared effective,  contain any untrue statement
of a material  fact or omit to state any  material  fact  required  to be stated
therein or necessary in order to make the statements therein not misleading. The
information  specifically  designated  as  being  supplied  by  HEALTHSOUTH  for
inclusion in the Proxy Statement to be sent to the holders of Horizon/CMS Common
Stock in  connection  with the Special  Meeting shall not, at the date the Proxy
Statement  (or any amendment  thereof or supplement  thereto) is first mailed to
holders of Horizon/CMS Common Stock,  contain any untrue statement of a material
fact or omit to state  any  material  fact  required  to be  stated  therein  or
necessary  in  order  to  make  the  statements  therein,  in the  light  of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective  Time any event or  circumstance  relating to  HEALTHSOUTH  or its
officers or directors,  should be discovered  by  HEALTHSOUTH  that is required,
under the  applicable  provisions of the  Securities  Act or Exchange Act or the
rules and regulations of the SEC

                                     - 23 -


thereunder  to be set forth in an amendment to the  Registration  Statement or a
supplement to the Proxy Statement, HEALTHSOUTH shall promptly inform Horizon/CMS
and shall  promptly  file such  amendment  to the  Registration  Statement.  All
documents that  HEALTHSOUTH is responsible for filing with the SEC in connection
with the transactions  contemplated  herein will comply as to form and substance
in all material respects with the applicable  requirements of the Securities Act
and the rules and regulations  thereunder and the Exchange Act and the rules and
regulations thereunder.

         (d) Prior to the Closing Date,  HEALTHSOUTH  shall use its  reasonable,
good faith efforts to cause the shares of HEALTHSOUTH  Common Stock to be issued
pursuant  to the  Merger to be  registered  or  qualified  under all  applicable
securities or Blue Sky laws of each of the states and  territories of the United
States,  and to take any other  actions  which may be  necessary  to enable  the
Common Stock to be issued  pursuant to the Merger to be distributed in each such
jurisdiction.

         (e) Prior to the Closing  Date,  HEALTHSOUTH  shall file an  additional
listing  application (the "Listing  Application")  with the Exchange relating to
the  shares of  HEALTHSOUTH  Common  Stock to be issued in  connection  with the
Merger, and shall use its reasonable, good faith efforts to cause such shares of
HEALTHSOUTH  Common  Stock to be  approved  for  listing on the  Exchange,  upon
official notice of issuance, prior to the Closing Date.

         (f)  Horizon/CMS  shall furnish all  information  to  HEALTHSOUTH  with
respect to Horizon/CMS and the Horizon/CMS  Subsidiaries  and Horizon/CMS  Other
Entities as HEALTHSOUTH may reasonably request for inclusion in the Registration
Statement, the Proxy Statement and the Listing Application,  and shall otherwise
cooperate with HEALTHSOUTH in the preparation and filing of such documents.

         7.5 Exemption from State Takeover Laws; Horizon/CMS Rights. Horizon/CMS
shall take all  reasonable  steps  necessary  to (a) exempt the Merger  from the
requirements  of any state  takeover  statute or other  similar  state law which
would  prevent  or impede  the  consummation  of the  transactions  contemplated
hereby, by action of Horizon/CMS's  Board of Directors or otherwise,  and (b) to
redeem the outstanding preferred share purchase rights ("Rights") of Horizon/CMS
or  otherwise  cause the Merger to be a  transaction  which does not trigger the
detachment and  distribution of the Rights  (otherwise than by issuing shares of
Horizon/CMS Common Stock or preferred stock in exchange for the Rights).

         7.6 HSR Act Compliance. HEALTHSOUTH and Horizon/CMS shall promptly make
their respective filings, and shall thereafter use their reasonable,  good faith
efforts  to  promptly  make any  required  submissions,  under  the HSR Act with
respect to the Merger and the transactions contemplated hereby.  HEALTHSOUTH and
Horizon/CMS will use their respective  reasonable,  good faith efforts to obtain
all other permits, authorizations, consents and approvals from third parties and
governmental authorities necessary to consummate the Merger and the transactions
contemplated hereby.

         7.7 Public  Disclosures.  HEALTHSOUTH and Horizon/CMS will consult with
each other  before  issuing  any press  release or  otherwise  making any public
statement with respect to the transactions  contemplated by this Plan of Merger,
and shall not issue any such press release or make

                                     - 24 -


any such public statement prior to such  consultation  except as may be required
by applicable  law or  requirements  of the Exchange.  The parties shall issue a
joint press release or simultaneous separate press releases, mutually acceptable
to  HEALTHSOUTH  and  Horizon/CMS,  promptly upon execution and delivery of this
Plan of Merger.

         7.8  Resignation of Horizon/CMS  Directors.  On or prior to the Closing
Date,   Horizon/CMS  shall  deliver  to  HEALTHSOUTH  evidence  satisfactory  to
HEALTHSOUTH  of  the   resignation  of  the  Directors  of   Horizon/CMS,   such
resignations to be effective on the Closing Date. At the Effective Time, Neal M.
Elliott shall be added to the HEALTHSOUTH Board of Directors.

         7.9 Notice of  Subsequent  Events.  Each party  hereto shall notify the
other parties of any changes, additions or events which would cause any material
change  in or  material  addition  to any  Exhibit  to the  Disclosure  Schedule
delivered by the notifying  party under this Plan of Merger,  promptly after the
occurrence  of the  same.  If the  effect  of such  change  or  addition  would,
individually  or in the  aggregate  with the  effect  of  changes  or  additions
previously disclosed pursuant to this Section 7.9, constitute a material adverse
effect on the notifying  party,  the  non-notifying  party may,  within ten days
after  receipt of such notice,  elect to terminate  this Plan of Merger.  If the
non-notifying party does not give written notice of such termination within such
10-day period, the non-notifying party shall be deemed to have consented to such
change or addition and shall not be entitled to terminate this Plan of Merger by
reason thereof.

         7.10 No Solicitations. (a) Subject to the provisions of Section 7.10(b)
below,  Horizon/CMS  shall  not,  and shall not  suffer  any of the  Horizon/CMS
Subsidiaries  or the  Horizon/CMS  Other  Entities  or any of  their  respective
directors,  officers,  employees,  agents or  representatives  to,  directly  or
indirectly (i) solicit or initiate (including by way of furnishing or publishing
nonpublic  information) any inquiries or the making of any proposal with respect
to any merger, consolidation or other business combination involving Horizon/CMS
or any Horizon/CMS  Subsidiary or Horizon/CMS Other Entity or the acquisition of
all or any  significant  part of the  assets or  capital  stock or other  equity
interests of Horizon/CMS  or any  Horizon/CMS  Subsidiary or  Horizon/CMS  Other
Entity  or  any  similar  transaction  (an  "Acquisition   Transaction"),   (ii)
negotiate,  explore or otherwise  engage in discussions  with any persons (other
than  HEALTHSOUTH  and its  representatives)  with  respect  to any  Acquisition
Transaction  or which may  reasonably  be expected to lead to a proposal  for an
Acquisition  Transaction  or (iii)  enter  into any  agreement,  arrangement  or
understanding  with respect to any such  Acquisition  Transaction or which would
require  Horizon/CMS  to abandon,  terminate or fail to consummate the Merger or
any other transaction contemplated by this Agreement.  Except as may be required
by the fiduciary  duties of  Horizon/CMS's  Board of Directors under  applicable
law,  Horizon/CMS  agrees  that,  as of the  date  hereof,  Horizon/CMS  and the
Horizon/CMS Subsidiaries and the Horizon/CMS Other Entities and their respective
directors,  officers,  employees,  agents and representatives  shall immediately
cease  and  cause to be  terminated  any  existing  activities,  discussions  or
negotiations conducted heretofore with respect to any Acquisition Transaction.

