SECURED SUPER-PRIORITY DEBTOR IN POSSESSION REVOLVING CREDIT AGREEMENT,
dated as of  February 3, 2000,  among  INTEGRATED  HEALTH  SERVICES,  INC.  (the
"Borrower"),  a Delaware  corporation,  as debtor and debtor in possession under
chapter 11 of the  Bankruptcy  Code (as defined  below),  the  Subsidiaries  (as
defined below) of the Borrower  identified on Schedule II hereto, as debtors and
debtors in  possession  under  chapter 11 of the  Bankruptcy  Code (the  "FILING
SUBSIDIARIES"), the Lenders (as defined below), and CITICORP USA, INC. ("CUSA"),
as collateral monitoring agent and administrative agent for the Lenders (in such
capacity, the "AGENT").

                              W I T N E S S E T H:

         WHEREAS, on February 2, 2000 (the "PETITION DATE") the Borrower and the
Filing  Subsidiaries each filed a voluntary  petition for relief  (collectively,
the "CASES")  under  chapter 11 of the  Bankruptcy  Code with the United  States
Bankruptcy Court for the District of Delaware (the "BANKRUPTCY COURT"); and

         WHEREAS,  the Borrower and the Filing  Subsidiaries  are  continuing to
operate their respective  businesses and manage their  respective  properties as
debtors in possession under sections 1107 and 1108 of the Bankruptcy Code; and

         WHEREAS,  the  Borrower  has  requested  that the Agent and the Lenders
provide  a  secured,   super-priority   revolving   credit  facility  of  up  to
$300,000,000 in order to fund the continued  operation of the Borrower's and the
Filing  Subsidiaries'  businesses as debtors and debtors in possession under the
Bankruptcy Code; and

         WHEREAS,   the  Agent  and  the   Lenders  are  willing  to  make  such
postpetition loans and other extensions of credit to the Borrower upon the terms
and conditions set forth herein; and

         WHEREAS,  each of the Filing  Subsidiaries  has agreed to guaranty  the
obligations  of the Borrower  hereunder  and each of the Borrower and the Filing
Subsidiaries  has agreed to secure its  obligations to the Agent and the Lenders
hereunder  with,  inter alia,  security  interests  in, and liens on, all of its
property  and assets,  whether  real or personal,  tangible or  intangible,  now
existing or hereafter arising, all as more fully provided herein.

         NOW,  THEREFORE,  in consideration of the mutual  agreements  contained
herein and subject to the  satisfaction of the conditions set forth herein,  the
parties hereto hereby agree as follows:

                                   ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

         SECTION 1.01. Certain Defined Terms. As used in this Agreement:

         "ACCOMMODATION  OBLIGATION" means, as applied to any Person, any direct
or indirect guaranty, endorsement or other liability of that Person with respect
to any Debt, lease, dividend, letter of credit or other obligation (the "PRIMARY
OBLIGATION") of another Person (the "PRIMARY OBLIGOR"), including any obligation
of that  Person,  whether or not  contingent,  (i) to  purchase,  repurchase  or
otherwise  acquire any such  primary  obligation  or any  property  constituting
direct or indirect  security  therefor,  or (ii) to advance or provide funds (A)
for the payment or discharge of any such primary obligation,  or (B) to maintain
working  capital  or equity  capital of the  primary  obligor  or  otherwise  to
maintain the net worth or solvency or any balance sheet item, level of income or
financial  condition  of the primary  obligor,  or (iii) to  purchase  property,
securities  or services  primarily  for the purpose of assuring the owner of any

<PAGE>

such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the holder
of any such primary  obligation  against loss in respect thereof.  The amount of
any  Accommodation  Obligation  shall be  deemed  to be an  amount  equal to the
maximum stated or  determinable  amount of the primary  obligation in respect of
which  such   Accommodation   Obligation  is  made  or,  if  not  stated  or  if
indeterminable,  the maximum reasonably estimated potential liability in respect
thereof.

         "ACCOUNT"  means,   with  respect  to  any  Loan  Party,  any  and  all
"accounts,"  as such term is defined in Section  9-106 of the UCC,  now owned or
hereafter acquired by such Loan Party.

         "ACCOUNT DEBTOR" is defined in Section 9-105(1)(a) of the UCC.

         "ADJUSTED EBITDA" means, with respect to any Person for any period, the
sum of (i) Cash Flow from  Operations  of such Person for such period;  (ii) all
charges for taxes counted in  determining  the  consolidated  net income of such
Person for such period; and (iii) Restructuring Charges for such period.

         "ADVANCE" means a Revolving Credit Advance or a Swing Line Advance.

         "AFFILIATE" of a specified  Person means any other Person that directly
or indirectly through one or more intermediaries  controls,  is controlled by or
is under common control with the Person specified. For this purpose,  "control,"
"controlled  by" and "under common control with" with respect to any Person mean
the  possession,  directly  or  indirectly,  of the power to direct or cause the
direction of the  management  and policies of such Person,  whether  through the
ownership of voting securities or by contract or otherwise.

         "AGENT" is defined in the preamble to this  Agreement  and includes and
any successor Agent appointed pursuant to Section 10.06.

         "AGREEMENT"  means this  Secured  Super-Priority  Debtor In  Possession
Revolving Credit Agreement.

         "APPLICABLE  LENDING OFFICE" means,  with respect to each Lender,  such
Lender's  Domestic  Lending  Office in the case of a Base Rate  Advance and such
Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

         "ARRANGER"  means  Salomon  Smith Barney Inc.,  in its capacity as sole
book runner and lead arranger for the Facility.

         "ASSET  SALE"  means the sale,  transfer  or other  disposition  of any
asset,  business or property of the Borrower or any of its Subsidiaries,  or the
issuance or sale of any capital  stock of or other  equity,  ownership or profit
interest in any Subsidiary of the Borrower  (except a dividend on any such stock
or interest  declared and payable  solely in additional  shares of such stock or
interest), to any Person other than the Borrower or a Filing Subsidiary.

         "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance  entered
into by a Lender and an Eligible Assignee,  in substantially the form of Exhibit
E-2, and accepted by the Agent,  or such other form of assignment and acceptance
agreement acceptable from time to time to the Agent.

         "AUTHORIZED  OFFICER" means the principal financial officer,  the chief
accounting  officer,  the  controller,  the treasurer or the executive or senior
vice president-finance of the Borrower.



                                       2
<PAGE>

         "AVAILABILITY RESERVE" means, as of two Business Days after the date of
written notice of any  determination  thereof to the Borrower by the Agent, such
amounts as the Agent or the  Requisite  Lenders may from time to time  establish
against the  Available  Credit,  in the Agent's or the  Requisite  Lenders',  as
applicable,  sole  discretion  exercised  reasonably,  in  order  either  (a) to
preserve  the value of the  Collateral  or the Agent's Lien  thereon,  or (b) to
provide  for  the  payment  of  unanticipated  liabilities  (including,  without
limitation,  liabilities  related to cash  management  services  and  agreements
related thereto) of the Borrower or its  Subsidiaries  arising after the Closing
Date.

