Plan and Agreement of Merger - HealthSouth Corp. and Surgical Health Corp.


              AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER

     AMENDED AND RESTATED  PLAN AND  AGREEMENT OF MERGER (the "Plan of Merger"),
made  and  entered  into as of the  22nd  day of  January,  1995,  by and  among
HEALTHSOUTH  Corporation,  a Delaware corporation  ("HEALTHSOUTH"),  ASC ATLANTA
ACQUISITION  COMPANY,  INC.,  a Delaware  corporation  (the  "Subsidiary"),  and
SURGICAL HEALTH CORPORATION,  a Delaware corporation ("SHC") (the Subsidiary and
SHC  being  sometimes  collectively  referred  to  herein  as  the  "Constituent
Corporations").

                              W I T N E S S E T H:

     WHEREAS,  the  Board  of  Directors  of  each  of  HEALTHSOUTH  and SHC has
determined  that a business  combination  between  HEALTHSOUTH and SHC is in the
best interests of their  respective  companies and  stockholders and presents as
opportunity for their respective  companies to achieve  long-term  strategic and
financial benefits;

     WHEREAS, on January 22, 1995, HEALTHSOUTH,  the Subsidiary and SHC executed
and  delivered  a Plan and  Agreement  of Merger,  which  their duly  authorized
officers have determined to amend and restate in its entirety as provided herein
to be effective for all purposes as of and from and after January 22, 1995;

     WHEREAS, the respective Boards of Directors of HEALTHSOUTH,  the Subsidiary
and SHC  have  approved  the  merger  of the  Subsidiary  with and into SHC (the
"Merger"),  upon the terms  and  conditions  set  forth in this Plan of  Merger,
whereby (i) each share of Common Stock,  par value $.0025 per share, of SHC (the
"SHC Common Stock"),  not owned directly or indirectly by SHC, except Dissenting
Shares  (as  hereinafter  defined),  (ii)  each  share of  Series A  Convertible
Preferred  Stock,  par value $.01 per  share,  of SHC (the  "Series A  Preferred
Stock"),  not owned  directly or indirectly by SHC,  except  Dissenting  Shares,
(iii) each share of Series B  Convertible  Preferred  Stock,  par value $.01 per
share, of SHC (the "Series B Preferred Stock"), not owned directly or indirectly
by SHC, except  Dissenting  Shares,  and (iv) each share of Series C Convertible
Preferred  Stock,  par value $.01 per  share,  of SHC (the  "Series C  Preferred
Stock"), not owned directly or indirectly by SHC, except Dissenting Shares, will
be converted into the right to receive the Merger  Consideration (as hereinafter
defined) (the Series A Preferred  Stock,  Series B Preferred  Stock and Series C
Preferred  Stock may be hereinafter  collectively  referred to as the "Preferred
Stock", and, together with the SHC Common Stock, may be hereinafter collectively
referred to as the "SHC Shares");

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

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

     WHEREAS, for accounting  purposes,  it is intended that the Merger shall be
accounted for as a "pooling of interests".

     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 SHC at the Effective Time
of the Merger (as defined in Section 1.3). Following the Effective Time


of the Merger,  the separate  corporate  existence of the Subsidiary shall cease
and  SHC  shall   continue  as  the  surviving   corporation   (the   "Surviving
Corporation")  under the name "Surgical Health Corporation" and shall succeed to
and  assume  all  the  rights  and  obligations  of the  Subsidiary  and  SHC 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  of the  conditions  set forth in Section  9.1  (other  than
Section  9.1(a)),  at  the  offices  of  Haskell  Slaughter  Young  & Johnston,
Professional Association,  Birmingham,  Alabama, unless another date or place is
agreed to in writing by the parties hereto.

     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 Subsidiary  and SHC 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 of the Merger,  by
virtue of the  Merger  and  without  any action on the part of any holder of SHC
Shares 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 of the Merger
shall be  converted  into one fully paid and  nonassessable  share of SHC Common
Stock.

     (b) Cancellation of Treasury Stock.  Each share of SHC Common Stock that is
owned by SHC or by any  subsidiary  of SHC shall  automatically  be canceled and
retired and shall cease to exist,  and none of the 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 SHC Shares.  Subject to Section  2.2(e),  each issued and
outstanding  SHC Share  (other than shares to be  canceled  in  accordance  with
Section  2.1(b) and  Dissenting  Shares)  shall be  converted  into the right to
receive  that  fraction  of a share of  HEALTHSOUTH  Common  Stock  obtained  by
dividing  $4.60 by the Base Period Trading Price (as may be adjusted as provided
below) (the "Merger  Consideration");  provided,  however,  that for purposes of
such  calculation,  the Base Period  Trading  Price shall be deemed to equal (i)
$37.00 in the event that the Base Period  Trading  Price is greater than $37.00,
or (ii)  $33.00 in the event the Base Period  Trading  Price is less than $33.00
(collectively,  $37.00  and $33.00 are  referred  to herein as the "Base  Period
Trading Price Limitations"). For purposes of this Plan of Merger, the term "Base
Period Trading Price" shall mean the average daily closing prices for the shares
of HEALTHSOUTH  Common Stock for the 20  consecutive  trading days on which such
shares are actually traded (as reported on the New York Stock Exchange Composite
Transaction Tape as reported in The Wall Street Journal,  Eastern Edition, or if
not reported  thereby,  any other  authoritative  source) ending at the close of
trading on the third trading day  immediately  preceding the Closing Date. As of
the  Effective  Time of the  Merger,  all such SHC  Shares  shall no  longer  be
outstanding and shall  automatically  be canceled and retired and shall cease to
exist, and each holder of a certificate  representing any SHC Shares shall cease
to have any rights with respect thereto,  except the right to receive the Merger
Consideration  and any cash in lieu of fractional  shares of HEALTHSOUTH  Common
Stock to be issued or paid in  consideration  therefor  upon  surrender  of such
certificate in accordance with Section 2.2, without interest.

     (d) Dissenting Shares.  Notwithstanding  anything in this Plan of Merger to
the contrary, SHC Shares outstanding  immediately prior to the Effective Time of
the Merger held by a holder (if any) who is entitled to demand, and who properly
demands,  appraisal for such shares in  accordance  with Section 262 of the DGCL

("Dissenting  Shares") shall not be converted into a right to receive the Merger
Consideration  and any cash in lieu of fractional  shares of HEALTHSOUTH  Common
Stock unless such holder fails to perfect or otherwise loses such holder's right
to appraisal,  if any. If, after the Effective  Time of the Merger,  such holder
fails to perfect  or loses any such right to  appraisal,  such  shares  shall be
treated as if they had been  converted  as of the  Effective  Time of the Merger
into the right to receive the Merger  Consideration  pursuant to Section  2.1(c)
and the cash in lieu of fractional shares of HEALTHSOUTH  Common Stock specified
in Section 2.2.

     (e) Stock Options and  Warrants.  At the  Effective  Time,  all rights with
respect to SHC Common  Stock  pursuant to any SHC stock  options or SHC warrants
which are  outstanding at the Effective Time,  whether or not then  exercisable,
shall be converted  into and become  rights with respect to  HEALTHSOUTH  Common
Stock and  HEALTHSOUTH  shall assume each SHC stock  option or SHC  warrant,  in
accordance with the terms of the stock option plan under which it was issued and
the stock option agreement or warrant agreement, as the case may be, by which it
is evidenced.  It is intended that the foregoing  provisions shall be undertaken
in a manner that will not constitute a "modification"  as defined in Section 425
of the Code, as to any stock option which is an "incentive stock option."

     (f)  Anti-Dilution  Provisions.  In the event that HEALTHSOUTH  changes the
number of shares of HEALTHSOUTH Common Stock issued and outstanding prior to the
Effective  Time as a  result  of a  stock  split,  stock  dividend,  or  similar
recapitalization  with respect to such stock and the record date thereof (in the
case of a stock  dividend) or the effective date thereof (in the case of a stock
split or similar  recapitalization  for which a record date is not  established)
shall  be  prior to the  Effective  Time,  (i) the  Base  Period  Trading  Price
Limitations  shall be adjusted  to  appropriately  adjust the ratio  pursuant to
which SHC Shares will be  converted  into  shares of  HEALTHSOUTH  Common  Stock
pursuant to this Section 2.1, and (ii) if necessary,  the anticipated  Effective
Time shall be  postponed  for an  appropriate  period of time agreed upon by the
parties in order for the Base Period  Trading Price to reflect the market effect
of such stock split, stock dividend, or similar recapitalization.