         (b)   Notwithstanding   the   provisions  of  Section   7.10(a)  above,
Horizon/CMS may (i), directly or indirectly,  furnish information and access, in
response to an  unsolicited  written  proposal  for a Superior  Transaction  (as
defined below), to the same extent permitted by Section 6.1, to any

                                     - 25 -


corporation,  partnership,  person or other  entity or group  (in each  case,  a
"person"),   pursuant  to  appropriate   confidentiality   agreements,  and  may
participate in discussions  and negotiate  with such  corporation,  partnership,
person  or  other  entity  or  group  concerning  any  proposal  for a  Superior
Transaction,  if the Board of Directors of  Horizon/CMS  determines  in its good
faith judgment in the exercise of its fiduciary duties,  after consultation with
legal counsel and its financial  advisors,  that such action is  appropriate  in
furtherance of the best interest of its  stockholders  and (ii) comply with Rule
14e-2  promulgated  under  the  Exchange  Act  with  regard  to  an  Acquisition
Transaction.  Horizon/CMS shall promptly advise  HEALTHSOUTH of the existence of
any inquiries or proposals  received by, any requests for such information from,
or any negotiations or discussions  initiated or continued with,  Horizon/CMS or
any of the Horizon/CMS  Subsidiaries or the Horizon/CMS Other Entities or any of
their respective directors,  officers, employees, agents or representatives,  in
each case from or by a person (other than  HEALTHSOUTH and its  representatives)
with respect to an Acquisition  Transaction and the identity of such person and,
except  as may  otherwise  be  required  pursuant  to the  fiduciary  duties  of
Horizon/CMS's  Board of Directors under  applicable law, the terms, the proposed
form of  consideration  and the general  terms of any financing  arrangement  or
commitment in connection with such Acquisition Transaction.  As used herein, the
term "Superior Proposal" means a bona fide, written and unsolicited  proposal or
offer made by any person (other than HEALTHSOUTH) with respect to an Acquisition
Transaction on terms which the Board of Directors of  Horizon/CMS  determines in
good faith, and in the exercise of reasonable judgment (based upon the advice of
independent  financial  advisors  and legal  counsel),  to be more  favorable to
Horizon/CMS and its stockholders  than the Merger (including taking into account
the consideration to be provided and any financing thereof).

         7.11 Other  Actions.  Subject to the provisions of Section 7.10 hereof,
none  of  Horizon/CMS,   HEALTHSOUTH  and  the  Subsidiary  shall  knowingly  or
intentionally  take any action,  or omit to take any  action,  if such action or
omission  would,  or  reasonably  might be  expected  to,  result  in any of its
representations  and warranties set forth herein being or becoming untrue in any
material  respect,  or in any of the  conditions to the Merger set forth in this
Plan of Merger  not being  satisfied,  or (unless  such  action is  required  by
applicable  law)  which  would  materially   adversely  affect  the  ability  of
Horizon/CMS or HEALTHSOUTH to obtain any consents or approvals  required for the
consummation  of the Merger  without  imposition  of a condition or  restriction
which would have a material adverse effect on the Surviving Corporation or which
would otherwise  materially  impair the ability of Horizon/CMS or HEALTHSOUTH to
consummate  the  Merger in  accordance  with the terms of this Plan of Merger or
materially delay such consummation.

         7.12 Accounting  Methods.  Neither  HEALTHSOUTH  nor Horizon/CMS  shall
change, in any material respect, its methods of accounting in effect at its most
recent  fiscal year end,  except as required  by changes in  generally  accepted
accounting principles as concurred in such parties' independent accountants.

         7.13  Tax-Free  Reorganization   Treatment.   Neither  HEALTHSOUTH  nor
Horizon/CMS shall take or cause to be taken any action, whether on or before the
Effective Time, which would disqualify the Merger as a  "reorganization"  within
the meaning of Section 368(a) of the Internal  Revenue Code of 1986, as amended,
which  action is taken  with the  intention  of  disqualifying  the  Merger as a
reorganization.


                                     - 26 -


         7.14 Affiliate  Agreements.  Horizon/CMS will use its reasonable,  good
faith efforts to cause each of its Directors and executive  officers and each of
its  "affiliates"  (within the meaning of Rule 145 under the  Securities  Act of
1933, as amended) to execute and deliver to  HEALTHSOUTH  as soon as practicable
an  agreement  in the form  attached  hereto as  Exhibit  7.14  relating  to the
disposition  of shares of  Horizon/CMS  Common  Stock and shares of  HEALTHSOUTH
Common  Stock held by such  person and the shares of  HEALTHSOUTH  Common  Stock
issuable pursuant to this Plan of Merger.

         7.15 Cooperation.  (a) HEALTHSOUTH and Horizon/CMS  shall together,  or
pursuant  to an  allocation  of  responsibility  agreed  to  between  them,  (i)
cooperate with one another in determining whether any filings are required to be
made or consents  are required to be obtained in any  jurisdiction  prior to the
Effective  Time  in  connection  with  the   consummation  of  the  transactions
contemplated  hereby and in making any such  filings  promptly and in seeking to
obtain timely any such consents, (ii) use all commercially reasonable efforts to
cause to be lifted any injunction  prohibiting the Merger,  or any part thereof,
or the other transactions  contemplated hereby, and (iii) furnish to one another
and to one another's  counsel all such  information as may be required to effect
the foregoing actions.

         (b) Subject to the terms and  conditions  herein  provided,  and unless
this Plan of Merger shall have been validly terminated as provided herein,  each
of HEALTHSOUTH and Horizon/CMS shall use all commercially reasonable efforts (i)
to take, or cause to be taken, all actions necessary to comply promptly with all
legal  requirements  which may be imposed on such party (or any  subsidiaries or
affiliates  of such party) with respect to this Plan of Merger and to consummate
the  transactions  contemplated  hereby,  subject  to the vote of  Horizon/CMS's
stockholders  described  above,  and (ii) to obtain (and to  cooperate  with the
other party to obtain) any consent, authorization,  order or approval of, or any
exemption by, any governmental entity or any other public or private third party
which is required to be  obtained  by such party or any of its  subsidiaries  or
affiliates  in  connection  with  this  Plan  of  Merger  and  the  transactions
contemplated hereby. Each of HEALTHSOUTH and Horizon/CMS will promptly cooperate
with and furnish  information  to the other in  connection  with any such burden
suffered  by,  or  requirement  imposed  upon,  either  of them or any of  their
subsidiaries or affiliates in connection with the foregoing.

         7.16 Horizon/CMS  Stock Options,  Warrants and Convertible  Securities.
(a) As soon as reasonably  practicable  after the Effective  Time of the Merger,
HEALTHSOUTH  shall deliver to the holders of Horizon/CMS  stock options  (which,
for purposes of this Section 7.16,  includes any rights to purchase  Horizon/CMS
Common Stock  pursuant to  Horizon/CMS's  1996 Employee  Stock  Purchase  Plan),
warrants and  convertible  securities  appropriate  notices  setting  forth such
holders' rights pursuant to any stock option plans under which such  Horizon/CMS
stock options were issued,  any stock option  agreements  or warrant  agreements
evidencing  such  options  or  warrants  and  any  instruments   governing  such
convertible  securities,  which  shall  continue in full force and effect on the
same terms and  conditions  (subject  to the  adjustments  required  by Sections
2.1(d) or this Section 7.16 after giving effect to the Merger and the assumption
of such options, warrants and convertible securities by HEALTHSOUTH as set forth
herein) as in effect immediately prior to the Effective Time.  HEALTHSOUTH shall
comply with the terms of the stock option  plans,  the stock option  agreements,
the warrant agreements and the instruments governing such convertible securities
as so

                                     - 27 -


adjusted,  and shall use its  reasonable,  good faith efforts to ensure,  to the
extent  required by, and subject to the provisions of, such plans or agreements,
that the  Horizon/CMS  stock options which  qualified as incentive stock options
prior to the Effective Time shall continue to qualify as incentive stock options
after the Effective Time.

         (b) HEALTHSOUTH  shall take all corporate  action  necessary to reserve
for  issuance a  sufficient  number of shares of  HEALTHSOUTH  Common  Stock for
delivery  upon  exercise  of the  Horizon/CMS  stock  options and  warrants  and
conversion of convertible  securities  assumed by HEALTHSOUTH in accordance with
Section 2.1(d).  As soon as practicable  after the Effective  Time,  HEALTHSOUTH
shall file with the SEC a  registration  statement  on Form S-8 with  respect to
shares of HEALTHSOUTH Common Stock subject to such Horizon/CMS stock options and
shall use its best efforts to maintain the  effectiveness  of such  registration
statement  (and to maintain the current  status of the  prospectus or prospectus
contained  therein) for so long as such  Horizon/CMS  stock options and warrants
remain  outstanding.  HEALTHSOUTH shall administer the plans assumed pursuant to
Section  2.1(d)  hereof in a manner that  complies  with Rule 16b-3  promulgated
under the Exchange Act to the extent the applicable plan complied with such rule
prior to the Merger.