         "AVAILABLE  CREDIT"  means,  at any time,  an  amount  equal to (a) the
Maximum Credit at such time minus (b) the Outstanding  Revolving  Credit at such
time.

         "BANKRUPTCY  CODE" means title 11,  United States Code, as amended from
time to time, as applicable to the Cases.

         "BANKRUPTCY  COURT" is defined in the  recitals  to this  Agreement  or
shall mean any other court having competent jurisdiction over the Cases.

         "BASE RATE" means,  for any period,  a  fluctuating  interest  rate per
annum as shall be in effect  from time to time,  which  rate per annum  shall be
equal at all times to the highest of:

                  (a) the rate of interest announced publicly by Citibank in New
         York, New York, from time to time, as Citibank's base rate;

                  (b) the sum  (adjusted to the nearest 0.25% or, if there is no
         nearest  0.25%,  to the next  higher  0.25%) of (i) 0.5% per annum plus
         (ii) the rate per annum obtained by dividing (A) the latest  three-week
         moving average of secondary market morning offering rates in the United
         States for  three-month  certificates of deposit of major United States
         money market banks,  such  three-week  moving average being  determined
         weekly on each Monday  (or,  if any such day is not a Business  Day, on
         the next succeeding  Business Day) for the three-week  period ending on
         the previous  Friday by Citibank on the basis of such rates reported by
         certificate of deposit  dealers to and published by the Federal Reserve
         Bank of New  York  or,  if  such  publication  shall  be  suspended  or
         terminated,  on the basis of  quotations  for such  rates  received  by
         Citibank  from  three  New  York  certificate  of  deposit  dealers  of
         recognized standing selected by Citibank,  by (B) a percentage equal to
         100% minus the average of the daily  percentages  specified during such
         three-week  period by the Federal  Reserve  Board for  determining  the
         maximum reserve requirement  (including any emergency,  supplemental or
         other  marginal  reserve   requirement)  for  Citibank  in  respect  of
         liabilities  consisting  of  or  including  (among  other  liabilities)
         three-month U.S. dollar nonpersonal time deposits in the United States,
         plus (iii) the  average  during such  three-week  period of the maximum
         annual  assessment rates estimated by Citibank for determining the then
         current annual  assessment  payable by Citibank to the Federal  Deposit
         Insurance  Corporation  (or any successor) for insuring Dollar deposits
         in the United States; and

                  (c) the sum of (i) 0.5% per annum plus (ii) the Federal  Funds
         Rate.

         "BASE RATE ADVANCE"  means an Advance which bears interest by reference
to the Base Rate as provided in Section 2.07(a).

         "BASE RATE MARGIN" means 2.0% per annum.

         "BLOCKED  ACCOUNT  LETTER" means any "Blocked  Account  Letter" entered
into  among  any  Loan  Party,  a  Collection  Account  Bank and the  Agent,  in
substantially the form of Exhibit C (with such


                                       3
<PAGE>

changes thereto acceptable to the Borrower and the Agent), which provides, inter
alia,  the Agent with the right upon the occurrence of an Event of Default or in
the event that the  Available  Credit is less than  $50,000,000,  to require any
Collection  Account  Bank  to  wire  all  amounts  received  in  the  applicable
Collection Account to the Citibank Concentration Account on a daily basis.

         "BORROWER" is defined in the preamble to this Agreement.

         "BORROWING  BASE"  means  (i)  the  sum of  (A)  up to 85% of  Eligible
Accounts  (other  than  Eligible   Medicaid   Accounts)   (calculated   (without
duplication)  net of all  finance  charges,  late fees and other  fees which are
unearned,  sales,  excise or similar taxes, and credits or allowances granted at
such  time),  (B) the lesser of (x)  $40,000,000  and (y) up to 85% of  Eligible
Medicaid Accounts (calculated (without  duplication) net of all finance charges,
late fees and other fees which are unearned, sales, excise or similar taxes, and
credits or allowances  granted at such time),  (C) the lesser of (x) $25,000,000
and (y) up to 40% of the orderly  liquidation value of Eligible Real Property as
set forth in the appraisal delivered pursuant to clause (d) of the definition of
Eligible  Real  Property,  (D)  up to  100%  of  cash  and  up to  95%  of  Cash
Equivalents,  in each case on deposit or held in the Citibank Collateral Account
(other  than  deposits  held  pending  application  thereof to  Eurodollar  Rate
Advances in accordance with Sections  2.11(b)(ii) or (iii)) and (E) (x) Adjusted
EBITDA of RoTech and its  Subsidiaries  for the most  recently  ended two fiscal
quarter period for which  financial  statements have been delivered to the Agent
pursuant  to  Section  6.01(c)(ii)  or Section  6.01  (c)(iii),  as  applicable,
multiplied  by two minus (y) the amount of  Eligible  Accounts  attributable  to
RoTech  in  clause  (A)  above and the  amount  of  Eligible  Medicaid  Accounts
attributable to RoTech in clause (B) above;  provided,  however,  subject to the
following  proviso,  that the amount in this clause (E) shall in no event exceed
(1) for the first ninety (90) days after the Closing Date, $150,000,000, (2) for
the next ninety (90) days immediately following the first ninety (90) days after
the Closing  Date,  $125,000,000  and (3)  thereafter,  $100,000,000;  provided,
further,  that  the  amount  in  this  clause  (E)  shall  in  no  event  exceed
$100,000,000  from and after the effective  date, if any, of the Medicare Setoff
Arrangement,  minus (ii) any Eligibility  Reserves in effect with respect to the
Eligible  Accounts  included  in  clause  (A) above  and any  Eligible  Medicaid
Accounts included in clause (B) above.

         "BORROWING  BASE  CERTIFICATE"  means a certificate  to be executed and
delivered  from time to time by the Borrower to the Agent in the form of Exhibit
B-5.

         "BORROWING DATE" means the Closing Date or any subsequent  Business Day
on which a Revolving Credit Advance is requested from the Lenders.

         "BREAKAGE COSTS" is defined in Section 2.12.

         "BUSINESS  DAY" means any day except a Saturday or Sunday or a day when
commercial banks are authorized or required by law to be closed in New York, New
York and, where used in reference to any Eurodollar  Rate Advance,  means such a
day on which dealings are carried on in the London interbank market.

         "BUSINESS  PLAN"  means  a  business  plan  of  the  Borrower  and  its
Subsidiaries  to be  delivered  to the Agent on or before July 31,  2000,  which
shall  contain  forecasted  expenditures,  revenues,  net  income and cash flow,
prepared by the management of the Borrower, and covering the twelve-month period
immediately following the first twelve months after the Closing Date.

         "CALENDAR  WEEK" means a period of seven days  commencing on any Monday
and ending on the following Sunday.