     2.2 Exchange of  Certificates.  (a) Exchange Agent.  Prior to the Effective
Time of the Merger,  HEALTHSOUTH shall enter into an agreement with such bank or
trust company as may be designated by HEALTHSOUTH  (the "Exchange  Agent") which
provides  that  HEALTHSOUTH  shall  deposit  with the  Exchange  Agent as of the
Effective Time of the Merger,  for the benefit of the holders of SHC 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 of the Merger, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to Section 2.1
in exchange for outstanding SHC Shares.

     (b)  Exchange  Procedures.  As soon as  reasonably  practicable  after  the
Effective  Time of the Merger,  the Exchange  Agent shall mail to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time of the Merger represented outstanding SHC Shares (the "Certificates") whose
shares  were  converted  into the  right to  receive  the  Merger  Consideration
pursuant to Section 2.1, (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 the  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 the
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 SHC Shares  which is not  registered  in the transfer
records  of SHC,  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.  Until
surrendered  as  contemplated  by this Section 2.2,  each  Certificate  shall be
deemed at any time after the Effective  Time of the Merger to represent only the
right to receive upon such  surrender  the  certificate  representing  shares of
HEALTHSOUTH  Common  Stock  and  cash  in  lieu  of  any  fractional  shares  of
HEALTHSOUTH  Common Stock as  contemplated by this Section 2.2. No interest will
be paid or will accrue on any cash payable in lieu of any  fractional  shares of
HEALTHSOUTH Common Stock. To the extent permitted by law, former stockholders of
record of SHC shall be entitled to vote after the  Effective  Time of the Merger
at any  meeting  of  HEALTHSOUTH  stockholders  the  number  of whole  shares of
HEALTHSOUTH  Common Stock into which their  respective SHC Shares are converted,
regardless  of whether  such  holders  have  exchanged  their  Certificates  for
certificates  representing  HEALTHSOUTH  Common  Stock in  accordance  with this
Section 2.2.

     (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 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 HEALTHSOUTH
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 of the Merger  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 of the Merger 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 SHC Shares.  All shares of HEALTHSOUTH
Common  Stock  issued  upon  the  surrender  for  exchange  of  Certificates  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  SHC  Shares  theretofore
represented  by such  Certificates.  If, after the Effective Time of the Merger,
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 SHC
Shares  exchanged  pursuant to the Merger who would otherwise have been entitled
to receive a fraction of a share of HEALTHSOUTH  Common Stock (after taking into
account all  Certificates  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 Common Stock multiplied by the Base Period Trading Price.

     (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 of the Merger 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, SHC 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 of the Merger (or
immediately prior to such earlier date on which any shares of HEALTHSOUTH 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 shall invest any cash
included in the Exchange Fund, as directed by HEALTHSOUTH, on a daily basis. Any
interest  and other  income  resulting  from such  investments  shall be paid to
HEALTHSOUTH.

     (i) The Merger will not be treated as a liquidation, dissolution or winding
up  of  SHC  under  the   liquidation   provisions  of  SHC's   Certificate   of
Incorporation.

     2.3 Certificate of Incorporation of Surviving Corporation.  The Certificate
of  Incorporation  of SHC  shall  be  amended  and  restated,  effective  at the
Effective  Time, in a manner  satisfactory  to  HEALTHSOUTH.  The Certificate of
Incorporation  of SHC, 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 of
the Merger and until thereafter altered,  amended or repealed in accordance with
the laws of the State of Delaware,  the Certificate of  Incorporation of SHC and
the said Bylaws.

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

     2.6 Assets, Liabilities,  Reserves and Accounts. At the Effective Time, the
assets,  liabilities,  reserves and accounts of each of Subsidiary and SHC 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 of the
Merger,  shall be those of the Surviving  Corporation  and shall be as effective
and binding thereon as they were with respect to the  Subsidiary.  The employees
and  agents of the  Subsidiary  shall  become  the  employees  and agents of the
Surviving  Corporation  and  continue  to be  entitled  to the same  rights  and
benefits which they enjoyed as employees and agents of the Subsidiary.

Section 3. Representations and Warranties of SHC.

   SHC hereby  represents  and warrants to  HEALTHSOUTH  and the  Subsidiary  as
follows:

     3.1  Organization,  Existence and Good Standing.  SHC is a corporation duly
organized,  validly existing and in good standing under the laws of the State of
Delaware. SHC has all necessary corporate power to own its properties and assets
and to carry on its  business as  presently  conducted.  SHC is not, and has not
been within the two years immediately preceding the date of this Plan of Merger,
a subsidiary  or division of another  corporation,  nor has SHC within such time
owned,  directly  or  indirectly,  any  shares of  HEALTHSOUTH  Common  Stock or
Subsidiary Common Stock,  except to the extent that shares of HEALTHSOUTH Common
Stock are  beneficially  owned by Richard M. Scrushy and Charles W. Newhall III,
Directors of SHC.

     3.2 SHC Capital Stock.  SHC's authorized capital consists of (i) 60,000,000
shares  of SHC  Common  Stock,  of  which  21,951,901  shares  were  issued  and
outstanding,  as of January 16,  1995,  and none of which  shares are issued and
held as treasury shares,  (ii) 5,450,624 shares of Series A Preferred Stock, par
value $.01 per share, 1,911,902 of which shares are issued and outstanding as of
the  date of this  Plan of  Merger  and  none of which  are  issued  and held as
treasury  shares;  (iii) 6,000,000 shares of Series B Preferred Stock, par value
$.01 per share,  3,961,413 of which shares are issued and  outstanding as of the
date of this Plan of Merger  and none of which  shares  are  issued  and held as
treasury shares;  (iv) 3,571,429  shares of Series C Preferred  Stock,  $.01 per
share,  3,439,692 of which shares are issued and  outstanding  as of the date of
this Plan of Merger and none of which are issued  and held as  treasury  shares;
(v) 10,000,000 shares of undesignated preferred stock, par value $.01 per share,
none of which shares are issued and  outstanding  as of the date of this Plan of
Merger  and none of which  are  issued  and held as  treasury  shares;  and (vi)
700,000  shares of  Non-Voting  Common Stock,  par value  $.0025,  none of which
shares are issued and  outstanding  and none of which shares are issued and held
as treasury  shares.  All of the issued and  outstanding SHC Shares are duly and
validly issued, fully paid and nonassessable. Except as set forth on Exhibit 3.2
attached  hereto  or  otherwise  disclosed  in the  SHC  Documents  (hereinafter
defined),  there are no options,  warrants,  or similar rights granted by SHC or
any other  agreements to which SHC 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 SHC Shares. SHC has not made any distributions
to any  holders of SHC  Shares or  participated  in or  effected  any  issuance,
exchange or retirement of SHC Shares,  or otherwise changed the equity interests
of holders of SHC Shares,  in  contemplation  of effecting the Merger within the
two years immediately  preceding the date of this Plan of Merger. Any SHC Shares
that SHC has re-acquired during the two years immediately  preceding the date of
this Plan of Merger  have  been so  re-acquired  only for  purposes  other  than
"business combinations",  as such term is defined in Accounting Principles Board
Opinion No. 16, as amended ("Business Combinations").

     3.3  Subsidiaries  and  Affiliated  Partnerships.  (a)  Attached  hereto as
Exhibit  3.3 is a list  of  all  subsidiaries  of  SHC  (individually,  an  "SHC
Subsidiary",  and  collectively,  the "SHC  Subsidiaries")  and their  states of
incorporation. Except as set forth on Exhibit 3.3, SHC does not own stock in and
does not control, directly or indirectly, any other corporation,  association or
business organization other than the SHC Partnerships (as defined below).

     (b) Also  disclosed  on  Exhibit  3.3 is a list of all  general  or limited
partnerships  in  which  the  general  partner  is  SHC  or  an  SHC  Subsidiary
(individually,  an "SHC Partnership" and collectively,  the "SHC  Partnerships")
and their states of  organization.  Except as set forth on Exhibit 3.3,  neither
SHC nor any SHC  Subsidiary  owns an equity  interest  in, nor does such  entity
control, directly or indirectly, any other joint venture or partnership.

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

     (b) Each SHC  Partnership  is a limited  partnership  validly formed and in
good standing under the laws of its respective state of  organization.  Each SHC
Partnership  has all necessary power to own its property and assets and to carry
on its business as presently conducted.

     3.5  Foreign  Qualifications.   SHC,  each  SHC  Subsidiary  and  each  SHC
Partnership  is  qualified  to do business as a foreign  corporation  or foreign
general or limited  partnership,  as the case may be, and is in good standing in
each jurisdiction where 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 SHC.