         (c)  Except  to the  extent  otherwise  agreed to by the  parties,  all
restrictions  or limitations on transfer with respect to the  Horizon/CMS  stock
options awarded under any plan, program, or arrangement of Horizon/CMS or any of
its subsidiaries,  to the extent that such restrictions or limitations shall not
have already lapsed,  shall remain in full force and effect with respect to such
options after giving effect to the Merger and the  assumption by  HEALTHSOUTH as
set forth above.

         7.17 Certain  Operations of Horizon/CMS.  HEALTHSOUTH  hereby covenants
and agrees  that,  from and for a period of at least one year after the  Closing
Date,  the  following  existing  operating  divisions  of  Horizon/CMS  shall be
operated and managed by the Surviving  Corporation  at or through  Horizon/CMS's
existing  corporate  offices and,  subject to the  provisions of any  applicable
employment  agreements and to such  standards of performance as are  customarily
imposed by  HEALTHSOUTH  on its  managerial  employees,  existing  management in
Albuquerque,  New  Mexico  and their  current  divisional  operating  locations,
subject  to  reasonable  restraints  on  managerial  overhead:   Long-Term  Care
Division,  Specialty Hospital Division, Meridian Healthcare Management Division,
Contract  Rehab  Therapy   Division,   Horizon  Medical   Management   Division,
Institutional Pharmacy Division, Diagnostic Group/Clinical Lab Division, Medical
Specialty Services Division,  Medical Innovations  Division,  Physician Services
Division,   Horizon  Facilities   Management   Division  and  the  Cimarron  HMO
investment.  Moreover, HEALTHSOUTH covenants and agrees that, from and after the
Closing  Date,  (i) it shall cause the  Surviving  Corporation  to complete  the
development and  construction of  Horizon/CMS's  corporate  headquarters  office
building  project  currently under  development and construction in Albuquerque,
New Mexico (the "Alameda Project"), and to take occupancy of the Alameda Project
at such time as it is  available  for  occupancy  and (ii) the  operation of the
aircraft   currently  under  contract  with  Horizon/CMS  shall  be  managed  by
Horizon/CMS's existing management in Albuquerque, New Mexico.

         7.18 Horizon/CMS  Employees.  HEALTHSOUTH shall retain all employees of
Horizon/CMS who are employed at the Effective Time as employees-at-will  (except
to the extent that

                                     - 28 -


such employees are parties to contracts providing for other employment terms, in
which case such employees shall be retained in accordance with the terms of such
contracts) and shall provide such  employees  with the same  customary  employee
benefits as HEALTHSOUTH provides its existing employees, except as may otherwise
be agreed between HEALTHSOUTH and Horizon/CMS.

         7.19 Certain Information.  For as long as any affiliate (as defined for
purposes  of Rule 145 under the  Securities  Act of 1933) of  Horizon/CMS  holds
shares of HEALTHSOUTH Common Stock issued in the Merger (but not for a period in
excess of two years from the date of  consummation  of the Merger),  HEALTHSOUTH
shall  file with the  Securities  and  Exchange  Commission  or  otherwise  make
publicly  available all information about HEALTHSOUTH  required pursuant to Rule
144(c) under the  Securities Act of 1933 to enable such affiliate to resell such
shares under the provisions of Rule 145(d) under the Securities Act of 1933.

         7.20  Indemnification.  (a) Horizon/CMS  shall,  and from and after the
Effective  Time  HEALTHSOUTH  and the Surviving  Corporation  shall,  indemnify,
defend and hold  harmless  each person who is now, or has been at any time prior
to the date of this Plan of Merger or who becomes prior to the  Effective  Time,
an officer,  director or employee of Horizon/CMS or any of its subsidiaries (the
"Indemnified Parties") against (i) all losses, claims, damages, costs, expenses,
liabilities  or  judgments,  or  amounts  that are paid in  settlement  with the
approval of the  indemnifying  party (which  approval shall not be  unreasonably
withheld) of, or in connection  with,  any claim,  action,  suit,  proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the  fact  that  such  person  is or was a  director,  officer  or  employee  of
Horizon/CMS  or  any of  its  subsidiaries,  whether  pertaining  to any  matter
existing  or  occurring  at or prior  to,  or at or after,  the  Effective  Time
("Indemnified  Liabilities") and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to this Plan
of Merger, the Merger or any other transactions  contemplated hereby or thereby,
in each case to the full extent a  corporation  is  permitted  under the DGCL to
indemnify its own  directors,  officers and  employees,  as the case may be (and
HEALTHSOUTH and the Surviving Corporation, as the case may be, will pay expenses
in advance of the final  disposition  of any such action or  proceeding  to each
Indemnified  Party to the full  extent  permitted  by law  upon  receipt  of any
undertaking  contemplated by Section 145(e) of the DGCL).  Without  limiting the
foregoing,   in  the  event  any  such  claim,  action,   suit,   proceeding  or
investigation  is brought against any Indemnified  Party (whether arising before
or after the Effective  Time),  (i) the  Indemnified  Parties may retain counsel
satisfactory  to them and Horizon/CMS (or them and HEALTHSOUTH and the Surviving
Corporation after the Effective Time), (ii) Horizon/CMS (or after the Effective
Time,  HEALTHSOUTH and the Surviving  Corporation) shall pay all reasonable fees
and expenses of such counsel for the Indemnified  Parties promptly as statements
therefor  are  received  and (iii)  Horizon/CMS  (or after the  Effective  Time,
HEALTHSOUTH and the Surviving  Corporation)  will use all reasonable  efforts to
assist  in the  vigorous  defense  of any such  matter,  provided  that  none of
Horizon/CMS,  HEALTHSOUTH or the Surviving  Corporation  shall be liable for any
settlement of any claim  effected  without its written  consent,  which consent,
however,  shall not be unreasonably  withheld.  Any Indemnified Party wishing to
claim  indemnification under this Section 10.4, upon learning of any such claim,
action, suit, proceeding or investigation, shall notify Horizon/CMS, HEALTHSOUTH
or the Surviving Corporation (but the failure so to notify an Indemnifying Party
shall not  relieve it from any  liability  which it may have under this  Section
10.4 except to the extent such failure prejudices such party), and shall deliver
to  Horizon/CMS  (or after 

                                     - 29 -


the Effective Time,  HEALTHSOUTH and the Surviving  Corporation) the undertaking
contemplated by Section 145(e) of the DGCL. The  Indemnified  Parties as a group
may retain  only one law firm to  represent  them with  respect  to such  matter
unless there is, under applicable standards of professional  conduct, a conflict
on any  significant  issue between the positions of any two or more  Indemnified
Parties.

         (b) HEALTHSOUTH  shall cause to be maintained in effect until six years
from the  Effective  Time the  current  policies  of  directors'  and  officers'
liability insurance  maintained by Horizon/CMS (or substitute policies providing
at least the same coverage and limits and conaining  terms and  conditions  that
are not materially less  advantageous) with respect to claims arising from facts
or events which occurred before the Effective Time; provided,  however,  that in
no event shall  HEALTHSOUTH  or the Surviving  Corporation be required to expend
more than 200 percent of the current  annual  premiums paid by  Horizon/CMS  for
such  insurance;  provided,  further,  that,  if  HEALTHSOUTH  or the  Surviving
Corporation is unable to obtain  insurance for any period for 200 percent of the
current annual  premiums,  then the obligation of HEALTHSOUTH  and the Surviving
Corporation  pursuant  hereto  shall be to obtain the best  coverage  reasonably
available  under the  circumstances  subject  to the  foregoing  limitations  on
premiums.

         (c) The  provisions  of this  Section  7.20 are  intended to be for the
benefit of, and shall be enforceable by, each  Indemnified  Party and his or her
heirs and representatives.

         7.21 Certain Change in Control  Agreements.  HEALTHSOUTH  hereby agrees
that,  at the Closing,  it will  deliver to each of the officers of  Horizon/CMS
listed in Exhibit 7.21 to the Disclosure Schedule a written acknowledgment that,
at the Effective  Time,  both of the conditions set forth in the sections of the
Change of Control  Agreements of such officers  specified in Exhibit 7.21 to the
Disclosure  Schedule  shall  have been  fulfilled  and that,  if such  officer's
employment by the Surviving  Corporation  is  terminated by  HEALTHSOUTH  or the
Surviving  Corporation or the officer within 18 months after the Effective Time,
the amounts  specified in the Change of Control  Agreements shall be paid by the
Surviving Corporation to the officer in accordance with the terms thereof.