                                       4
<PAGE>

         "CAPITAL  EXPENDITURES" means expenditures for Hard Costs, whether paid
in cash or accrued as liabilities, made by the Borrower or any Subsidiary of the
Borrower.

         "CAPITAL  LEASE"  means,  with respect to any Person,  any lease of any
property by that Person as lessee which, in accordance with GAAP, is required to
be accounted for as a capital lease on the balance sheet of that Person.

         "CARVE-OUT"  means claims of the  following  parties for the  following
amounts:  (i) the unpaid fees of the U.S. Trustee or the Clerk of the Bankruptcy
Court  pursuant  to 28 U.S.C.  Section  1930(a) and (ii) the  aggregate  allowed
unpaid fees and expenses  payable under  sections 330 and 331 of the  Bankruptcy
Code to  professional  persons  retained  pursuant to an order of the Bankruptcy
Court by the Borrower,  the Guarantors or any Committee not to exceed $7,500,000
in the aggregate; provided, however, that the Carve-Out shall not include, apply
to or be available for any fees or expenses incurred by any party, including the
Borrower, the Guarantors or any Committee,  in connection with the investigation
(including  discovery  proceedings),  initiation or  prosecution  of any claims,
causes of action, adversary proceedings or other litigation against the Agent or
the Lenders,  including,  without limitation,  challenging the amount, validity,
perfection, priority or enforceability of or asserting any defense, counterclaim
or offset to, the Obligations or the security interests and Liens of the Secured
Parties in  respect  thereof;  provided,  further,  however,  that so long as no
Potential  Default or Event of Default shall occur and be  continuing,  the Loan
Parties shall be permitted to pay  compensation  and  reimbursement  of expenses
allowed and payable under  sections 330 and 331 of the  Bankruptcy  Code, as the
same may be due and payable, and the same shall not reduce the Carve-Out.

         "CASES" is defined in the recitals to this Agreement.

         "CASH  EQUIVALENTS"  means (a) securities issued or fully guaranteed or
insured by the United States government or any agency thereof,  (b) certificates
of deposit,  eurodollar  time  deposits,  overnight  bank  deposits and bankers'
acceptances  of any  commercial  bank  organized  under  the laws of the  United
States,  any state thereof,  the District of Columbia,  any foreign bank, or its
branches or agencies (fully protected against currency  fluctuations)  which, at
the time of  acquisition,  are rated at least  "A-1" by S&P or "P-1" by Moody's,
and (c)  commercial  paper of an issuer  rated at least "A-1" by S&P or "P-1" by
Moody's,  and (d) shares of any money  market  fund that (i) has at least 95% of
its assets  invested  continuously  in the types of  investments  referred to in
clauses (a) through (c) above, (ii) has net assets of not less than $500,000,000
and (iii) is rated at least "A-1" by S&P or "P-1" by Moody's; provided, however,
that the  maturities  of all  obligations  of the type  specified in clauses (a)
through (c) above shall not exceed 180 days.

         "CASH FLOW FROM OPERATIONS"  means, with respect to any Person, and for
any  period,  the sum,  determined  as of the last day of such  period  for such
Person and its  subsidiaries  on a consolidated  basis,  of (i) net income after
taxes minus any extraordinary gain and any non-recurring gain on any divestiture
plus any extraordinary loss and any non-recurring loss on any divestiture,  (ii)
depreciation,  amortization,  and other noncash charges  deducted in determining
net income and (iii) Interest  Expense,  all determined in accordance with GAAP;
provided,  however, that (A) income attributable to any other Person or business
that is not at least 100% owned, directly or indirectly, by such Person shall be
counted,  in determining net income,  only to the extent such income is received
in cash by such Person or a Subsidiary  of such Person in such period and is not
reinvested  in such other  Person or business  (other than as a loan  payable on
demand) within six months thereafter,  except that, with respect to the Borrower
only,  income  from  minority  Investments  existing  on the  Closing  Date  and
described in Schedule  6.02(c) of this Agreement  shall be counted in accordance
with  the  Borrower's  past  practice  and (B) no  adjustments  shall be made to
reflect minority interests in Subsidiaries.



                                       5
<PAGE>

         "CHATTEL  PAPER"  means,  with  respect to any Loan Party,  any and all
"chattel paper", as such term is defined in Section  9-105(1)(b) of the UCC, now
owned or hereafter acquired by such Loan Party.

         "CITIBANK" means Citibank, N.A., a national banking association.

         "CITIBANK  COLLATERAL ACCOUNT" means a general interest bearing deposit
account  established  at and  maintained  by Citibank in the name of and for the
benefit of the Agent on behalf of the Lenders and under the  exclusive  dominion
and control of the Agent  (subject to the provisions of Section  6.01(h)),  into
which Collateral in the form of cash shall be deposited.

         "CITIBANK  CONCENTRATION  ACCOUNT"  means  a  general  deposit  account
established  at and maintained by Citibank in the name of and for the benefit of
the Agent on behalf of the Lenders and under the exclusive  dominion and control
of the Agent (subject to the provisions of Section 2.11(b)(iii)).

         "CLAIM" has the meaning  ascribed to such term in section 101(5) of the
Bankruptcy Code.

         "CLOSING DATE" means the date on which all of the conditions  precedent
set forth in Section  3.01 are  satisfied  or waived in writing by the  Lenders;
provided,  that such date shall be no later  than  March 31,  2000 or such later
date as the Agent and the Borrower shall mutually agree.

         "CODE"  means the  Internal  Revenue  Code of 1986 and the  regulations
thereunder.

         "CO-DOCUMENTATION   AGENTS"  means,   collectively,   Foothill  Capital
Corporation and Goldman Sachs Credit Partners, L.P..

         "COLLATERAL" is defined in Section 9.01.

         "COLLECTION  ACCOUNT  BANK" means First Union  National  Bank,  Bank of
America, N.A., and SunTrust National Bank.

         "COLLECTION ACCOUNTS" means, collectively, each cash collection account
of the Borrower held at Bank of America,  First Union National Bank and SunTrust
Bank,  which  collection  accounts  shall each be governed by a Blocked  Account
Letter.

         "COMMITMENT" means, with respect to each Lender, the
commitment of such Lender to make  Advances  and/or to issue or  participate  in
Letters of Credit  issued on behalf of the Borrower in the  aggregate  principal
amount  outstanding  not to exceed the amount set forth  opposite  such Lender's
name on Schedule I under the caption  "Commitment,"  as amended to reflect  each
Assignment  and  Acceptance  executed  by such  Lender and as such amount may be
reduced or modified pursuant to this Agreement;  provided,  however, the maximum
principal  amount of the  Commitments  of all the  Lenders  shall not exceed (x)
$270,000,000  prior to the Entry  Date and (y)  $300,000,000  from and after the
Entry Date.

         "COMMITMENT FEE RATE" means 0.375% per annum.