     3.6 Power and  Authority.  Subject to the  satisfaction  of the  conditions
precedent set forth herein, SHC has the corporate power to execute,  deliver and
perform the Plan of Merger and all agreements and other  documents  executed and
delivered or to be executed and  delivered by it pursuant to the 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 the Plan of
Merger  and such  related  documents.  Except as set forth on Exhibit  3.6,  the
execution  and  delivery  of the 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  the  Certificate  of  Incorporation  of SHC 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 SHC or any SHC Subsidiary or SHC Partnership 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 SHC. The  execution  and delivery of this  Agreement has been approved by the
Board  of  Directors  of SHC  (or by a  committee  appointed  by such  Board  of
Directors for the purpose of approving such execution and delivery).

     3.7 SHC Public Information.  SHC has heretofore furnished  HEALTHSOUTH with
the following documents:

     (i) its  Registration  Statement on Form S-1  (Registration  No.  33-77042)
   relating to the offer and sale of $75,000,000  aggregate  principal amount of
   11-1/2% Senior Subordinated Notes due 2004 of SHC;

     (ii) its 1993 Annual Report on Form 10-K; and

     (iii) its  Quarterly  Reports  on Form 10-Q for the fiscal  quarters  ended
   September 30, 1993, June 30, 1994 and September 30, 1994

(documents  (i)--(iii) above being  collectively  referred to herein as the "SHC
Documents"). As of their respective dates, the SHC 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 descriptions of the business,  operations and financial  condition of
SHC  contained in the SHC 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  regulations  promulgated
under such statutes.  The financial  statements  contained in the SHC Documents,
together with the notes thereto, have been prepared in accordance with generally
accepted  accounting  principles  consistently  followed  throughout the periods
indicated,  reflect all known liabilities of SHC, including all known contingent
liabilities as of the end of each period reflected  therein,  and present fairly
the  financial  condition of SHC at said dates and the  consolidated  results of
operations  and cash flows of SHC for the periods then ended.  The  consolidated
balance  sheet of SHC at  September  30, 1994  included in the SHC  Documents is
herein sometimes referred to as the "SHC Balance Sheet".

     3.8  Properties  and  Assets.  SHC  (including,  as  applicable,   the  SHC
Subsidiaries  and  the SHC  Partnerships)  owns  all of the  real  and  personal
property included in the SHC Balance Sheet (except assets recorded under capital
lease  obligations and such property as has been disposed of during the ordinary
course of SHC's  business  since the date of the SHC  Balance  Sheet),  free and
clear of any liens,  claims,  charges,  exceptions or  encumbrances,  except for
those  (i) if any,  which in the  aggregate  are not  material  and which do not
materially affect continued use of such property, or (ii) which are disclosed in
the SHC Documents or set forth in Exhibit 3.8.

     3.9 Legal  Proceedings.  Except as listed on Exhibit  3.9  attached to this
Plan of Merger or  described in the SHC  Documents,  SHC has no knowledge of any
pending or threatened litigation,  governmental  investigation,  condemnation or
other  proceeding  against or relating to or affecting  SHC or the  transactions
contemplated  by this Plan of Merger  for which SHC is  uninsured  or which,  if
resolved  adversely to SHC, would have a material  adverse effect on SHC and, to
the knowledge of SHC, no basis for any such action exists.

     3.10 Contracts,  etc. (a) SHC has made available to HEALTHSOUTH true copies
of  all  written,  and  has  disclosed  to  HEALTHSOUTH  all  oral,  outstanding
contracts,  obligations and  commitments of SHC (including the SHC  Subsidiaries
and SHC  Partnerships)  entered  into in  connection  with  and  related  to the

business  and  operations  of  SHC  (including  the  SHC  Subsidiaries  and  SHC
Partnerships)  or  has  otherwise  disclosed  such  contracts,   commitments  or
obligations in an Exhibit  hereto or to the SHC Documents  which are material to
the operations of SHC, the SHC Subsidiaries and the SHC Partnerships, taken as a
whole.  Except as otherwise  indicated on Exhibit 3.10,  all of such  contracts,
obligations  and  commitments  are valid,  binding and enforceable in accordance
with their terms  (assuming the other parties thereto are bound) and are in full
force and effect,  except where such  invalidity or  unenforceability  would not
have a material  adverse effect on SHC.  Except as set forth or  incorporated by
reference on such Exhibit,  no default or alleged  default by SHC (including the
SHC Subsidiaries and SHC Partnerships) exists thereunder, except for defaults or
alleged defaults which would not have a material adverse effect on SHC.

     (b) Except as set forth on Exhibit  3.10, no contract or agreement to which
SHC or any SHC  Subsidiary  or SHC  Partnership  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, would not have a material adverse effect on SHC.

     (c) Except as set forth on Exhibit 3.10, none of SHC, any SHC Subsidiary or
any SHC  Partnership  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  (excluding  liens  described  in  Section  3.8) or  entered  into any
non-competition agreement or similar agreement restricting its ability to engage
in any business in any location.

     3.11  Subsequent  Events.  Except as set forth on Exhibit 3.11  attached to
this Plan of Merger or disclosed in the SHC  Documents,  SHC has not,  since the
date of the SHC Balance Sheet:

     (a) Incurred any material adverse change.

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

     (c) 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 SHC,  except as may have been  required due to income or operations of
SHC since the date of the SHC Balance Sheet.

     (d)  Mortgaged,   pledged  or  subjected  to  any  lien,  charge  or  other
encumbrance any of the assets, tangible or intangible, which assets are material
to the consolidated business or financial condition of SHC.

     (e) Sold or  transferred  any of the assets  material  to the  consolidated
business of SHC,  cancelled any material  debts or claims or waived any material
rights, except in the ordinary course of business.

     (f)  Granted  any  general  or  uniform  increase  in the  rates  of pay of
employees or any material increase in salary payable or to become payable by SHC
to any  officer or  employee,  consultant  or agent  (other  than  normal  merit
increases),  or by  means  of any  bonus  or  pension  plan,  contract  or other
commitment,  increased in a material  respect the  compensation  of any officer,
employee, consultant or agent.

     (g)  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.

     (h) Issued any stock,  bonds or other securities,  other than stock options
granted to employees or consultants of SHC or warrants granted to third parties,
all of which are disclosed on Exhibit 3.2.

     3.12 Accounts Receivable.  (a) Since the date of the SHC Balance Sheet, SHC
has not changed any  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.  Accounts receivable are
recorded on the SHC Balance Sheet (and the other consolidated  balance sheets of
SHC included in the SHC Documents) in amounts estimated to be net of contractual
allowances  related to third-party  payor  arrangements.  SHC (including the SHC
Subsidiaries  and  SHC  Partnerships)  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 SHC.

     (b) Without  limiting the  generality  of the  foregoing,  SHC and each SHC
Subsidiary or SHC  Partnership  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 SHC.

     3.13 Tax Returns.  SHC 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 SHC. Except as
disclosed  on  Exhibit  3.13,  SHC has  made all  payments  shown as due on such
returns. Except as disclosed on Exhibit 3.13, SHC has not been notified that any
tax returns of SHC are currently under audit by the Internal  Revenue Service or
any  state or local  tax  agency.  No  agreements  have been made by SHC 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 Alex.  Brown & Sons
Incorporated  ("Alex.   Brown"),   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 SHC or its shareholders,
officers or Directors, or any of them.

     3.15 Employee Benefit Plans; Employment Matters. (a) Except as set forth on
Exhibit 3.15(a) attached to this Plan of Merger, SHC has neither established nor
maintains  nor is  obligated  to make  contributions  to or under  or  otherwise
participate  in (i) 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), (ii) any pension,  profit-sharing,  retirement
or other plan, program or arrangement, or (iii) any other employee benefit plan,
fund or program,  including, but not limited to, those described in Section 3(3)
of ERISA.  Except as  disclosed  on Exhibit  3.15(a),  all such plans  listed on
Exhibit 3.15(a) (individually, a "Plan" and collectively, the "Plans") have been
operated  and  administered  in all material  respects 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.  Except as disclosed on Exhibit 3.15(a),  no act or
failure to act by SHC has resulted in a "prohibited  transaction" (as defined in
ERISA)  with  respect  to the  Plans  that  is not  subject  to a  statutory  or
regulatory  exception.  No "reportable event" (as defined in ERISA) has occurred
with respect to any of the Plans which is subject to Title IV of ERISA.  SHC 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 on Exhibit 3.15(b),  SHC 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  materially  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 $100,000,  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
or disclosed in the SHC Documents,  SHC has not received any notices of material
violations  of any federal,  state and local laws,  regulations  and  ordinances
relating to its business and  operations,  including,  without  limitation,  the
Federal  Environmental  Protection Act, the Occupational  Safety and Health Act,
the  Americans  with  Disabilities  Act,  the  Medicare or  applicable  Medicaid
statutes  and  regulations  and any  Environmental  Laws,  and no  notice of any
pending  inspection  or violation of any such law,  regulation  or ordinance has
been received by SHC which, if it were determined that a violation had occurred,
would have a material adverse effect on SHC.