         7.22 Assumption of Employment  Agreement.  At the Closing,  HEALTHSOUTH
shall assume the  obligations of Horizon/CMS  under that certain  Employment and
Change of Control Agreement dated as of January 1, 1997, between Horizon/CMS and
Neal M. Elliott.


Section 8.        TERMINATION, AMENDMENT AND WAIVER.

         8.1  Termination.  This Plan of Merger  may be  terminated  at any time
prior to the  Effective  Time,  whether  before  or after  approval  of  matters
presented in connection  with the Merger by the holders of shares of Horizon/CMS
Common Stock:

                  (a)  by mutual written consent of HEALTHSOUTH and Horizon/CMS;

                  (b)  by either HEALTHSOUTH or Horizon/CMS:


                                     - 30 -


                  (i) if, upon a vote at a duly held meeting of  stockholders or
         any adjournment  thereof,  any required approval of this Plan of Merger
         and the Merger by the  holders of shares of  Horizon/CMS  Common  Stock
         shall not have been obtained;

                  (ii) if the  Merger  shall  not have  been  consummated  on or
         before  December 31, 1997,  unless the failure to consummate the Merger
         is the result of a willful and  material  breach of this Plan of Merger
         by the  party  seeking  to  terminate  this Plan of  Merger;  provided,
         however,  that the passage of such period  shall be tolled for any part
         thereof (but not exceeding 60 days in the  aggregate)  during which any
         party shall be subject to a nonfinal order, decree, ruling or action of
         any court of competent  jurisdiction  or other  governmental  agency or
         authority   restraining,   enjoining  or  otherwise   prohibiting   the
         consummation  of the  Merger or the  calling or holding of a meeting of
         stockholders;

                  (iii)  if  any  court  of  competent   jurisdiction  or  other
         governmental  agency or authority shall have issued an order, decree or
         ruling or taken any other action permanently enjoining,  restraining or
         otherwise  prohibiting  the Merger and such  order,  decree,  ruling or
         other action shall have become final and nonappealable;

                  (iv) in the  event  of a  breach  by the  other  party  of any
         representation, warranty, covenant or other agreement contained in this
         Plan of Merger  which (A) would give rise to the failure of a condition
         set  forth in  Section  9.2(a)  or (b) or  Section  9.3(a)  or (b),  as
         applicable,  and (B)  cannot  be or has not been  cured  within 30 days
         after the  giving of  written  notice  to the  breaching  party of such
         breach (a "Material  Breach")  (provided that the terminating  party is
         not then in Material Breach of any representation,  warranty,  covenant
         or other agreement contained in this Plan of Merger); or

                  (v)      if either HEALTHSOUTH or Horizon/CMS gives notice
         of termination as a non-notifying party pursuant to Section 7.9;

                  (c)  By  either  HEALTHSOUTH  or  Horizon/CMS  if  any  of the
         conditions  to the  obligation  of such  party to effect the Merger set
         forth in  Section  9.1,  Section  9.2 (in the case of  HEALTHSOUTH)  or
         Section  9.3 (in the  case of  Horizon/CMS)  is not  capable  of  being
         satisfied  prior  to the  end  of the  period  referred  to in  Section
         8.1(b)(ii); or

                  (d) By Horizon/CMS,  if Horizon/CMS's Board of Directors shall
         have (i)  determined,  in the  exercise of its  fiduciary  duties under
         applicable  law,  not  to  recommend  the  Merger  to  the  holders  of
         Horizon/CMS Common Stock or shall have withdrawn such recommendation or
         (ii) approved,  recommended or endorsed any

                                     - 31 -


         Acquisition  Transaction  (as defined in Section  7.10) other than this
         Plan of Merger or (iii) resolved to do any of the foregoing.

         8.2 Effect of Termination.  In the event of termination of this Plan of
Merger as provided in Section 8.1,  this Plan of Merger shall  forthwith  become
void and have no effect,  without any liability or obligation on the part of any
party, other than the provisions of Sections 6.2, 8.2 and 8.6, and except to the
extent that such  termination  results from the willful and material breach by a
party of any of its representations,  warranties,  covenants or other agreements
set forth in this Plan of Merger.

         8.3 Amendment. This Plan of Merger may be amended by the parties at any
time before or after any required  approval of matters  presented in  connection
with the Merger by the holders of shares of Horizon/CMS Common Stock;  provided,
however,  that,  after any such approval,  if any amendment  pursuant to Section
251(d) of the DGCL requires  further approval by such  stockholders,  the Merger
shall not be consummated without the further approval of such stockholders. This
Plan of Merger may not be amended  except by an instrument in writing  signed on
behalf of each of the parties.

         8.4 Extension;  Waiver.  At any time prior to the Effective Time of the
Merger,  the parties may (a) extend the time for the  performance  of any of the
obligations or other acts of the other parties,  (b) waive any  inaccuracies  in
the  representations  and warranties  contained in this Plan of Merger or in any
document  delivered  pursuant  to this  Plan of Merger  or (c),  subject  to the
proviso of Section 8.3, and except for the provisions of subsections (a) through
(f) of Section 9.1,  waive  compliance  with any of the agreements or conditions
contained  in this Plan of Merger.  Any  agreement on the part of a party to any
such  extension or waiver shall be valid only if set forth in an  instrument  in
writing signed on behalf of such party. The failure of any party to this Plan of
Merger to assert any of its rights under this Plan of Merger or otherwise  shall
not constitute a waiver of such rights,  except as otherwise provided in Section
7.9.

         8.5  Procedure  for  Termination,  Amendment,  Extension  or Waiver.  A
termination of this Plan of Merger pursuant to Section 8.1, an amendment of this
Plan of Merger  pursuant to Section 8.3, or an  extension or waiver  pursuant to
Section 8.4 shall, in order to be effective, require in the case of HEALTHSOUTH,
the  Subsidiary  or  Horizon/CMS,  action by its Board of  Directors or the duly
authorized designee of the Board of Directors.

         8.6 Expenses;  Break-up  Fees.  (a) All costs and expenses  incurred in
connection  with this Plan of Merger and the  transactions  contemplated  hereby
shall be paid by the party  incurring such expense,  except that expenses (other
than legal,  accounting and investment banking costs, which shall be paid by the
party  incurring such expenses,  subject to the provisions of Section  8.6(b)(i)
below) incurred in connection with preparing,  filing,  printing and mailing the
Proxy  Statement  and the  Registration  Statement  shall be shared  equally  by
Horizon/CMS and HEALTHSOUTH.

         (b) (i) If this Plan of Merger is terminated by Horizon/CMS pursuant to
Section 8.1(d), and within one year after the effective date of such termination
Horizon/CMS  is the subject of a Third Party  Acquisition  Event with any Person
(as defined in Sections  3(a)(9) and 13(d)(3) of the Exchange


                                     - 32 -


Act) (other than a party  hereto),  then at the time of  consummation  of such a
Third Party Acquisition  Event,  Horizon/CMS shall pay to HEALTHSOUTH a break-up
fee of  $35,000,000  in immediately  available  funds,  which fee represents the
parties' best estimates of the  out-of-pocket  costs incurred by HEALTHSOUTH and
the value of management time, overhead,  opportunity costs and other unallocated
costs of HEALTHSOUTH  incurred by or on behalf of HEALTHSOUTH in connection with
this Plan of Merger,  and shall  further  pay,  or  reimburse  HEALTHSOUTH  for,
Expenses (as defined below),  actually incurred by HEALTHSOUTH up to $5,000,000.
Horizon/CMS  shall not enter into any agreement  with respect to any Third Party
Acquisition  Event which does not, as a condition  precedent to the consummation
of such Third Party Acquisition Event, require such break-up fee and Expenses to
be paid to HEALTHSOUTH upon such consummation.

                  (ii) As used herein,  the term "Third Party Acquisition Event"
shall mean either of the following:

                  (A)  Horizon/CMS  shall  enter  into  any  agreement  for,  or
         otherwise be the subject of, any Acquisition Transaction (as defined in
         Section  7.10)  which  is  consummated   (regardless  of  whether  such
         consummation  occurs  within the one-year  period  described in Section
         8.6(b)(i)); or

                  (B) any Person  (other than a party hereto or its  affiliates)
         shall have  acquired  beneficial  ownership (as such term is defined in
         Rule 13d-3 under the Exchange  Act) or the right to acquire  beneficial
         ownership of, or a new group has been formed which beneficially owns or
         has the right to acquire  beneficial  ownership  of, 30% or more of the
         outstanding Horizon/CMS Common Stock.