         "COMMITTEE"  means  the  official  statutory   committee  of  unsecured
creditors  appointed  in the Cases  pursuant to section  1102 of the  Bankruptcy
Code.

         "CONTAMINANT"   means  any   material,   substance  or  waste  that  is
classified,  regulated or otherwise characterized under any Environmental Law as
hazardous, toxic, a contaminant or a pollutant


                                       6
<PAGE>

or by other  words of  similar  meaning  or  regulatory  effect,  including  any
petroleum or petroleum-derived  substance or waste, asbestos and polychlorinated
biphenyls.

         "CONSTITUENT  DOCUMENTS"  means,  with  respect to any Person,  (i) the
articles/certificate   of  incorporation   (or  the  equivalent   organizational
documents)  of such  Person,  (ii)  the  by-laws  (or the  equivalent  governing
documents)  of such Person and (iii) any  document  setting  forth the manner of
election and duties of the directors or managing members of such Person (if any)
and the designation,  amount and/or relative rights, limitations and preferences
of any class or series of such Person's Stock.

         "CONTRACTS"  means,  with  respect  to any  Loan  Party,  any  and  all
"contracts," as such term is defined in Section  1-201(11) of the UCC, now owned
or hereafter acquired by such Loan Party.

         "CONTRACTUAL  OBLIGATION" means, as to any Person, any provision of any
security  issued  by  such  Person  or of any  agreement,  instrument  or  other
undertaking  to  which  such  Person  is a party  or by  which  it or any of its
material property is bound.

         "CUSA" is defined in the preamble to this Agreement.

         "DEBT,"  as applied  to any  Person  and in each case  determined  on a
consolidated basis in conformity with GAAP, means (without  duplication) (i) all
indebtedness  for  borrowed  money  (whether  by  loan or the  issuance  of debt
securities or otherwise);  (ii) all obligations issued, undertaken or assumed as
the deferred purchase price of property or services or interest thereon,  except
accounts  and  accrued  expenses  currently  payable;  (iii)  all  reimbursement
obligations  with  respect  to  surety  bonds,   letters  of  credit,   bankers'
acceptances  and  similar  instruments,  whether  or not  contingent;  (iv)  all
monetary obligations under any Capital Lease; (v) all obligations (contingent or
otherwise)  to purchase,  retire or redeem any capital stock or any other equity
interest  of  such  Person;  (vi)  all  monetary  obligations  measured  by,  or
determined on the basis of, the value of any capital  stock of such Person;  and
(vii)  all  obligations,  whether  or not such  obligations  constitute  Debt as
defined in clauses (i) through  (vi) above,  secured by (or for which the holder
of the obligation has an existing right,  contingent or otherwise, to be secured
by) any Lien upon any property of such Person or any  Subsidiary of such Person,
except  any such  obligation  secured  by a Lien that is  imposed by law and not
voluntarily granted.

         "DEPOSITARY BANK" means each bank or financial institution at which any
Loan Party maintains any depositary account and which is listed on Schedule 1.01
hereto.

         "DOCUMENT"  means,  with  respect  to  any  Loan  Party,  any  and  all
"documents,"  as such term is  defined in Section  9-105(1)(f)  of the UCC,  now
owned or hereafter acquired by such Loan Party.

         "DOLLARS" and "$" mean United  States  dollars or such coin or currency
of the United  States of America as at the time of payment shall be legal tender
for the payment of public and private debts in the United States of America.

         "DOMESTIC LENDING OFFICE" means, with respect to any Lender, the office
of such Lender  specified as its "Domestic  Lending Office" opposite its name on
Schedule  I hereto  or in the  Assignment  and  Acceptance  by which it became a
Lender or such other  office of such Lender as such Lender may from time to time
specify to the Borrower and the Agent.

         "EFFECTIVE DATE" means the date upon which a plan of  reorganization in
any of the Cases becomes effective.



                                       7
<PAGE>

         "ELIGIBILITY  RESERVES" means,  effective as of two Business Days after
the date of written notice of any  determination  thereof to the Borrower by the
Agent, such amounts as the Agent or the Requisite Lenders, in the Agent's or the
Requisite Lenders',  as applicable,  sole discretion exercised  reasonably,  may
from time to time  establish  against the gross amounts of Eligible  Accounts to
reflect risks or  contingencies  arising after the Closing Date which may affect
such  Accounts  and which  have not  already  been  taken  into  account  in the
determination for eligibility or the calculation of the Borrowing Base.

         "ELIGIBLE  ACCOUNTS"  means,  in respect of any Loan  Party,  the gross
outstanding balance of those Accounts of such Loan Party arising out of sales of
goods or the rendition of Medical  Services in the ordinary  course of business,
made by such  Loan  Party to a Person  which is not an  Affiliate  of such  Loan
Party,  which  constitute  Collateral  in which the Agent has a fully  perfected
first priority Lien; provided,  however, that an Account shall in no event be an
Eligible Account if:

                  (a) such  Account  is more  than 120  days  past the  original
         invoice date, thereof; or

                  (b) any warranty contained in this Agreement or any other Loan
         Document with respect to such specific  Account is not true and correct
         with respect to such Account; or

                  (c) the Account Debtor on such Account has disputed  liability
         or made any  claim  with  respect  to any other  Account  due from such
         Account  Debtor  to such  Loan  Party  but only to the  extent  of such
         dispute or claim; or

                  (d) the  Account  Debtor  on such  Account  has:  (i)  filed a
         petition for bankruptcy or any other relief under the  Bankruptcy  Code
         or any other law relating to bankruptcy, insolvency,  reorganization or
         relief  of  debtors;  (ii)  made  an  assignment  for  the  benefit  of
         creditors; (iii) had filed against it any petition or other application
         for relief under the  Bankruptcy  Code or any such other law;  (iv) has
         failed,  suspended  business  operations,  become  insolvent,  called a
         meeting of its  creditors  for the purpose of obtaining  any  financial
         concession  or  accommodation;  or (v) had or  suffered a receiver or a
         trustee to be appointed for all or a significant  portion of its assets
         or affairs; or

                  (e)  the  Account  Debtor  on  such  Account  or  any  of  its
         Affiliates  is also a supplier to or creditor of such Loan Party unless
         such supplier or creditor has executed a no-offset letter  satisfactory
         to the Agent, in its sole discretion; or

                  (f) the sale  represented  by such  Account  is to an  Account
         Debtor located outside the United States,  unless the sale is on letter
         of credit or  acceptance  terms  acceptable  to the Agent,  in its sole
         judgment; or

                  (g) the sale to such  Account  Debtor on such  Account is on a
         bill-on-hold,  guaranteed sale,  sale-and-return,  sale-on-approval  or
         consignment basis; or

                  (h) such  Account  is subject to a Lien in favor of any Person
         other than the Agent for the benefit of the Secured Parties; or

                  (i) with respect to Accounts  (other than Medicare  Accounts),
         such  Account  is  subject  to  any  deduction,  offset,  counterclaim,
         recoupment,  return  privilege or other  conditions  (other than volume
         sales  discounts  given in the  ordinary  course of such  Loan  Party's
         business); or