     3.17 Regulatory Approvals. SHC and each SHC Subsidiary and SHC Partnership,
as applicable,  holds all licenses,  certificates  of need and other  regulatory
approvals required or necessary to be applied for or obtained in connection with
its business as presently conducted or as proposed to be conducted, except where
the failure to obtain such license,  certificate of need or regulatory  approval
would not have a material adverse effect on SHC. All such licenses, certificates
of need and other regulatory approvals relating to the business,  operations and
facilities of SHC and each  Subsidiary and SHC Partnership are in full force and
effect,  except  where  any  failure  of such  license,  certificate  of need or
regulatory  approval  to be in full force and  effect  would not have a material
adverse  effect on SHC.  Except as disclosed in the SHC  Documents,  any and all
past litigation  concerning  such licenses,  certificates of need and regulatory
approvals,  and all claims and causes of action raised therein, has been finally
adjudicated.  No such license,  certificate  of need or regulatory  approval has
been  revoked,  conditioned  (except as may be customary)  or  restricted,  and,
except  as  disclosed  in the SHC  Documents,  no  action  (equitable,  legal or
administrative),  arbitration  or  other  process  is  pending,  or to the  best
knowledge of SHC,  threatened,  which in any way  challenges the validity of, or
seeks to revoke, condition or restrict any such license, certificate of need, or
regulatory approval.  Subject to compliance with applicable  securities laws and
the Hart  Scott-Rodino  Antitrust  Improvements  Act of 1976,  as amended  ("HSR
Act"), the consummation of the Merger will not violate any law or restriction to
which SHC is subject which, if violated, would have a material adverse effect on
SHC.

     3.18 Retirement or Re-Acquisition of HEALTHSOUTH Common Stock. SHC is not a
party to any  agreement  the  effect of which  would be to  require  HEALTHSOUTH
directly  or  indirectly  to retire or  re-acquire  all or part of the shares of
HEALTHSOUTH Common Stock issued pursuant to Section 2.1 hereof.

     3.19 Disposition of Assets of Surviving Corporation.  Except as provided in
Exhibit 3.11 with the consent of HEALTHSOUTH,  SHC is not a party to any plan to
dispose of a significant part of the assets of the Surviving  Corporation within
two years after the Closing Date, other than dispositions in the ordinary course
of business of the Surviving  Corporation and dispositions intended to eliminate
duplicate facilities or excess capacity.

     3.20 Vote Required.  The  affirmative  vote of the holders of a majority of
each class of the  outstanding  Preferred  Stock  entitled to vote thereon and a
majority of the outstanding SHC Shares entitled to vote thereon is the only vote
of the holders of any class or series of SHC capital stock  necessary to approve
this Plan of Merger, the Merger and the transactions contemplated hereby.

     3.21  Opinion of  Financial  Advisor.  SHC has received the oral opinion of
Alex. Brown to the effect that, as of the date hereof, the Merger  Consideration
is fair to the holders of SHC Shares from a financial  point of view,  a written
copy of which opinion will be delivered by SHC 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 Securities and Exchange Commission.

     3.22 No Untrue  Representations.  No  representation  or warranty by SHC in
this Plan of Merger,  and no Exhibit or certificate  issued by SHC and furnished
or to be furnished to HEALTHSOUTH  pursuant  hereto,  or in connection  with the
transactions  contemplated hereby, contains or will contain any untrue statement
of a material  fact in response to the  disclosure  requested,  or omits or will
omit to  state a  material  fact  necessary  to make  the  statements  or  facts
contained  therein in response to the  disclosure  requested  not  misleading in
light of all of the circumstances then prevailing.

Section 4. Representations and Warranties of the Subsidiary and HEALTHSOUTH.

   The Subsidiary and HEALTHSOUTH,  jointly and severally,  hereby represent and
warrant to SHC 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 SHC Common Stock.

     4.2 Power and Authority.  The  Subsidiary  has corporate  power to execute,
deliver and perform the Plan of Merger and all  agreements  and other  documents
executed and delivered,  or to be executed and delivered,  by it pursuant to the
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth herein  subject to  stockholder  approval as required by Delaware law, has
taken all actions required by law, its Certificate of Incorporation,  its Bylaws
or otherwise,  to authorize the execution and delivery of the Plan of Merger and
such related  documents.  The  execution and delivery of the 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  the
Certificate  of  Incorporation  or Bylaws of the  Subsidiary,  or any agreement,
instrument,  order,  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.

     4.3 Commissions and Fees.  Except for fees owed to Smith Barney Inc., there
are no claims for brokerage  commissions,  investment  bankers' fees or finder's
fees in  connection  with the  transaction  contemplated  by the Plan of  Merger
resulting  from any  action  taken  by the  Subsidiary  or any of its  officers,
Directors or agents.

     4.4 No  Subsidiaries.  The  Subsidiary  does not own stock 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.

     4.5 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.

     4.6 No Contracts or Liabilities.  Other than the obligations  created under
the 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 SHC 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.
HEALTHSOUTH is not, and has not been within the two years immediately  preceding
the  date  of  this  Plan  of  Merger,  a  subsidiary  or  division  of  another
corporation, nor has HEALTHSOUTH within such time owned, directly or indirectly,
any shares of SHC Common Stock.

     5.2  Power and  Authority.  HEALTHSOUTH  has  corporate  power to  execute,
deliver and perform the Plan of Merger and all  agreements  and other  documents
executed and delivered,  or to be executed and delivered,  by it pursuant to the
Plan of Merger,  and, subject to the satisfaction of the conditions recedent 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 the Plan of Merger and such related documents.  The execution and delivery of
the 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 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  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  Agreement  has been  approved  by the Board of  Directors  of
HEALTHSOUTH.

     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 SHC Shares in accordance
with the provisions of the Plan of Merger.  The  HEALTHSOUTH  Common Stock to be
issued pursuant to the 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 New York Stock  Exchange,  Inc.  (the
"Exchange") upon official notice of issuance.

     5.4  Capitalization.   HEALTHSOUTH  has  an  authorized  capitalization  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
100,000,000  shares  of  Common  Stock,  par  value  $.01  per  share,  of which
35,533,661  shares  are issued and  outstanding,  and 91,000  shares are held in
treasury.  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 Documents (as hereinafter  defined),  and except
as described on Exhibit 5.4,  there are no options,  warrants 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.  There is
no liability for dividends  declared or  accumulated  but unpaid with respect to
any  shares  of  HEALTHSOUTH   Common  Stock.   HEALTHSOUTH  has  not  made  any
distributions  to any holder of HEALTHSOUTH  Common Stock or  participated in or
effected any issuance,  exchange or retirement of HEALTHSOUTH  Common Stock,  or
otherwise  changed the equity interests of holders of HEALTHSOUTH  Common Stock,
in  contemplation  of  effecting  the Merger  within  the two years  immediately
preceding  the date of this Plan of  Merger.  Any shares of  HEALTHSOUTH  Common
Stock  that  HEALTHSOUTH  has  re-acquired  during  the  two  years  immediately
preceding  the date of this Plan of Merger  have  been so  re-acquired  only for
purposes other than Business Combinations.

     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 the 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.  HEALTHSOUTH has heretofore  furnished SHC with
the following documents:

     (i) its Annual Report on Form 10-K for the Fiscal Year Ended December
31, 1993;

    (ii) its 1993 Annual Report to Stockholders;

   (iii) the Proxy Statement utilized in soliciting proxies in connection
with the 1994 Annual Meeting of Stockholders of HEALTHSOUTH;

    (iv) its Quarterly  Reports on Form 10-Q for the fiscal quarters ended March
31, June 30 and September 30, 1994;

     (v) the Registration Statement on Form S-3 (Registration No. 33-52111)
relating to a recent public offering of debt securities of HEALTHSOUTH,
together with Amendments No. 1, No. 2 and No. 3 thereto; and

    (vi) the Proxy  Statement --  Prospectus  relating to its recent merger with
ReLife, Inc.