                  (iii) As used herein,  the term  "Expenses"  shall include all
reasonable out- of-pocket expenses  (including without limitation all reasonable
fees and  expenses  of counsel,  accountants,  investment  bankers,  experts and
consultants)  incurred  by or on behalf of  HEALTHSOUTH  in  connection  with or
related  to  the   authorization,   preparation,   negotiation,   execution  and
performance  of this Plan of  Merger,  the  preparation,  printing,  filing  and
mailing of the  Registration  Statement and the Proxy  Statement,  and all other
matters related to the consummation of the transactions contemplated hereby.


         (c)  Horizon/CMS  acknowledges  that the  provisions for the payment of
break-up fees and Expenses contained in this Section 8.6 are an integral part of
the  transactions  contemplated  by this Plan of Merger and that,  without these
provisions,  HEALTHSOUTH  would  not have  entered  into  this  Plan of  Merger.
Accordingly,  if a break-up  fee and  Expenses  shall  become due and payable by
Horizon/CMS,  and Horizon/CMS shall fail to pay such amount when due pursuant to
this  Section,  and, in order to obtain such  payment,  suit is commenced  which
results  in a  judgment  against  Horizon/CMS  therefor,  Horizon/CMS  shall pay
HEALTHSOUTH reasonable costs and expenses (including reasonable attorneys' fees)
in connection  with such suit,  together  with interest  computed on any amounts
determined to be due pursuant to this Section (computed from the date upon which
such  amounts  were due and  payable  pursuant to this  Section)  and such costs
(computed from the date  incurred) at the prime rate of interest  announced from
time to time by NationsBank,  N.A. (South).

                                     - 33 -


The  obligations  of  Horizon/CMS  under  this  Section  8.6 shall  survive  any
termination of this Plan of Merger.

Section 9.  CONDITIONS TO CLOSING.

         9.1 Mutual  Conditions.  The  respective  obligations  of each party to
effect the  Merger  shall be  subject  to the  satisfaction,  at or prior to the
Closing Date of the following  conditions (any of which may be waived in writing
by HEALTHSOUTH and Horizon/CMS):

                  (a) None of HEALTHSOUTH, the Subsidiary or Horizon/CMS nor any
         of their respective  subsidiaries shall be subject to any order, decree
         or  injunction  by a court of competent  jurisdiction  or  governmental
         agency or  authority  which  (i)  prevents  or  materially  delays  the
         consummation of the Merger or (ii) would impose any material limitation
         on the ability of  HEALTHSOUTH  effectively  to exercise full rights of
         ownership  of the  Common  Stock of the  Surviving  Corporation  or any
         material  portion  of  the  assets  or  business  of  Horizon/CMS,  the
         Horizon/CMS Subsidiaries and the Horizon/CMS Other Entities, taken as a
         whole.

                  (b) No statute,  rule or regulation shall have been enacted by
         the government (or any governmental agency) of the United States or any
         state,  municipality or other political  subdivision thereof that makes
         the consummation of the Merger and any other  transaction  contemplated
         hereby illegal.

                  (c) Any waiting period (and any extension thereof)  applicable
         to the  consummation of the Merger under the HSR Act shall have expired
         or been terminated.

                  (d)  The  Registration  Statement  shall  have  been  declared
         effective and no stop order with respect to the Registration  Statement
         shall be in effect.

                  (e)  The  holders  of  Horizon/CMS  Common  Stock  shall  have
         approved  the  adoption  of this Plan of Merger  and any other  matters
         submitted  to them in  accordance  with the  provisions  of Section 7.3
         hereof.

                  (f) The  shares of  HEALTHSOUTH  Common  Stock to be issued in
         connection  with the Merger shall have been approved for listing on the
         Exchange.

                  (g)  HEALTHSOUTH  and the Subsidiary  shall have obtained,  or
         obtained the transfer of, any Licenses necessary to allow the Surviving
         Corporation to operate the Horizon/CMS  facilities,  unless the failure
         to obtain such transfer or approval  would not have a material  adverse
         effect on the Surviving Corporation.

                  (h)  HEALTHSOUTH  and the  Subsidiary  shall have received all
         consents, approvals and authorizations of third parties with respect to
         all material leases and management  agreements to which the Horizon/CMS
         Subsidiaries  and the 


                                     - 34 -



         Horizon/CMS Other Entities are parties,  which consents,  approvals and
         authorizations are required of such third parties by such documents, in
         form and substance acceptable to HEALTHSOUTH,  except where the failure
         to obtain  such  consent,  approval or  authorization  would not have a
         material effect on the business of the Surviving Corporation.

         9.2 Conditions to Obligations of HEALTHSOUTH  and the  Subsidiary.  The
obligations of  HEALTHSOUTH  and the Subsidiary to consummate the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction,  at
or prior to the Closing Date, of the following  conditions  (any of which may be
waived by HEALTHSOUTH and the Subsidiary):

                  (a) Each of the  agreements of  Horizon/CMS to be performed at
         or prior to the Closing  Date  pursuant to the terms  hereof shall have
         been duly performed in all material respects.

                  (b) The  representations  and  warranties of  Horizon/CMS  set
         forth in Section  3.11(a)  shall be true and  correct as of the date of
         this  Plan  of  Merger  and  as  of  the  Closing   Date.   Each  other
         representation  and warranty of  Horizon/CMS  set forth in this Plan of
         Merger that is qualified as to  materiality  shall be true and correct,
         and each  representation and warranty that is not so qualified shall be
         true and correct in all material respects,  as of the date of this Plan
         of Merger and as of the  Closing as though made at and as of such time,
         except  to  the  extent  that  any  such  representation  and  warranty
         expressly   relates  to  an  earlier  date  (in  which  case  any  such
         representation  and warranty that is qualified as to materiality  shall
         be true and correct,  and any such  representation and warranty that is
         not so qualified shall be true and correct in all material respects, as
         of such earlier date); provided, however, that Horizon/CMS shall not be
         deemed to be in breach of any such  representations  or  warranties  by
         taking any action permitted (or approved by HEALTHSOUTH)  under Section
         7.2. For purposes of the foregoing sentence only, each sentence in this
         Plan of Merger that is a  representation  and  warranty of  Horizon/CMS
         shall  be  deemed  to  be  a  separate   representation  and  warranty.
         HEALTHSOUTH  and  the  Subsidiary  shall  have  been  furnished  with a
         certificate,  executed  by a duly  authorized  officer of  Horizon/CMS,
         dated the Closing Date,  certifying in such detail as  HEALTHSOUTH  and
         the  Subsidiary  may  reasonably  request as to the  fulfillment of the
         foregoing conditions.

                  (c)  HEALTHSOUTH  shall have  received an opinion from Haskell
         Slaughter  & Young,  L.L.C.,  to  the  effect  that  the  merger  will
         constitute a reorganization within the meaning of Section 368(a) of the
         Internal  Revenue Code of 1986, as amended,  which opinion may be based
         upon  reasonable  representations  of  fact  provided  by  officers  of
         HEALTHSOUTH, Horizon/CMS and the Subsidiary.

                  (d)  HEALTHSOUTH  shall have received an opinion from Vinson & Elkins L.L.P.,  substantially to the effect set forth in Exhibit 9.2(d)
         hereto.

                                     - 35 -


         9.3  Conditions to  Obligations  of  Horizon/CMS.  The  obligations  of
Horizon/CMS  to consummate  the Merger and the other  transactions  contemplated
hereby shall be subject to the satisfaction, at or prior to the Closing Date, of
the following conditions (any of which may be waived by Horizon/CMS):

                  (a) Each of the agreements of  HEALTHSOUTH  and the Subsidiary
         to be performed  at or prior to the Closing Date  pursuant to the terms
         hereof shall have been duly performed in all material respects.