                                       8
<PAGE>

                  (j) the  Account  Debtor on such  Account  is  located  in New
         Jersey  or  Minnesota,  unless  such  Loan  Party  (A) has  received  a
         certificate of authority to do business and is in good standing in such
         state or (B) has filed a Notice of Business  Activities Report with the
         appropriate office or agency of such state for the current year; or

                  (k) the Account  Debtor on such Account (other than a Medicaid
         Account or a Medicare Account) is a Governmental Authority,  unless the
         applicable  Loan  Party has  assigned  its  rights to  payment  of such
         Account to the Agent  pursuant to the Assignment of Claims Act of 1940,
         as  amended,  in the  case of a  federal  Governmental  Authority,  and
         pursuant  to  applicable  law,  if  any,  in  the  case  of  any  other
         Governmental  Authority,  and such  assignment  has been  accepted  and
         acknowledged by the appropriate government officers; or

                  (l) the Agent,  in  accordance  with its  customary  criteria,
         determines,  in its sole  discretion  exercised  reasonably,  that such
         Account may not be paid or otherwise is ineligible; or

                  (m) with respect to Accounts (other than Medicare Accounts and
         Medicaid  Accounts),  50% or more of the  outstanding  Accounts  of any
         Account Debtor have become,  or have been  determined by the Agent,  in
         its  sole  discretion  exercised  reasonably,  in  accordance  with the
         provisions hereof, to be, ineligible; or

                  (n) the sale  represented  by such Account is denominated in a
         currency other than Dollars; or

                  (o) such  Account  is not  evidenced  by an  invoice  or other
         writing  in  form  acceptable  to the  Agent,  in its  sole  discretion
         exercised reasonably; or

                  (p) such Loan Party,  in order to be entitled to collect  such
         Account,  is required to perform any additional service for, or perform
         or incur any  additional  obligation to, the Person to whom or to which
         it was made; or

                  (q) the total  Accounts  (other  than  Medicare  Accounts  and
         Medicaid Accounts) of such Account Debtor to the Loan Parties represent
         more than 20% of the Eligible Accounts individually or in the aggregate
         as to the Loan  Parties  at such  time,  but only to the extent of such
         excess; or

                  (r) in the  case of  Medicaid  Accounts,  the  total  Medicaid
         Accounts owing by Governmental  Authorities of any individual  State to
         the Loan  Parties  represent  more  than 10% of the  Eligible  Medicaid
         Accounts  individually  or in the  aggregate  as to the Loan Parties at
         such time, but only to the extent of such excess; or

                  (s) in the  case of  Medicare  Accounts,  (i)  the  applicable
         Governmental Authority is not bound by a Medicare Setoff Arrangement or
         (ii) the  applicable  Governmental  Authority  is  bound by a  Medicare
         Setoff  Arrangement,  but such Medicare  Account remains subject to any
         deduction, offset, counterclaim,  recoupment, return privilege or other
         conditions  (other than volume  sales  discounts  given in the ordinary
         course of such Loan Party's  business),  notwithstanding  the fact that
         such applicable Governmental Authority is bound by such Medicare Setoff
         Arrangement; or

                  (t) such Account is a Private Payor Account.

         "ELIGIBLE  ASSIGNEE"  means (i) a commercial  bank organized  under the
laws of the  United  States,  or any  State  thereof,  and,  in the  case of any
assignment by a Lender of its Revolving Credit


                                       9
<PAGE>

Advances  and related  Commitments  hereunder,  having total assets in excess of
$5,000,000,000;  (ii) a savings and loan  association  or savings bank organized
under the laws of the United States, or any State thereof having total assets in
excess of  $3,000,000,000;  (iii) a commercial  bank organized under the laws of
any other country which is a member of the OECD, or a political  subdivision  of
any such country having total assets in excess of  $5,000,000,000,  if such bank
is acting  through a branch or agency  located  in the United  States;  (iv) the
central  bank of any  country  which  is a member  of the  OECD;  (v) a  finance
company,  insurance  company or other financial  institution  that is engaged in
making,  purchasing or otherwise  investing in commercial  loans in the ordinary
course of its business having total assets in excess of  $1,000,000,000;  (vi) a
fund that is engaged in making,  purchasing or otherwise investing in commercial
loans in the ordinary  course of its  business  having total assets in excess of
$200,000,000;  (vii) any existing  Lender and any  Affiliates or Related Fund of
such existing Lender;  and (viii) any other Person approved by the Agent, the LC
Bank and, except during the  continuance of any Event of Default,  the Borrower,
which  approval  in each case shall not be  unreasonably  withheld  or  delayed;
provided,  however,  that no  Person  who is a  non-resident  alien or a foreign
entity for United  States income tax purposes  (except a commercial  bank of the
type described in clause (iii) above),  may be an Eligible  Assignee unless each
Note to be  acquired by such  Person is  reissued  in  registered  form prior to
transfer.

         "ELIGIBLE MEDICAID ACCOUNTS" means Medicaid Accounts that are otherwise
Eligible Accounts except for clause (i) of the definition of Eligible Accounts.

         "ELIGIBLE  REAL  PROPERTY"  means,  in respect of any Loan  Party,  any
parcel of owned  Real  Property  in the  United  States of such Loan Party as to
which each of the following conditions has been satisfied at such time:

                  (a) a first  priority  Lien on such  parcel  of Real  Property
         shall  have  been  granted  by such  Loan  Party in favor of the  Agent
         pursuant to this  Agreement  and the Orders and (ii) such Lien shall be
         in full force and effect in favor of the Agent at such time;

                  (b) except as otherwise  permitted by the Agent, the Agent and
         the title  insurance  company  issuing the policy referred to in clause
         (c) of this definition shall have received maps or plats of an as-built
         survey of such parcel of Real Property  certified to the Agent and such
         title insurance  company in a manner  reasonably  satisfactory to them,
         dated a date  reasonably  satisfactory  to the  Agent  and  such  title
         insurance  company,  by  an  independent   professional  licensed  land
         surveyor reasonably  satisfactory to the Agent and such title insurance
         company,  which  maps or plats and the  surveys on which they are based
         shall be made in form and substance satisfactory to the Agent;