(documents  (i)-  (vi)  above  being  collectively  referred  to  herein  as the
"HEALTHSOUTH  Documents").   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  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 descriptions of the business,
operations and financial  condition of HEALTHSOUTH  contained in 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 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,  reflect all
known liabilities of HEALTHSOUTH,  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.

     5.7 Investment  Intent.  HEALTHSOUTH is acquiring the SHC Shares  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 SHC Shares to
any other person, firm or corporation.

     5.8 Commissions and Fees.  Except for fees owed to Smith Barney Inc., there
are no claims for brokerage  commissions,  investment  bankers' fees or finder's
fees in  connection  with the  transactions  contemplated  by the Plan of Merger
resulting from any action taken by HEALTHSOUTH or any of its officers, Directors
or agents.

     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,  its properties or business, or the transaction contemplated by the
Plan of Merger  and,  so far as is known to  HEALTHSOUTH,  no basis for any such
action exists.

     5.10 No Violations.  Subject to compliance with applicable  securities laws
and the HSR Act,  the  consummation  of the Merger  will not  violate any law or
restriction to which HEALTHSOUTH is subject.

     5.11 No Material Changes.  Since September 30, 1994, except as set forth on
Exhibit  5.11,  there  has not  been  (i) any  material  adverse  change  in the
financial  condition,  business,  properties,  or assets of HEALTHSOUTH  and its
subsidiaries;  (ii) any  material  loss or  damage to any of the  properties  or
assets of HEALTHSOUTH and its subsidiaries (whether or not covered by insurance)
which  affects or impairs the ability of  HEALTHSOUTH  and its  subsidiaries  to
conduct their businesses or any labor trouble or any other event or condition of
any character which has materially and adversely affected HEALTHSOUTH's business
or the business of any of its subsidiaries;  (iii) any mortgage or pledge of any
of the properties or assets of HEALTHSOUTH  or any of its  subsidiaries,  or any
indebtedness  incurred by HEALTHSOUTH or any of its  subsidiaries  maturing more
than one year from the date the  indebtedness  was incurred;  (iv) any purchase,
redemption,  or other  acquisition  by  HEALTHSOUTH  of any shares of its Common
Stock; (v) any payment or declaration of a dividend or any other distribution or
payment in respect of  HEALTHSOUTH  Common Stock;  (vi) any  issuance,  sale, or
other disposition of any shares, options or warrants of HEALTHSOUTH Common Stock
or of any  shares of  capital  stock of any  subsidiary  of  HEALTHSOUTH  or any
evidence of  indebtedness  or securities of HEALTHSOUTH or any of  HEALTHSOUTH's
subsidiaries, except upon exercise of previously outstanding stock options or in
the ordinary course of HEALTHSOUTH's  business;  or (vii) any notice received by
HEALTHSOUTH  or any  of its  subsidiaries  from  any  state  or  federal  taxing
authorities  notifying that HEALTHSOUTH or any of its subsidiaries is subject to
any material action or proceeding for assessment or collection of taxes asserted
against HEALTHSOUTH or any of its subsidiaries other than actions or proceedings
or claims for  assessment or  collection  of taxes which are being  contested in
good faith by appropriate proceedings.

     5.12 Retirement or Re-Acquisition of HEALTHSOUTH Common Stock.  HEALTHSOUTH
has not agreed directly or indirectly to retire or re-acquire all or part of the
shares of HEALTHSOUTH Common Stock issued pursuant to Section 2.1 hereof.

     5.13 Disposition of Assets of Surviving  Corporation.  HEALTHSOUTH does not
intend or plan to dispose of, or to cause the Surviving  Corporation  to dispose
of, a  significant  part of the assets of the Surviving  Corporation  within two
years after the Effective Time,  other than  dispositions in the ordinary course
of business of the Surviving  Corporation and dispositions intended to eliminate
duplicate facilities or excess capacity.

     5.14 Vote Required.  The  affirmative  vote of the holders of a majority of
the outstanding  shares of HEALTHSOUTH  Common Stock entitled to vote thereon is
the only vote of the  holders  in each  class or series of  HEALTHSOUTH  capital
stock necessary to approve this Plan of Merger,  the Merger and the transactions
contemplated by this Plan of Merger.

     5.15  Opinion of  Financial  Advisor.  HEALTHSOUTH  has  received  the oral
opinion of Smith  Barney Inc. to the effect  that,  as of the date  hereof,  the
Merger  Consideration  is fair to HEALTHSOUTH  from a financial point of view, a
written copy of which opinion will be delivered by  HEALTHSOUTH  to SHC 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  Securities  and  Exchange
Commission.

     5.16 Tax  Returns.  HEALTHSOUTH  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  has made all payments  shown as due on such  returns.
HEALTHSOUTH  has not been  notified  that any tax  returns  of  HEALTHSOUTH  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.

     5.17 Employee Benefit Plans; Employment Matters. (a) Except as disclosed in
the HEALTHSOUTH Documents, HEALTHSOUTH has neither established nor maintains nor
is obligated to make  contributions to or under or otherwise  participate in (i)
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), (ii) any pension,  profit-sharing,  retirement or other plan,
program  or  arrangement,  or (iii) any other  employee  benefit  plan,  fund or
program,  including,  but not limited to,  those  described  in Section  3(3) of
ERISA.  All such plans  have been  operated  and  administered  in all  material
respects 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  Plans  that  is not  subject  to a  statutory  or
regulatory  exception.  No "reportable event" (as defined in ERISA) has occurred
with  respect to any of the Plans which is subject to Title IV of ERISA.  Except
as disclosed in the HEALTHSOUTH Documents,  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 disclosed in the HEALTHSOUTH Documents,  HEALTHSOUTH 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 materially 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  $100,000,  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 esting 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.

     5.18  Compliance  with  Laws  in  General.   Except  as  disclosed  in  the
HEALTHSOUTH  Documents,  HEALTHSOUTH  has not  received  any notices of material
violations  of any federal,  state and local laws,  regulations  and  ordinances
relating to its business and  operations,  including,  without  limitation,  the
Federal  Environmental  Protection Act, the Occupational  Safety and Health Act,
the  Americans  with  Disabilities  Act,  the  Medicare or  applicable  Medicaid
statutes  and  regulations  and any  Environmental  Laws,  and no  notice of any
pending  inspection  or violation of any such law,  regulation  or ordinance has
been received by HEALTHSOUTH with respect to any alleged  violation which, if it
were determined that a violation occurred,  would have a material adverse effect
on HEALTHSOUTH.

     5.19 Regulatory Approvals.  HEALTHSOUTH holds all licenses, certificates of
need and other regulatory  approvals  required or necessary to be applied for or
obtained in connection  with its business as presently  conducted or as proposed
to be conducted, except where the failure to obtain such license, certificate of
need or  regulatory  approval  would  not  have a  material  adverse  effect  on
HEALTHSOUTH.  All  such  licenses,  certificates  of need and  other  regulatory
approvals relating to the business, operations and facilities of HEALTHSOUTH are
in full force and effect. Except as disclosed in the HEALTHSOUTH Documents,  any
and all past  litigation  concerning  such  licenses,  certificates  of need and
regulatory  approvals,  and all claims and causes of action raised therein,  has
been finally  adjudicated.  No such license,  certificate  of need or regulatory
approval  has  been  revoked,  conditioned  (except  as  may  be  customary)  or
restricted,  and,  except as disclosed in the HEALTHSOUTH  Documents,  no action
(equitable,  legal or administrative),  arbitration or other process is pending,
or to the best knowledge of HEALTHSOUTH, threatened, which in any way challenges
the  validity of, or seeks to revoke,  condition  or restrict any such  license,
certificate  of  need,  or  regulatory  approval.  Subject  to  compliance  with
applicable  securities laws and the HSR Act, the consummation of the Merger will
not violate any law or restriction to which HEALTHSOUTH is subject.

     5.20 No Untrue Representation. No representation or warranty by HEALTHSOUTH
in this Plan of Merger,  and no Exhibit or Certificate issued by HEALTHSOUTH and
furnished or to be furnished to SHC pursuant  hereto,  or in connection with the
transactions  contemplated hereby, contains or will contain any untrue statement
of a material  fact in response to the  disclosure  requested,  or omits or will
omit to state a material fact necessary to make the statement or facts contained
therein in response to the  disclosure  requested not misleading in light of all
of the circumstances then prevailing.

Section 6. Access to Information and Documents.