                  (b) The  representations  and  warranties of  HEALTHSOUTH  set
         forth in Section  5.10(a)  shall be true and  correct as of the date of
         this  Plan  of  Merger  and  as  of  the  Closing   Date.   Each  other
         representation  and warranty of HEALTHSOUTH or the Subsidiary set forth
         in this Plan of Merger that is  qualified  as to  materiality  shall be
         true and correct,  and each  representation and warranty that is not so
         qualified shall be true and correct in all material respects, as of the
         date of this Plan of Merger and as of the Closing as though made at and
         as of such time, except to the extent that any such  representation and
         warranty  expressly  relates to an earlier date (in which case any such
         representation  and warranty that is qualified as to materiality  shall
         be true and correct,  and any such  representation and warranty that is
         not so qualified shall be true and correct in all material respects, as
         of such earlier  date).  For purposes of the foregoing  sentence  only,
         each  sentence  in this Plan of  Merger  that is a  representation  and
         warranty  of  HEALTHSOUTH  or the  Subsidiary  shall be  deemed to be a
         separate  representation  and warranty.  HEALTHSOUTH and the Subsidiary
         shall  have  been  furnished  with a  certificate,  executed  by a duly
         authorized officer of Horizon/CMS,  dated the Closing Date,  certifying
         in such detail as HEALTHSOUTH and the Subsidiary may reasonably request
         as to the fulfillment of the foregoing conditions.

                  (c)  Horizon/CMS  shall have received an opinion from Vinson & Elkins  L.L.P.  to  the  effect  that  the  Merger  will  constitute  a
         reorganization  with the  meaning  of  Section  368(a) of the  Internal
         Revenue  Code of 1986,  as  amended,  which  opinion  may be based upon

         reasonable representations of fact provided by officers of HEALTHSOUTH,
         Horizon/CMS and the Subsidiary.

                  (d)  Horizon/CMS  shall have  received an opinion from Haskell
         Slaughter  & Young,  L.L.C.,  substantially  to the effect set forth in
         Exhibit 9.3(d) hereto.


Section 10.        MISCELLANEOUS.

         10.1  Nonsurvival  of  Representations  and  Warranties.  None  of  the
representations  and  warranties  in this Plan of  Merger  or in any  instrument
delivered pursuant to this Plan of Merger shall survive the Effective Time.

         10.2  Notices.  Any  communications  required  or  desired  to be given
hereunder  shall be deemed to have been properly  given if sent by hand delivery
or by facsimile  and  overnight  courier to

                                     - 36 -


the  parties  hereto at the  following  addresses,  or at such other  address as
either party may advise the other in writing from time to time:

                  If to HEALTHSOUTH:

                           HEALTHSOUTH Corporation
                           One HealthSouth Parkway
                           Birmingham, Alabama  35243
                           Attention:  Michael D. Martin
                           Facsimile:  (205) 969-4719

                  with a copy to:

                           William W. Horton
                           HEALTHSOUTH Corporation
                           One HealthSouth Parkway
                           Birmingham, Alabama 35243
                           Facsimile:  (205) 969-4732

                  If to Horizon/CMS:

                           Horizon/CMS Healthcare Corporation
                           6001 Indian School Road, N.E.
                           Suite 530
                           Albuquerque, New Mexico  87110
                           Attention:
                           Facsimile:

                  with a copy to:

                           William E. Joor III, Esq.
                           Vinson & Elkins L.L.P.
                           3600 First City Tower
                           1001 Fannin
                           Houston, Texas  77002-6760
                           Facsimile:


All such  communications  shall be deemed to have been  delivered on the date of
hand  delivery  or on the  next  business  day  following  the  deposit  of such
communications with the overnight courier.

         10.3  Further  Assurances.  Each party  hereby  agrees to  perform  any
further acts and to execute and deliver any  documents  which may be  reasonably
necessary to carry out the provisions of this Plan of Merger.


                                     - 37 -


         10.4 Governing Law. This Plan of Merger shall be interpreted, construed
and  enforced  in  accordance  with the laws of the State of  Delaware,  applied
without giving effect to any conflicts-of-law principles.

         10.5  "Including".  The word  "including",  when  following any general
statement,  term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word  "including"  or to similar items or matters,  whether or not  non-limiting
language  (such as  "without  limitation",  "but not  limited  to",  or words of
similar  import) is used with  reference to the word  "including" or the similar
items or  matters,  but  rather  shall be deemed to refer to all other  items or
matters that could  reasonably  fall within the broadest  possible  scope of the
general statement, term or matter.

         10.6  "Knowledge".   "To  the  knowledge",   "to  the  best  knowledge,
information  and belief",  or any similar phrase shall be deemed to refer to the
knowledge of the Chairman of the Board, Chief Executive Officer, Chief Operating
Officer or Chief Financial  Officer of a party and to include the assurance that
such  knowledge  is based  upon a  reasonable  investigation,  unless  otherwise
expressly provided.

         10.7  "Material",   "material  adverse  change"  or  "material  adverse
effect".  "Material"  means,  when used in connection with one or more entities,
material to the business, prospects, assets, properties,  operations, results of
operations or condition  (financial or other) of such entity or entities and all
other entities with which such entity or entities are consolidated for financial
accounting  purposes,  taken as a whole.  "Material adverse change" or "material
adverse effect" means,  when used in connection  with one or more entities,  any
change,  effect,  event,  circumstance  or occurrence that has, or is reasonably
likely to have,  individually or in the aggregate,  a material adverse impact on
the business, prospects, assets, properties,  operations,  results of operations
or  condition  (financial  or other) of such  entity or  entities  and all other
entities  with which such  entity or entities  are  consolidated  for  financial
accounting purposes, taken as a whole; provided, however, that "material adverse
change" and "material  adverse  effect" shall be deemed to exclude the impact of
(i)  changes  in  generally  accepted  accounting  principles,  (ii) the  public
announcement  of the Merger and  compliance  with the provisions of this Plan of
Merger,  and (iii) any changes resulting from any restructuring or other similar
charges  or  write-offs  taken  by  Horizon/CMS  in its  consolidated  financial
statements with the consent of HEALTHSOUTH.

         10.8 "Hazardous  Materials".  The term "Hazardous  Materials" means any
material which has been determined by any applicable  governmental  authority to
be  harmful  to the  health or safety  of human or  animal  life or  vegetation,
regardless  of whether  such  material  is found on or below the  surface of the
ground, in any surface or underground  water,  airborne in ambient air or in the
air  inside any  structure  built or  located  upon or below the  surface of the
ground or in building materials or in improvements of any structures,  or in any
personal  property  located or used in any such  structure,  including,  but not
limited to, all hazardous substances, imminently hazardous substances, hazardous
wastes,  toxic substances,  infectious wastes,  pollutants and contaminants from
time to time defined, listed, identified, designated or classified as such under
any  Environmental  Laws (as defined in Section 10.9) regardless of the quantity
of any such material.


                                     - 38 -


         10.9  "Environmental  Laws".  The term  "Environmental  Laws" means any
federal, state or local statute, regulation, rule or ordinance, and any judicial
or  administrative  interpretation  thereof,  regulating  the  use,  generation,
handling,  storage,  transportation,  discharge,  emission,  spillage  or  other
release of Hazardous Materials or relating to the protection of the environment.

         10.10  "Taxes".  For  purposes  of this  Agreement,  the term  "tax" or
"taxes"  shall  mean  all  taxes,  charges,  fees,  levies,  penalties  or other
assessment imposed by any United States federal,  state, local or foreign taxing
authority,  including,  but not limited to,  income,  excise,  property,  sales,
transfer,  franchise,  payroll,  withholding,  Social  Security or other  taxes,
including  any  interest,  penalties  or  additions  attributable  thereto.  For
purposes of this Agreement, the term "tax return" shall mean any return, report,
information  return or other  document  (including  any  related  or  supporting
information) with respect to taxes.

         10.11   "Subsidiary".   For  purposes  of  this  Agreement,   the  term
"Subsidiary"  shall  mean a  corporation  of which  50% or more of the  class of
capital  stock  having  voting  power in the  election  of  directors  is owned,
directly or indirectly, by Horizon/CMS or HEALTHSOUTH.

         10.12  Captions.  The  captions  or headings in this Plan of Merger are
made for  convenience  and general  reference only and shall not be construed to
describe,  define or limit the scope or intent of the provisions of this Plan of
Merger.

         10.13  Integration of Exhibits.  All Exhibits  attached to this Plan of
Merger are integral  parts of this Plan of Merger as if fully set forth  herein,
and all statements  appearing therein shall be deemed disclosed for all purposes
and not only in connection  with the specific  representation  in which they are
explicitly referenced.