                  (c) the Agent shall have received in respect of such parcel of
         Real Property (i) a mortgagee's title policy (or policies) or marked-up
         unconditional binder (or binders) for such insurance (or other evidence
         acceptable to the Agent proving ownership thereof)  ("MORTGAGEE'S TITLE
         INSURANCE  POLICY") dated a date reasonably  satisfactory to the Agent,
         and such  policy  shall (A) be in an amount not less than the  Mortgage
         Value (as of the Closing Date) of such parcel of Real Property,  (B) be
         issued at ordinary rates,  (C) insure that the Lien granted pursuant to
         this  Agreement and the Orders  insured  thereby  creates a valid first
         Lien on such parcel of Real  Property free and clear of all defects and
         encumbrances, except such as may be approved by the Agent and Permitted
         Liens, (D) name the Agent for the benefit of the Lenders as the insured
         thereunder,  (E) be in the  form of ALTA  Loan  Policy  - 1992 (or such
         local equivalent  thereof as is reasonably  satisfactory to the Agent),
         (F) contain a comprehensive  lender's  endorsement and (G) be issued by
         Chicago  Title  Insurance  Company,   First  American  Title  Insurance
         Company, Lawyers Title Insurance Corporation or any other title company
         reasonably   satisfactory  to  the  Agent  (including  any  such  title
         companies   acting  as  co-insurers  or   reinsurers),   (ii)  evidence


                                       10
<PAGE>

         satisfactory  to it that all  premiums in respect of each such  policy,
         all  recording  fees and stamp,  documentary,  intangible  or  mortgage
         taxes, if any, in connection with the Mortgage have been paid and (iii)
         a copy of all documents  referred to, or listed as exceptions to title,
         in such title policy (or policies);

                  (d) the Agent shall have received an appraisal with respect to
         such parcel of Real Property that is  reasonably  satisfactory  in form
         and substance to the Agent and the  Requisite  Lenders and performed by
         an appraiser that is satisfactory to the Agent;

                  (e) if requested by the Agent, the Agent shall have received a
         Phase I  environmental  report  with  respect  to such  parcel  of Real
         Property,  dated a date not more  than  one year  prior to the  Closing
         Date,  showing no material condition of environmental  concern,  and in
         form reasonably satisfactory to the Agent; and

                  (f)  no  casualty  shall  have  occurred  affecting  the  use,
         operation or value of such parcel of Real Property if such casualty has
         not been restored or repaired by the Loan Party granting a Lien on such
         parcel of Real Property;

                  (g) no  condemnation  or taking by eminent  domain  shall have
         occurred nor shall any notice of any pending or threatened condemnation
         or other  proceeding  against  such parcel of Real  Property  have been
         delivered to the owner or lessee of such parcel of Real Property  which
         would materially affect the use, operation or value of such;

                  (h) the Loan  Party  granting  a Lien on such  parcel  of Real
         Property  shall  (i)  make  such  representations  and  warranties  and
         covenants as are reasonably required by the Agent, (ii) in all material
         respects  comply  with  all  Requirements  of Law  of any  Governmental
         Authority  applicable  to such parcel of Real Property or to the use or
         occupancy thereof,  and (iii) pay and discharge all taxes of every kind
         and nature, all assessments,  all water and sewer rents and charges and
         all other charges which may become a lien on the Real Property; and

                  (i) if requested by the Agent, the Agent shall have received a
         Mortgage duly executed by such Loan Party  covering such parcel of Real
         Property.

         "ENTRY DATE" means the date of the entry of the Final Order.

         "ENVIRONMENTAL CLAIMS" means any and all administrative,  regulatory or
judicial claims, demands, directives, proceedings, orders, decrees and judgments
relating in any way to any Environmental Law or any Environmental Permit.

         "ENVIRONMENTAL LAWS" means all federal, state and local laws (including
common law), statutes, rules, regulations, ordinances and codes, and any binding
judicial or  administrative  interpretation  thereof or requirement  thereunder,
including any judicial or administrative  order, by any Governmental  Authority,
relating  to  the  regulation  or  protection  of  human  health,   safety,  the
environment and natural resources.

         "ENVIRONMENTAL  LIABILITIES  AND  COSTS"  means,  with  respect  to any
Person,  all  liabilities,  obligations,  responsibilities,   Remedial  Actions,
losses, damages, punitive damages,  consequential damages, treble damages, costs
and expenses (including all fees, disbursements and expenses of counsel, experts
and consultants and costs of  investigation  and  feasibility  studies),  fines,
penalties, sanctions and interest incurred as a result of any claim or demand by
any other Person, whether based in contract,  tort, implied or express warranty,
strict liability, criminal or civil statute, including any thereof arising under


                                       11
<PAGE>

any  Environmental  Law,  Permit,  order  or  agreement  with  any  Governmental
Authority or other Person,  which relate to any environmental,  health or safety
condition or a Release or threatened Release,  and result from the past, present
or future  operations of, or ownership of property by, such Person or any of its
Subsidiaries.

         "ENVIRONMENTAL  PERMIT"  means  any  license,  permit,   authorization,
registration or approval issued or required under any Environmental Law.

         "EQUIPMENT"  means,  with  respect  to any  Loan  Party,  any  and  all
"equipment,"  as such term is defined in Section  9-109(2) of the UCC, now owned
or hereafter acquired by such Loan Party.

         "ERISA" means the Employee Retirement Income Security Act of 1974.

         "ERISA  AFFILIATE"  means any entity which is (or at any relevant  time
was) a member of a group under "common  control" or treated as a single employer
with the Borrower pursuant to Section 414(b), (c) or (m) of the Code.

         "ERISA EVENT" means (i) any of the events set forth in Section  4043(b)
of ERISA or the regulations  thereunder,  with respect to a Pension Plan; (ii) a
withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial  employer
(as  defined  in Section  4001(a)(2)  of  ERISA);  (iii) a  complete  or partial
withdrawal by the Borrower or any ERISA  Affiliate  from a  Multiemployer  Plan;
(iv) the  filing of a notice of intent to  terminate,  the  treatment  of a plan
amendment  as a  termination  under  Section  4041  or  4041A  of  ERISA  or the
commencement  of  proceedings  by the  PBGC  to  terminate  a  Pension  Plan  or
Multiemployer  Plan subject to Title IV of ERISA; (v) a failure to make required
contributions  to a Pension Plan or  Multiemployer  Plan; (vi) the imposition of
any  liability  under Title VI of ERISA,  other than PBGC  premiums  due but not
delinquent  under  Section  4007  of  ERISA,  upon  the  Borrower  or any  ERISA
Affiliate;  (vii) an  application  for a funding  waiver or an  extension of any
amortization  period  pursuant  to Section  412 of the Code with  respect to any
Pension  Plan;  (viii) the  Borrower or ERISA  Affiliate  engages in a nonexempt
prohibited  transaction or otherwise  becomes liable with respect to a nonexempt
prohibited transaction, the consequences of which, in the aggregate,  constitute
or could reasonably be expected to result in a Material Adverse Change;  or (ix)
a violation of the applicable requirements of Section 404 or 405 of ERISA or the
exclusive  benefit rule under Section  401(a) of the Code by the Borrower or any
ERISA  Affiliate  with respect to any Pension Plan for which the Borrower or any
of its Subsidiaries may be liable,  the consequences of which, in the aggregate,
constitute  or could  reasonably  be  expected  to result in a Material  Adverse
Change.