     6.1 Access to  Information.  Between the date hereof and the Closing  Date,
each of SHC and  HEALTHSOUTH  will  give to the  other  party  and its  counsel,
accountants  and  other  representatives  full  access  to all  the  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,  SHC shall make available to HEALTHSOUTH  all such banking,
investment  and  financial  information  as shall be  necessary to allow for the
efficient  integration of SHC's 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  of such  party  shall be
deemed to be confidential information, unless and until such information becomes
public otherwise than through the act or omission of the other party. Each party
agrees  that it will not cause any  confidential  information  to be isclosed to

unauthorized  persons and that it will not, without the prior written consent of
the  affected  person,  disclose  or make use of such  confidential  information
except in connection with the  transactions  contemplated by this Plan of Merger
or as otherwise required by applicable law.

     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 parties shall be entitled to rely upon
such express  representations and warranties  irrespective of any investigations
made by such parties,  except to the extent that such  investigations  result in
actual  knowledge of the  inaccuracy or falsehood of particular  representations
and warranties.

Section 7. Covenants.

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

     7.2 Material  Transactions.  Prior to the Closing Date, SHC will not (other
than as  required  pursuant  to the terms of the Plan of Merger and the  related
documents), without first obtaining the written consent of HEALTHSOUTH:

     (a) Encumber any asset or enter into any  transaction  or make any contract
or commitment relating to the properties, assets and business of SHC, other than
in the ordinary course of business or as otherwise disclosed herein.

     (b) Enter into any employment  contract which is not terminable upon notice
of 30 days or less,  at will,  and  without  penalty to SHC  except as  provided
herein.

     (c) Except in connection  with the ongoing  construction  or development of
new surgery  centers as  disclosed  to  HEALTHSOUTH,  enter into any contract or
agreement  (i) which  cannot be performed  within three months or less,  or (ii)
which involves the expenditure of over $100,000.

     (d) Issue or sell,  or agree to issue or sell,  any shares of capital stock
or other securities of SHC, except upon exercise of currently  outstanding stock
options or warrants.

     (e) Except for  contributions  to the  Outpatient/Midwest  Retirement Plan,
make any  payment or  distribution  to the  trustee  under any  bonus,  pension,
profit-sharing  or  retirement  plan or incur  any  obligation  to make any such
payment  or  contribution  which is not in  accordance  with  SHC's  usual  past
practice,  or make any payment or contributions or incur any obligation pursuant
to or in respect of any other plan or  contract  or  arrangement  providing  for
bonuses,  executive incentive  compensation,  pensions,  deferred  compensation,
retirement  payments,  profit-sharing  or the like,  establish or enter into any
such plan, contract or arrangement, or terminate any Plan.

     (f) Extend  credit to anyone,  except in the  ordinary  course of  business
consistent with prior practices.

     (g) Guarantee the obligation of any person, firm or corporation,  except in
the ordinary course of business consistent with prior practices.

     (h) Amend its Certificate of Incorporation or Bylaws.

     (i) Take any action of a character described in Section 3.11(a) to 3.11(h),
inclusive.

     7.3 Meetings of Stockholders. (a) Each of HEALTHSOUTH and SHC will take all
steps   necessary  in  accordance   with  their   respective   Certificates   of
Incorporation  and Bylaws to call,  give notice of, convene and hold meetings of
their respective  stockholders as soon as practicable after the effectiveness of
the Registration  Statement (as defined in Section 7.4 hereof),  for the purpose
of  approving  this  Plan  of  Merger  and for  such  other  purposes  as may be
necessary.  Unless  this Plan of Merger  shall have been  alidly  terminated  as

provided herein, the Boards of Directors of HEALTHSOUTH and SHC (subject, in the
case of SHC, to the  provisions of Section  8.1(d) hereof) will (i) recommend to
their  respective  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 their
respective  reasonable,  good  faith  efforts to obtain  the  approval  by their
respective stockholders of this Plan of Merger and the transactions contemplated
hereby.

     (b) Nothing  contained  herein shall affect the right of  HEALTHSOUTH,  the
Subsidiary  and SHC to take action by written  consent in lieu of meeting to the
extent  permitted  by  applicable  law  and  their  respective  Certificates  of
Incorporation and Bylaws.

     7.4 Registration Statement. (a) HEALTHSOUTH shall prepare and file with the
Securities and Exchange  Commission and any other applicable  regulatory bodies,
as soon as reasonably  practicable,  a  Registration  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,  including Rule 145 thereunder.
Such Registration Statement shall contain a joint proxy statement of HEALTHSOUTH
and SHC containing the  information  required by the Securities  Exchange Act of
1934 (the "Proxy  Statement").  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.  HEALTHSOUTH
shall  use its  reasonable,  good  faith  efforts  to have the  Proxy  Statement
approved by the SEC under the provisions of the Securities Exchange Act of 1934.

     (b) 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.

     (c) 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.

     (d) SHC shall furnish all  information to  HEALTHSOUTH  with respect to SHC
and the SHC  Subsidiaries  and SHC  Partnerships  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. SHC shall take all reasonable steps
necessary  to  exempt  SHC and 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 SHC's Board
of Directors or otherwise.

     7.6 HSR Act  Compliance.  HEALTHSOUTH  and SHC 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
SHC 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 SHC 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 any such  public  tatement  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,  mutually acceptable to
HEALTHSOUTH  and SHC,  promptly  upon  execution  and  delivery  of this Plan of
Merger.

     7.8  Resignation  of SHC  Directors.  On or prior to the Closing Date,  SHC
shall  deliver  to  HEALTHSOUTH  evidence  satisfactory  to  HEALTHSOUTH  of the
resignation  of the Directors of SHC, such  resignations  to be effective on the
Closing Date.

     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  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  (except  to the
extent that a material adverse change with respect to the notifying party occurs
when the effect of such  change or  addition  is  aggregated  with the effect of
subsequently-disclosed changes or additions).

     7.10 No Solicitations. SHC may, directly or indirectly, furnish information
and access,  in response to unsolicited  requests  therefor,  to the same extent
permitted  by Section  6.1,  to any  corporation,  partnership,  person or other
entity or group,  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 to acquire SHC upon a
merger,  purchase  of  assets,  purchase  of or tender  offer for SHC  Shares or
similar transaction (an "Acquisition Transaction"), if the Board of Directors of
SHC  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.  Except as set forth  above,  SHC shall not,  and will direct each
officer, director, employee, representative and agent of SHC not to, directly or
indirectly,  encourage,  solicit,  participate  in or  initiate  discussions  or
negotiations  with or provide any information to any  corporation,  partnership,
person or other  entity or group  (other than  HEALTHSOUTH  or an  affiliate  or
associate or agent of HEALTHSOUTH)  concerning any merger,  sale of assets, sale
of or tender  offer for SHC Shares or similar  transactions  involving  SHC. SHC
shall promptly notify HEALTHSOUTH if it shall, on or after the date hereof, have
entered into a confidentiality agreement with any third party in response to any
unsolicited  request for  information  and access in connection  with a possible
Acquisition  Transaction  involving such party, such notification to include the
identity of such third party and the proposed terms of such possible Acquisition
Transaction.

     7.11 Other Actions.  Subject to the provisions of Section 7.10 hereof,  SHC
shall not knowingly or  intentionally  take any action that 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  adversely
affect the ability of SHC 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.

     7.12  Accounting  Methods.  Neither  HEALTHSOUTH  nor SHC shall  change 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 by
such parties' independent accountants.

     7.13 Pooling and Tax-Free Reorganization Treatment. Neither HEALTHSOUTH nor
SHC shall  intentionally  take or cause to be taken any  action,  whether  on or
before the Effective  Time,  which would  disqualify the Merger as a "pooling of
interests" for accounting  purposes or as a "reorganization"  within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended.

     7.14 Affiliate and Pooling  Agreements.  HEALTHSOUTH  and SHC will each use
their  respective  reasonable,  good  faith  efforts  to  cause  each  of  their
respective  Directors  and  executive  officers  and  each of  their  respective
"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  Appendix  7.14  relating  to the
disposition  of the SHC Shares 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 SHC shall together, or pursuant to an
allocation  of  responsibility  agreed to between them,  (i) cooperate  with one
another in  determining  whether  any  filings  required  to be made or consents
required to be  obtained  in any  jurisdiction  prior to the  Effective  Time in
connection with the  consummation of the  transactions  contemplated  hereby and
cooperate  in making any such filings  promptly and in seeking to obtain  timely
any such consents,  (ii) use their respective best 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 SHC shall use all 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 the Plan of Merger and to  consummate  the  transactions
contemplated hereby,  subject to the votes of its 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  and/or any other  public or private  third  party which is
required  to be  obtained  or made 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 SHC 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 SHC Stock Options and Warrants.  (a) As soon as reasonably practicable
after the Effective Time of the Merger, HEALTHSOUTH shall deliver to the holders
of SHC stock  options  and  warrants  appropriate  notices  setting  forth  such
holders'  rights  pursuant to the stock  option plans under which such SHC stock
options  were  issued and the stock  option  agreements  or  warrant  agreements
evidencing  such  options or  warrants,  which shall  continue in full force and
effect on the same terms and conditions (subject to the adjustments  required by
Sections  2.1(e) or this Section 7.16 after giving  effect to the Merger and the
assumption of such options and warrants 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 and the warrant
agreements as so 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 SHC stock options which  qualified as incentive  stock
options prior to the Effective  Time of the Merger shall  continue to qualify as
incentive stock options after the Effective Time of the Merger.