         10.14  Entire  Agreement.  This  instrument,   including  all  Exhibits
attached  hereto,  together  with the  Confidentiality  Agreement,  contains the
entire   agreement  of  the  parties  and   supersedes  any  and  all  prior  or
contemporaneous agreements between the parties, written or oral, with respect to
the  transactions  contemplated  hereby.  It may not be  changed  or  terminated
orally,  but may only be changed by an agreement in writing  signed by the party
or  parties  against  whom  enforcement  of any  waiver,  change,  modification,
extension, discharge or termination is sought.

         10.15  Counterparts.  This Plan of Merger  may be  executed  in several
counterparts,  each of  which,  when  so  executed,  shall  be  deemed  to be an
original, and such counterparts shall,  together,  constitute and be one and the
same instrument.

         10.16  Binding  Effect.  This Plan of Merger  shall be binding  on, and
shall  inure to the  benefit  of,  the  parties  hereto,  and  their  respective
successors  and assigns,  and,  except as provided in Sections 7.16 and 7.20, no
other person shall  acquire or have any right under or by virtue of this Plan of
Merger. No party may assign any right or obligation  hereunder without the prior
written consent of the other parties.

         10.17 No Rule of Construction.  The parties  acknowledge that this Plan
of Merger was initially prepared by HEALTHSOUTH,  and that all parties have read
and negotiated the language

                                     - 39 -


used in this Plan of  Merger.  The  parties  agree  that,  because  all  parties
participated  in  negotiating  and  drafting  this  Plan of  Merger,  no rule of
construction  shall  apply to this  Plan of  Merger  which  construes  ambiguous
language  in favor of or  against  any party by reason of that  party's  role in
drafting this Plan of Merger.


                                     - 40 -


         IN WITNESS  WHEREOF,  HEALTHSOUTH,  the Subsidiary and Horizon/CMS have
caused this Plan and Agreement of Merger to be executed by their respective duly
authorized  officers,  and have caused their  respective  corporate  seals to be
hereunto affixed, all as of the day and year first above written.

                                          HORIZON/CMS HEALTHCARE
                                          CORPORATION


                                          By  /s/ Neal M. Elliott
                                            ------------------------------------

                                            Its  Chairman, President and CEO
                                               ---------------------------------

ATTEST:

 /s/ Scot Sauder
-------------------------------------------
               Secretary


[ CORPORATE SEAL ]


                                          HEALTHSOUTH Corporation


                                          By  /s/ Michael D. Martin
                                            ------------------------------------

                                            Its  Executive Vice President 
                                                 and Treasurer
                                               ---------------------------------

ATTEST:

/s/ William W. Horton
--------------------------------------------
          William W. Horton
         Assistant Secretary


[ CORPORATE SEAL ]

                                     - 41 -






                                                    REID ACQUISITION CORPORATION


                                                     By  /s/ Michael D. Martin
                                                       -------------------------

                                                       Its Vice President
                                                          ----------------------

ATTEST:

/s/ William W. Horton
--------------------------------------------
          William W. Horton
         Assistant Secretary


[ CORPORATE SEAL ]


                                     - 42 -


                                                                    EXHIBIT 7.14

  
Gentlemen:

         I have been advised that I might be considered to be an  "affiliate" of
Horizon/CMS  Healthcare  Corporation  ("Horizon/CMS")  for  purposes of Rule 145
under the Securities Exchange Act of 1933, as amended (the "1933 Act").

         HEALTHSOUTH Corporation  ("HEALTHSOUTH"),  Reid Acquisition Corporation
and Horizon/CMS have entered into a Plan and Agreement of Merger dated as of the
17th day of February,  1997 (the "Plan of  Merger").  Upon  consummation  of the
transactions  contemplated by the Plan of Merger (the "Merger"),  I will receive
shares of capital stock of HEALTHSOUTH for all of the shares of capital stock of
Horizon/CMS owned by me or as to which I may be deemed a beneficial owner. I own
_______ shares of common stock of Horizon/CMS.  Such shares will be converted in
the Merger into shares of common stock of  HEALTHSOUTH  as described in the Plan
of Merger. The shares of Horizon/CMS capital stock and HEALTHSOUTH capital stock
owned by me or as to which I may deemed to be a  beneficial  owner  prior to the
Merger are hereinafter  collectively  referred to as the "Pre-Merger  Stock" and
the  shares of  HEALTHSOUTH  capital  stock  received  by me in the  Merger  are
hereinafter  collectively referred to as the "Exchange Stock". This agreement is
hereinafter referred to as the "Letter Agreement".

         I represent  and warrant to, and agree with,  HEALTHSOUTH,  Horizon/CMS
and the Subsidiary that:

         A. I have read this  Letter  Agreement  and the Plan of Merger and have
discussed their requirements and other applicable limitations upon my ability to
sell,  transfer or otherwise dispose of the Pre-Merger Stock and Exchange Stock,
to the extent I felt necessary, with my counsel or counsel for Horizon/CMS.

         B. The shares of common stock of  HEALTHSOUTH  that I shall  receive in
exchange for my shares of common stock of Horizon/CMS  are not being acquired by
me with a view to their  distribution  except to the  extent  and in the  manner
provided for in paragraph (d) of Rule 145 under the 1933 Act.

         C. I agree with you not to dispose of any such  shares of common  stock
of  HEALTHSOUTH  in any manner that would violate Rule 145. I further agree with
you that the  certificate  or  certificates  representing  such shares of common
stock  of  HEALTHSOUTH  may  bear a  legend  referring  to the  restrictions  on
disposition thereof in accordance with the provisions of the foregoing paragraph
and that stop  transfer  instructions  may be filed with  respect to such shares
with the transfer agent for such shares.







         D. I  understand  that  stop  transfer  instructions  will be  given to
HEALTHSOUTH,  Horizon/CMS and their respective  transfer agents, as the case may
be, with respect to the shares of  Pre-Merger  Stock and the  Exchange  Stock in
connection with the restrictions set forth herein.

         It is understood and agreed that this Letter  Agreement shall terminate
and be of no  further  force and  effect  if the Plan of  Merger  is  terminated
pursuant to the terms thereof.

         The  agreements  made  by me in  the  foregoing  paragraphs  are on the
understanding  and condition that you agree, in the event that any shares may be
disposed  of in  accordance  with the  provisions  of Rule 145,  to  deliver  in
exchange for the  certificate  or  certificates  representing  such shares a new
certificate or certificates  representing such shares not bearing the legend and
not subject to the stop transfer  instruction  referred to in paragraph D above,
and so long as I hold shares of stock subject to the provisions of the foregoing
paragraph  (but  not for a  period  in  excess  of two  years  from  the date of
consummation of the Merger) to file with the Securities and Exchange  Commission
or otherwise make publicly available all information about  HEALTHSOUTH,  to the
extent  available to you without  unreasonable  effort or expense,  necessary to
enable me to resell shares under the provisions of paragraph (d) of Rule 145.

         This   Letter   Agreement   shall  be  binding   on  my  heirs,   legal
representatives and successors.

                                                     Very truly yours,



                                                     [Name of Stockholder]



                                                                  EXHIBIT 9.2(d)


[DATE]




HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama  35243

         Re:      Plan and Agreement of Merger Among HEALTHSOUTH
                     Corporation, Reid Acquisition Corporation
                      and Horizon/CMS Healthcare Corporation

Gentlemen:

         We have acted as legal counsel for Horizon/CMS Healthcare  Corporation,
a Delaware  corporation  ("Horizon/CMS"),  in connection  with the  transactions
contemplated  by that  certain  Agreement  and  Plan of  Merger  (the  "Plan  of
Merger"), dated as of February 17, 1997, by and among HEALTHSOUTH Corporation, a
Delaware corporation,  Reid Acquisition Corporation, a Delaware corporation, and
Horizon/CMS.  The Plan of Merger,  along with the other documents evidencing the
transactions contemplated by the Plan of Merger, are referred to collectively as
the "Merger Documents".

         This opinion is being delivered pursuant to the Plan of Merger.  Unless
otherwise defined herein,  capitalized terms used herein shall have the meanings
set forth in the Plan of Merger.

         In connection  with the  preparation of this opinion,  we have examined
executed originals of the following documents:

                  (a) the Merger Documents; and

                  (b) the charter  documents and bylaws of Horizon/CMS in effect
         as of the date hereof.