         "EUROCURRENCY  LIABILITIES"  has the  meaning  assigned to that term in
Regulation  D of the Board of  Governors of the Federal  Reserve  System,  as in
effect from time to time.

         "EURODOLLAR  LENDING  OFFICE"  means,  with respect to any Lender,  the
office of such Lender specified as its "Eurodollar  Lending Office" opposite its
name on Schedule I hereto or in the Assignment and Acceptance by which it became
a Lender (or, if no such office is specified,  its Domestic  Lending  Office) or
such other office of such Lender as such Lender may from time to time specify to
the Borrower and the Agent as its Eurodollar Lending Office.

         "EURODOLLAR  RATE" means,  for any Interest  Period for each Eurodollar
Rate Advance  comprising part of the same Revolving Credit Advance,  an interest
rate per  annum  equal to the  displayed  rate at 11:00  AM  (London  time)  two
Business Days before the first day of such Interest Period on Telerate page 3750
(or such other page as may  replace  such page on the  Telerate  Service for the
purpose of  displaying  interest  rates in the  London  interbank  markets)  for
deposits in Dollars in an amount


                                       12
<PAGE>

substantially  equal to such Revolving  Credit Advance and for a period equal to
such Interest  Period,  to the extent that such interest rate is  unavailable on
the Telerate  Service,  the  Eurodollar  Rate for any  Interest  Period for each
Eurodollar  Rate Advance  comprising  part of the same Revolving  Credit Advance
shall be an  interest  rate  per  annum  equal  to the  rate per  annum at which
deposits in Dollars are offered by the principal office of Citibank in London to
prime banks in the interbank  market for Dollar  deposits at 11:00 a.m.  (London
time) two  Business  Days  before  the first day of such  Interest  Period in an
amount substantially equal to Citibank's Eurodollar Rate Advance comprising part
of such Revolving  Credit Advance (or, if Citibank is not a Lender,  10% of such
Revolving Credit Advance) and for a period equal to such Interest Period.

         "EURODOLLAR  RATE  ADVANCE"  means an Advance  which bears  interest by
reference to the Eurodollar Rate as provided in Section 2.07(b).

         "EURODOLLAR RATE MARGIN" means 3.0% per annum.

         "EURODOLLAR  RATE RESERVE  PERCENTAGE" of any Lender for any day in the
Interest  Period for any  Eurodollar  Rate Advance means the reserve  percentage
applicable for such day under regulations  issued from time to time by the Board
of Governors of the Federal  Reserve System (or any  successor) for  determining
the maximum reserve requirement (including any emergency,  supplemental or other
marginal  reserve  requirement)  for such Lender with respect to  liabilities or
assets consisting of or including  Eurocurrency  liabilities having a term equal
to such Interest Period.

         "EVENTS OF DEFAULT" has the meaning provided in Section 7.01.

         "FACILITY" means, collectively,  the Interim Facility and the Permanent
Facility.

         "FACILITY AMOUNT" means, (a) on any date of determination  prior to the
Entry Date,  (i) the lesser of (A) the aggregate  amount of the  Commitments  in
effect at such time and (B)  $100,000,000  minus  (ii) all  Facility  Reductions
which are then effective and (b) on any date of determination from and after the
Entry Date, (i) the aggregate  amount of the  Commitments in effect at such time
minus (ii) all Facility Reductions which are then effective.

         "FACILITY REDUCTION" means each temporary or permanent reduction of the
Facility,  whether  voluntarily made or scheduled to be made pursuant to Section
2.05 or required to be made pursuant to Section 2.06,  Section 7.01 or any other
provision of this Agreement or otherwise  becoming  effective in accordance with
this Agreement.

         "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the  weighted  average of the
rates on  overnight  Federal  funds  transactions  with  members of the  Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next  preceding  Business Day) by the
Federal  Reserve Bank of New York,  or, if such rate is not so published for any
day which is a Business Day, the average of the  quotations for such day on such
transactions received by Citibank from three Federal funds brokers of recognized
standing selected by it.

         "FEE LETTERS" is defined in Section 2.04(e).

         "FILING SUBSIDIARY" is defined in the preamble to this Agreement.

         "FINAL  ORDER"  means an  order of the  Bankruptcy  Court  pursuant  to
section 364 of the Bankruptcy  Code,  approving this  Agreement,  the other Loan
Documents and authorizing the incurrence


                                       13
<PAGE>

by the Loan Parties of permanent  post-petition  secured and super-priority Debt
in accordance with this Agreement,  and as to which no stay has been entered and
which has not been reversed,  modified,  vacated or overturned,  and which is in
form and substance satisfactory to the Agent and the Requisite Lenders.

         "FIRST DAY ORDERS" means all orders entered by the Bankruptcy  Court on
the Petition  Date or within five Business Days of the Petition Date or based on
motions filed on the Petition Date.

         "FISCAL YEAR" means the twelve-month period ending on December 31.

         "FUNDED LC EXPOSURE" means the aggregate  principal  amount,  as of any
date of  determination,  of all payments that were made by the LC Bank under any
Letter of Credit  but have not been  reimbursed  to the LC Bank by the  Borrower
pursuant  to Section  2.02(c) or  converted  into  Advances  pursuant to Section
2.02(e).

         "GAAP" means generally accepted accounting  principles set forth in the
opinions and pronouncements of the Accounting  Principles Board and the American
Institute of Certified Public  Accountants and statements and  pronouncements of
the Financial  Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting  profession),  or in such
other statements by such entity as may be in general use by significant segments
of the U.S.  accounting  profession,  which  are  applicable  to the  facts  and
circumstances on the date of determination.

         "GENERAL INTANGIBLE" means, with respect to any Loan Party, any and all
"general  intangibles," as such term is defined in Section 9-106 of the UCC, now
owned or hereafter acquired by such Loan Party.

         "GOVERNMENTAL   AUTHORITY"  means  any  nation,  state,   sovereign  or
government,   any  political  subdivision  thereof  and  any  entity  exercising
executive,  legislative,  judicial, regulatory or administrative functions of or
pertaining to government.

         "GUARANTOR" means each Filing Subsidiary.

         "GUARANTY"  means the guaranty of the  Obligations of the Borrower made
by the Guarantors pursuant to Article VIII of this Agreement.

         "HARD  COSTS"  means  the  direct  costs  of  building,   improving  or
maintaining  any Health Care Facility or other  property used by the Borrower or
any of its  Subsidiaries  (including  the  cost of land,  construction,  bricks,
mortar,  painting and related building maintenance,  carpeting,  roof repair and
replacement,   parking  lot  replacement  and  maintenance,   landscaping,  HVAC
equipment and sprinkler systems and other items generally  considered hard costs
under construction  industry practice but not including the purchase price of an
existing  Health Care  Facility or any  allocated  overhead  and  administrative
expenses  and other items  generally  considered  soft costs under  construction
industry  practice)  and the  purchase  price of any  fixed,  movable  or mobile
equipment located on or used in connection with any such Health Care Facility or
otherwise used in conducting  business if such equipment is or is required to be
reflected as property,  plant and equipment on the consolidated balance sheet of
the Borrower and its Subsidiaries.