     (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 SHC stock options and warrants  assumed by  HEALTHSOUTH  in
accordance with Section 2.1(e).  At 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 SHC stock  options and shall use its
best  efforts to maintain  the  effectiveness  of a  registration  statement  or
registration  statements  covering such options (and maintain the current status
of the  prospectus or  prospectuses  contained  therein) for so long as such SHC
stock  options  remain  outstanding.  With  respect  to  those  individuals  who
subsequent  to the Merger will be subject to the  reporting  requirements  under
Section  16(a)  of  the  Exchange  Act,  where  applicable,   HEALTHSOUTH  shall
administer the plans assumed  pursuant to Section 2.1(e) 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  and vesting  with respect to the SHC
stock options awarded under any plan,  program,  or arrangement of SHC 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  Publication of Combined  Results.  HEALTHSOUTH  agrees that within 15
days after the end of the first calendar month  following at least 30 days after
the Closing Date, HEALTHSOUTH shall cause publication of the combined results of
operations of  HEALTHSOUTH  and SHC. For purposes of this Section 7.17, the term
"publication"  shall have the meaning provided in SEC Accounting  Series Release
No. 135.

     7.18 Employee Welfare.  HEALTHSOUTH agrees that following the Closing Date,
employees  of SHC shall be  entitled  to  receive  the same  customary  employee
benefits as HEALTHSOUTH  provides its employees.  In addition,  except for those
employees  identified  in Section  7.19  below,  if during the  one-year  period
following  the  Closing  Date,  any  employee  of SHC listed on Exhibit  7.18 is
terminated,  such  terminated  employee  shall receive a lump sum cash severance
payment in the amount of not less than three months' salary or wages.

     7.19 Retention Bonus Agreement;  Employment Agreement.  Between the date of
this Plan of Merger and the Closing Date,  HEALTHSOUTH and SHC shall, subject to
confirmation  by Ernst & Young  that such  agreements  do not  adversely  affect
pooling-of-interests accounting treatment, enter into (i) an Agreement with Rock
A. Morphis in the form of Exhibit 7.19.1 attached hereto; and (ii) an Employment
Agreement with H. Michael Finley in the form of Exhibit 7.19.2 attached  hereto.

Section 8. Termination, Amendment and Waiver.

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

     (a) by mutual written consent of HEALTHSOUTH, the Subsidiary and SHC;

     (b) by either HEALTHSOUTH or SHC:

     (i)  if,  upon a  vote  at a  duly  held  meeting  of  stockholders  or any
adjournment  thereof,  any required approval of the holders of SHC Shares or the
holders of HEALTHSOUTH Common Stock shall not have been obtained;

     (ii) if the Merger  shall not have been  consummated  on or before June 30,
1995, 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
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  entity
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 SHC gives notice of  termination  pursuant to
Section 7.9;

     (c)  by  either  HEALTHSOUTH  or  SHC  in the  event  that  (i)  all of the
conditions  to the  obligation  of such  party to effect the Merger set forth in
Section 9.1 shall have been  satisfied and (ii) any condition to the  obligation
of such party to effect  the  Merger  set forth in  Section  9.2 (in the case of
HEALTHSOUTH)  or  Section  9.3 (in the  case of  SHC) is not  capable  of  being
satisfied prior to the end of the period referred to in Section 8.1(b)(ii);

     (d) By SHC, if SHC'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 SHC Shares or shall have withdrawn such  recommendation
or (ii)  approved,  recommended  or endorsed  any  Acquisition  Transaction  (as
defined in Section 7.10) other than this Plan of Merger or (iii)  resolved to do
any of the foregoing;

     (e) By either  HEALTHSOUTH  or SHC, if the  condition  set forth in Section
9.1(g)(i) is not satisfied by March 1, 1995; or

     (f) By HEALTHSOUTH, if the holders of more than 10% of the SHC Shares shall
have given proper  written  demand for appraisal of the value of such SHC Shares
as provided in Section 262 of the DGCL before the taking of a vote on the Merger
at any meeting of the holders of SHC Shares called for that purpose.

     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, 8.6 and 8.7, 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 SHC Shares or holders of  HEALTHSOUTH  Common
Stock; provided,  however, that after any such approval,  there shall be made no
amendment that pursuant to Section 251(d) of the DGCL requires  further approval
by such  stockholders  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,  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 SHC,  action by its Board of Directors or the duly  authorized
designee of the Board of Directors.

     8.6 Expenses.  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  incurred in  connection  with
printing and mailing the Proxy Statement and the Registration Statement shall be
shared equally by SHC and HEALTHSOUTH.

     8.7 Certain Rights of HEALTHSOUTH.  If this Plan of Merger is terminated by
SHC pursuant to Section  8.1(d) and,  within six months after the effective date
of such termination,  SHC enters into an agreement with another person or entity
(a "Third  Party") with  respect to an  Acquisition  Transaction  (as defined in
Section 7.10 hereof),  SHC shall immediately  notify HEALTHSOUTH in writing that
an agreement has been entered into with respect to an  Acquisition  Transaction.
Each of  HEALTHSOUTH  and the Third Party shall then have not less than 48 hours
(the exact deadline to be set by SHC) from the time of receipt of written notice
by SHC to  submit  a final  and best  offer (a  "Final  Offer")  for a  business
combination  with SHC,  together  with a  fully-executed  definitive  agreement,
acceptable to SHC,  reflecting the terms of such Final Offer.  Not later than 48
hours after receipt of any Final Offer from HEALTHSOUTH and the Third Party (but
in no event  sooner  than  the  expiration  of the  deadline  set by SHC  unless

HEALTHSOUTH  has expressly  declined to submit a Final Offer),  SHC shall notify
the party  submitting  the most  favorable  Final Offer (as  determined by SHC's
Board of  Directors  after  consulting  with its  legal  counsel  and  financial
advisors)  and,  subject to the approval of SHC's Board of Directors,  SHC shall
enter  into a  definitive  agreement  with the party  which  submitted  the most
favorable Final Offer.  HEALTHSOUTH  agrees that any such  determination  of the
most  favorable  Final  Offer by SHC's  Board of  Directors  shall be final  and
binding,  and HEALTHSOUTH  agrees not to dispute any such  determination  in any
forum or jurisdiction; provided, however, that the foregoing covenant not to sue
of HEALTHSOUTH is expressly conditioned upon SHC's obtaining a like covenant not
to sue from the Third Party prior to SHC's  determination  of the most favorable
Final Offer.

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, the Subsidiary and SHC):

     (a) None of HEALTHSOUTH,  the Subsidiary or SHC nor any of their respective
subsidiaries  shall be subject to any order,  decree or injunction by a court of
competent  jurisdiction 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 SHC, the SHC Subsidiaries and the SHC Partnerships, 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  HEALTHSOUTH  Common Stock and the holders of SHC Shares
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 and shall have
been issued pursuant to an effective registration statement (which is subject to
no stop order) or in transactions  qualified or exempt from  registration  under
applicable  securities  or Blue Sky laws of such states and  territories  of the
United States as may be required.

     (g)  The  Merger  shall  qualify  for  "pooling  of  interests"  accounting
treatment,  and  HEALTHSOUTH  and SHC shall each have  received  letters to that
effect from Ernst & Young,  independent  accountants  for  HEALTHSOUTH  and SHC,
dated (i) not later  than  March 1,  1995,  (ii) the date of the  mailing of the
Proxy Statement and (iii) the Closing Date.

     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 SHC to be  performed  at or  prior  to the
Closing Date pursuant to the terms hereof shall have been duly  performed in all
material respects,  and SHC shall have performed,  in all material respects, all
of the acts  required to be  performed  by it at or prior to the Closing Date by
the terms hereof.