         We have also  examined  such other  documents,  certificates  of public
officials  and  officers of  Horizon/CMS,  records and matters of law as we have
deemed  necessary  as a basis for the  opinions  hereinafter  expressed.  In our
examination, we have assumed the genuineness of all signatures, the authenticity
of all  documents  submitted  to us as  originals,  the  conformity  to original
documents of all documents  submitted to us as certified or photostatic  copies,
and the  authenticity of the originals of such latter  documents.  Further,  our
review  of  matters  of law has been  limited  to the  laws of the  State of New
Mexico,  the laws of the State of  Delaware  referred  to herein and the Federal
laws of the United States in effect as of the date hereof.




         Based upon the foregoing,  and subject to the  limitations  hereinafter
set forth, we are of the opinion that:

         1. Horizon/CMS has been duly  incorporated and is validly existing as a
corporation in good standing under the General  Corporation  Law of the State of
Delaware (the "DGCL").

         2. Horizon/CMS has full corporate power to execute and deliver the Plan
of Merger and to consummate the transactions contemplated thereby.

         3.  The Plan of  Merger  has  been  duly  authorized  and  executed  by
Horizon/CMS, and the Plan of Merger constitutes the valid and binding obligation
of Horizon/CMS,  enforceable  against  Horizon/CMS in accordance with its terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting enforcement of creditors' rights generally and subject to
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).

         4. The execution and delivery of the Plan of Merger by Horizon/CMS  did
not,  and  the  consummation  of  the  transactions   therein   contemplated  by
Horizon/CMS  does not,  constitute a breach or violation of, or a default under,
any federal law,  rule or  regulation of the United States or under the DGCL or,
to our knowledge,  any court order,  judgment or decree of any  governmental  or
regulatory  body of the United  States or of  Delaware,  in each case,  to which
Horizon/CMS is subject or by which any of its material  properties or assets are
bound or  affected,  or require any consent or approval of any other party under
any federal  law,  rule or  regulation  of the United  States or under the DGCL,
except for required approvals under the federal securities laws, under the state
securities  or  blue  sky  laws,  and  under  the  Hart-Scott-Rodino   Antitrust
Improvements  Act of  1976,  as  amended,  and  except  under  laws,  rules  and
regulations relating to the operation, regulation,  licensing, and accreditation
of health  care  facilities,  as to which we express no opinion,  which  breach,
violation or default would have a material adverse effect on Horizon/CMS and the
Horizon/CMS Subsidiaries and the Horizon/CMS Other Entities, taken as a whole.

         This  opinion is  furnished  to you by this Firm as legal  counsel  for
Horizon/CMS,  solely  for your  benefit  in  connection  with  the  transactions
contemplated  by the  Plan of  Merger,  upon the  understanding  that we are not
hereby assuming any professional  responsibility  to any other person whatsoever
and that this opinion may not be used for any other purpose whatsoever.

                                                     Very truly yours,

                                                     VINSON & ELKINS L.L.P.



                                                     By





                                                                  EXHIBIT 9.3(d)

[DATE]


Horizon/CMS Healthcare Corporation
6001 Indian School Road, N.E.
Suite 530
Albuquerque, New Mexico  87110


                   Re:  Plan and Agreement of Merger Among
                        HEALTHSOUTH Corporation, Reid Acquisition Corporation
                        and Horizon/CMS Healthcare Corporation

Gentlemen:

         We have acted as legal counsel for HEALTHSOUTH Corporation,  a Delaware
corporation  ("HEALTHSOUTH"),  and  Reid  Acquisition  Corporation,  a  Delaware
corporation (the "Subsidiary"), in connection with the transactions contemplated
by that certain Plan and Agreement of Merger (the "Plan of Merger"), dated as of
February 17, 1997, by and among  HEALTHSOUTH,  the  Subsidiary  and  Horizon/CMS
Healthcare Corporation,  a Delaware corporation.  The Plan of Merger, along with
the other  documents  evidencing the  transactions  contemplated  by the Plan of
Merger, are referred to collectively as the "Merger Documents".

         This opinion is being delivered pursuant to the Plan of Merger.  Unless
otherwise defined herein,  capitalized terms used herein shall have the meanings
set forth in the Plan of Merger.

         In connection  with the  preparation of this opinion,  we have examined
executed originals (or copies thereof) of the following documents:

                  (a) the Merger Documents;

                  (b) the charter  documents and bylaws of HEALTHSOUTH in effect
         as of the date hereof; and

                  (c) the  charter  documents  and bylaws of the  Subsidiary  in
         effect as of the date hereof.

         We have also  examined  such other  documents,  certificates  of public
officials and officers of HEALTHSOUTH and the Subsidiary, records and matters of
law as we have deemed  necessary or appropriate in connection  with the opinions
hereinafter  expressed.  In our examination,  we have assumed the genuineness of
all signatures,  the authenticity of all documents submitted to us as originals,
the  conformity  to  original  documents  of all  documents  submitted  to us as
certified or photostatic  copies,  and the authenticity of the originals of such
latter documents. Further, our



review of matters of law has been  limited to the laws of the State of  Alabama,
the laws of the State of Delaware referred to herein and the Federal laws of the
United States in effect as of the date hereof.

         Based upon the foregoing,  and subject to the  limitations  hereinafter
set forth, we are of the opinion that:

         1. Each of HEALTHSOUTH  and the  Subsidiary has been duly  incorporated
and is validly  existing as a  corporation  in good  standing  under the General
Corporation Law of the State of Delaware (the "DGCL").

         2. Each of HEALTHSOUTH  and the  Subsidiary has the corporate  power to
execute  and  deliver  the Plan of Merger  and to  consummate  the  transactions
contemplated thereby.

         3.  The Plan of  Merger  has  been  duly  authorized  and  executed  by
HEALTHSOUTH  and  the  Subsidiary,  and  the  Plan  of  Merger  (except  for the
provisions  thereof  respecting  indemnification,  as to  which  we  express  no
opinion)  constitutes  the valid and binding  obligation of HEALTHSOUTH  and the
Subsidiary,  enforceable  against  HEALTHSOUTH  and the Subsidiary in accordance
with  its  terms,   except  as  may  be  limited  by   bankruptcy,   insolvency,
reorganization,  moratorium  or other  similar  laws  affecting  enforcement  of
creditors'  rights  generally  and  subject  to  general  principles  of  equity
(regardless  of whether  enforcement  is considered in a proceeding at law or in
equity).

         4. The execution and delivery of the Plan of Merger by HEALTHSOUTH  and
the  Subsidiary  did  not,  and the  consummation  of the  transactions  therein
contemplated by HEALTH- SOUTH and the Subsidiary, if performed today, would not,
constitute a breach or violation of any federal law,  rule or  regulation of the
United  States or any law,  rule or regulation of Alabama or the DGCL or, to our
knowledge, any court order, judgment or decree of any governmental or regulatory
body of the United  States or of  Delaware or  Alabama,  in each case,  to which
HEALTHSOUTH  or the  Subsidiary  is  subject  or by which any of their  material
properties or assets are bound or affected,  which breach,  violation or default
would have a material  adverse effect on HEALTHSOUTH  and its  subsidiaries  and
affiliated partnerships, taken as a whole, or require any consent or approval of
any other party under any federal law,  rule or  regulation of the United States
or any law,  rule or regulation of Alabama or Delaware to which HEALTH- SOUTH or
the Subsidiary is subject  (except for required  consents or approvals under the
federal   securities   laws,  the  state   securities  or  blue  sky  laws,  the
Hart-Scott-Rodino  Antitrust  Improvements Act of 1976, as amended, or any laws,
rules and  regulations  relating to the  operation,  regulation,  licensing  and
accreditation  of  health  care  facilities,  as to all of which we  express  no
opinion).

         5. The shares of  HEALTHSOUTH  Common Stock to be issued under the Plan
of  Merger  will be,  when  issued in  accordance  with the terms of the Plan of
Merger, validly issued, fully paid and nonassessable.






         This  opinion is  furnished  to you by this Firm as legal  counsel  for
HEALTHSOUTH and the  Subsidiary,  solely for your benefit in connection with the
transactions  contemplated by the Plan of Merger, upon the understanding that we
are not hereby  assuming  any  professional  responsibility  to any other person
whatsoever  and  that  this  opinion  may not be  used  for  any  other  purpose
whatsoever.

                                               Very truly yours,

                                               HASKELL SLAUGHTER & YOUNG, L.L.C.


                                               By