     (b) The  representations and warranties of SHC 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.  The  representations  and warranties of SHC set forth in Sections
3.1,  3.2,  3.6,  3.9,  3.17,  3.18 and 3.19  shall be true and  correct  in all
material  respects  as of the date of this Plan of Merger and as of the  Closing
Date as though  made on and as of the  Closing  Date,  except to the extent that
such  representations  and  warranties  expressly  relate to an earlier date (in
which case such  representations and warranties shall be true and correct in all
material  respects on and as of such  earlier  date).  The  representations  and
warranties  of SHC set forth in this Plan of Merger  (other than those set forth
in Section  3.11(a),  3.2, 3.6,  3.9,  3.17,  3.18 and 3.19),  shall be true and
correct  as of the date of this Plan of  Merger  and as of the  Closing  Date as
though  made on and as of the Closing  Date,  (i) except to the extent that such
representations  and  warranties  expressly  relate to an earlier date (in which
case such  representations and warranties shall be true and correct on and as of
such  earlier  date)  and  (ii)  except  for  breaches  of  representations  and
warranties  as to  matters  that do not have a material  adverse  effect on SHC.
HEALTHSOUTH  and the  Subsidiary  shall have been  furnished with a certificate,
executed by a duly authorized officer of SHC, 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  and the Subsidiary  shall have obtained,  or obtained the
transfer of, any licenses,  certificates of need and other regulatory  approvals
necessary  to allow the  Surviving  Corporation  to operate the SHC  facilities,
unless the failure to obtain such transfer or approval would not have a material
adverse effect on SHC.

     (d) HEALTHSOUTH shall have received an opinion from Haskell Slaughter Young
& Johnston,  Professional  Association,  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,  SHC and the
Subsidiary.

     9.3 Conditions to Obligations of SHC. The  obligations of SHC 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 SHC):

     (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,  and  HEALTHSOUTH and the
Subsidiary  shall have  performed,  in all  material  respects,  all of the acts
required to be  performed  by them at or prior to the Closing  Date by the terms
hereof.

     (b) The  representations and warranties of HEALTHSOUTH set forth in Section
5.11(i)  shall be true and  correct as of the date of this Plan of Merger and as
of the Closing Date. The representations and warranties of HEALTHSOUTH set forth
in  Sections  5.1,  5.2,  5.3,  5.12 and 5.13  shall be true and  correct in all
material  respects,  as of the date of this Plan of Merger and as of the Closing
Date as though  made on and as of the  Closing  Date,  except to the extent that
such  representations  and  warranties  expressly  relate to an earlier date (in
which case such  representations and warranties shall be true and correct in all
material  respects on and as of such  earlier  date).  The  representations  and
warranties of HEALTHSOUTH set forth in this Plan of Merger (other than those set
forth in  Sections  5.1,  5.2,  5.3,  5.11(i),  5.13 and 5.14) shall be true and
correct  as of the date of this Plan of  Merger  and as of the  Closing  Date as
though  made on and as of the  Closing  Date (i) except to the extent  that such
representations  and  warranties  expressly  relate to an earlier date (in which
case such  representations and warranties shall be true and correct on and as of
such  earlier  date),  and (ii)  except  for  breaches  of  representations  and
warranties  as to  matters  that  do  not  have a  material  adverse  effect  on
HEALTHSOUTH. SHC shall have been furnished with a certificate,  executed by duly
authorized  officers of HEALTHSOUTH and the Subsidiary,  dated the Closing Date,
certifying in such detail as SHC may reasonably request as to the fulfillment of
the foregoing conditions.


     (c) SHC shall have  received  an opinion  from  Alston & Bird 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, SHC and the Subsidiary.

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  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
Two Perimeter Park South
Birmingham, Alabama 35243
Attention: Michael D. Martin
Facsimile: (205) 969-4719

   with copies to:

   William W. Horton, Esq.
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Facsimile: (205) 969-4732
and
J. Brooke Johnston, Jr., Esq.
Haskell Slaughter Young & Johnston,
Professional Association
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
Facsimile: (205) 324-1133

   If to SHC:

   Surgical Health Corporation
990 Hammond Drive
Suite 300
Atlanta, Georgia 30328
Attention: Rock A. Morphis
Facsimile: (404) 673-1970

   with a copy to:

   J. Vaughan Curtis, Esq.
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Facsimile: (404) 881-7777

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.

     10.4  Indemnification.  HEALTHSOUTH and Subsidiary agree that all rights to
indemnification  for acts or omissions  occurring prior to the Effective Time of
the Merger now existing in favor of the current or former  directors or officers
of SHC and the SHC Subsidiaries as provided in their respective  certificates or
articles of  incorporation or bylaws shall survive the Merger and shall continue
in full force and effect in accordance with their terms.  The provisions of this
Section 10.4 are intended to be for the benefit of, and shall be enforceable by,
each  such  indemnified  party  and each  such  indemnified  party's  heirs  and
representatives.

     10.5 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.

     10.6  "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.

     10.7 "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 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.

     10.8 "Material  adverse  change" or "material  adverse  effect".  "Material
adverse change" or "material adverse effect" means, when used in connection with
SHC or  HEALTHSOUTH,  any change,  effect,  event or occurrence  that has, or is
reasonably likely to have,  individually or in the aggregate, a material adverse
impact on the business or financial  position of such party and its subsidiaries
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) changes in applicable law, and
(iii) any changes  resulting from any  restructuring or other similar charges or
write-offs taken by SHC with the consent of HEALTHSOUTH; provided, however, that
no such  changes  or  write-offs  will be taken if such would  adversely  affect
pooling-of-interests  accounting  treatment for the Merger.  Notwithstanding the
foregoing,  "material  adverse  change" or "material  adverse  effect" shall not
mean,  with respect to SHC, any  reclassification  of long-term  indebtedness to
short-term  indebtedness  solely  by  reason of SHC's  execution,  delivery  and
performance of its obligations under this Agreement.

     10.9  "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 10.10) regardless of the quantity
of any such material.

     10.10 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.

   10.11 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.

                                

     10.12 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.

     10.13 Entire  Agreement.  This instrument,  including all Exhibits attached
hereto,  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.

     10.14  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.

     10.15  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 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.

     10.16 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  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.

     IN WITNESS  WHEREOF,  HEALTHSOUTH,  the Subsidiary and SHC have caused this
Amended  and  Restated  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.

SURGICAL HEALTH CORPORATION
By
                                Rock A. Morphis
                     President and Chief Executive Officer

ATTEST:
                               H. Michael Finley
                                   Secretary

[ CORPORATE SEAL ]

                                26





HEALTHSOUTH Corporation
By
                               Richard M. Scrushy
                      Chariman of the Board, President and
                            Chief Executive Officer

ATTEST:
                               Anthony J. Tanner
                                   Secretary
[ CORPORATE SEAL ]

   
   ASC ATLANTA ACQUISITION
COMPANY, INC.
By
                               Richard M. Scrushy
                                   President

ATTEST:
                               Anthony J. Tanner
                                   Secretary
[ CORPORATE SEAL ]
    

                                27





   
                                                                   APPENDIX 7.14

Gentlemen:

     I have been  advised that I might be  considered  to be an  "affiliate"  of
Surgical  Health  Corporation  for  purposes  of Rule 145 under  the  Securities
Exchange Act of 1933, as amended (the "1993 Act"), and for purposes of generally
accepted  accounting  principles  as such term  relates to pooling of  interests
accounting  treatment for certain  business  combinations  or the Securities and
Exchange Commission's Staff Accounting Bulletin No. 65.

     HEALTHSOUTH Corporation  ("HEALTHSOUTH"),  ASC Atlanta Acquisition Company,
Inc.  and  Surgical  Health  Corporation  ("SHC")  have  entered into a Plan and
Agreement  of Merger  dated as of the 22nd day of  January,  1995 (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 SHC owned by me or as to which I may be
deemed a beneficial  owner.  I own _______  shares of common stock of SHC.  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 SHC 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,  SHC 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 SHC.

     B. The  shares of  common  stock of  HEALTHSOUTH  that I shall  receive  in
exchange for my shares of common stock of SHC 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,
SHC 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.

     E.  Notwithstanding  the foregoing  and any other  agreements on my part in
connection with the Pre-Merger  Stock and the Exchange Stock, I hereby agree (i)
that I will not sell or  otherwise  reduce  my risk  relative  to any  shares of
Pre-Merger Stock during the period of thirty days prior to the effective date of
Merger and (ii) that I will not sell or otherwise reduce my risk relative to any
shares of Exchange Stock until financial  results  covering at least thirty days
of combined  operations have been published  following the effective date of the
Merger so as to ensure that the Merger  qualified as a pooling of interests  for
accounting purposes.

     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 paragraph E above,  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 Shareholder]