         "HEALTH  CARE  COMPANY"  means a Person  that is  principally  engaged,
directly or  indirectly  through its  Subsidiaries,  in the  business of owning,
operating  or managing  Health  Care  Facilities  or  healthcare  operations  or
providing healthcare services.



                                       14
<PAGE>

         "HEALTH CARE  FACILITY"  means a facility which provides any healthcare
services  at such  facility,  whether  licensed as a skilled  nursing  facility,
intermediate care facility, personal care facility or a hospital.

         "HEALTH  CARE  PERMIT"   means  every   accreditation,   authorization,
certificate of need,  license or permit that is required  pursuant to applicable
federal or state law to own, lease,  operate or manage a Health Care Facility or
conduct the business of a Health Care Company.

         "HEDGING  CONTRACT"  means any interest rate swap  agreement,  currency
swap agreement,  commodities  swap agreement,  equity option or put arrangement,
cap,  floor or collar  agreement,  insurance  relating  to the  respective  risk
protection or other similar  agreement or  arrangement  designed to provide such
risk protection entered into by the Borrower and the Agent or any Lender.

         "INDEMNIFIED LIABILITIES" is defined in Section 11.06(a).

         "INDEMNIFIED PERSON" is defined in Section 11.06(a).

         "INITIAL  PROJECTIONS"  means the  Projections  dated November 29, 1999
delivered to the Agent prior to January 13, 2000.

         "INSTRUMENT"  means,  with  respect  to any  Loan  Party,  any  and all
"instruments,"  as such term is defined in Section  9-105(1)(i)  of the UCC, now
owned or  hereafter  acquired  by such Loan Party  other than  instruments  that
constitute, or are a part of a group of writings that constitute, Chattel Paper.

         "INSURER"  means a Person that insures a Patient against certain of the
costs incurred in the receipt by such Patient of Medical  Services,  or that has
an agreement  with any Loan Party to  compensate  such Loan Party for  providing
services to a Patient.

         "INTEREST  EXPENSE" means,  with respect to any Person,  for any period
for such Person and its subsidiaries on a consolidated  basis,  interest expense
net of interest income, determined in conformity with GAAP.

         "INTEREST  PERIOD" means,  for each Eurodollar Rate Advance  comprising
part of the same Revolving  Credit Advance the period  commencing on the date of
such Advance or the date of the  conversion  of any Advance into such an Advance
and ending on the last day of the period  selected by the  Borrower  pursuant to
the provisions below and,  thereafter,  each subsequent period commencing on the
last day of the immediately preceding Interest Period and ending on the last day
of the period  selected by the Borrower  pursuant to the provisions  below.  The
duration  of each such  Interest  Period  shall be 1, 2, 3 or 6  months,  as the
Borrower  may select by notice  received  by the Agent not later than 11:00 a.m.
(New York City time) three Business Days prior to the first day of such Interest
Period; provided, however, that:

                  (a) the Borrower may not select any Interest Period in respect
         of any Revolving Credit Advance which ends after the Maturity Date;

                  (b) the Borrower may not select any Interest Period which ends
         after  any  date  on  which  any  payment  on the  respective  Advances
         (including  any payment of Revolving  Credit  Advances which may result
         from a Facility  Reduction) is due unless,  after giving effect to such
         selection,  the aggregate  unpaid  principal amount of Revolving Credit
         Advances, having Interest Periods which end on or prior to such date is
         at least equal to the  principal  amount of Advances due and payable on
         and prior to such date;



                                       15
<PAGE>

                  (c) Interest Periods  commencing on the same date for Advances
         comprising  part of the same  Revolving  Credit Advance shall be of the
         same duration;

                  (d)  whenever  the  last  day of  any  Interest  Period  would
         otherwise  occur on a day that is not a Business  Day,  the last day of
         such Interest Period shall be extended to the next succeeding  Business
         Day,  except  that if such  extension  would cause the last day of such
         Interest Period to occur in the next following calendar month, the last
         day of such Interest  Period shall be the next preceding  Business Day;
         and

                  (e) the  Borrower  may not have  more  than  six (6)  Interest
         Periods in effect at any one time.

         "INTERIM FACILITY" means that portion of the Facility made available to
the Borrower  prior to the entry of the Final Order,  as approved by the Interim
Order.

         "INTERIM ORDER" means that certain order issued by the Bankruptcy Court
in  substantially  the form of Exhibit E-3 and  otherwise in form and  substance
satisfactory to the Agent.

         "INVENTORY"  means,  with  respect  to any  Loan  Party,  any  and  all
"inventory,"  as such term is defined in Section  9-109(4) of the UCC, now owned
or hereafter acquired by such Loan Party, and wherever located.

         "INVESTMENT" means (i) the acquisition of any interest in any property,
assets or business from any Person,  whether by sale,  lease or otherwise,  (ii)
the  funding  of  any  loan,  extension  of  credit,  accommodation  or  capital
contribution  to or for the benefit of any Person,  and (iii) the acquisition of
any debt or equity  securities  of or claim  against or  interest in any Person,
whether upon original issuance, by purchase or otherwise.

         "INVESTMENT  PROPERTY"  means,  with respect to any Loan Party, any and
all "investment  property" as such term is defined in Section 9-115(l)(f) of the
UCC, now owned or hereafter acquired by such Loan Party and wherever located.

         "LC  APPLICATION"  means an  application  for a  Letter  of  Credit  in
substantially  the form of Exhibit B-3, setting forth the information  described
therein and such other  information as the LC Bank may reasonably  request,  and
signed by an Authorized Officer.

         "LC BANK" means Citibank.

         "LC EXPOSURE"  means the sum, as of any date of  determination,  of the
Unfunded LC Exposure and the Funded LC Exposure.

         "LC FEE RATE" means, for any day, the then Eurodollar Rate Margin minus
0.25% per annum.

         "LC  SUBCOMMITMENT"  means the lesser, as of any date of determination,
of (i) $50,000,000 and (ii) the Facility Amount.

         "LEASE EXPENSE" means,  with respect to any Person,  for any period for
such  Person and its  subsidiaries  on a  consolidated  basis,  lease and rental
expense accrued during such period under all leases and rental agreements, other
than Capital Leases and leases of personal property,  of Health Care Facilities,
determined in conformity with GAAP.



                                       16
<PAGE>

         "LENDER" means each  financial  institution or other entity that (a) is
listed on the  signature  pages  hereof as a  "Lender"  or (b) from time to time
becomes a party hereto by execution of an Assignment and Acceptance.

         "LETTER OF CREDIT"  means a letter of credit that (i) is available  for
funding in Dollars until an expiry date no later than the  thirtieth  (30th) day
preceding the Termination Date, (ii) is issued by the LC Bank at the request and
for the account of the Borrower or of any other Loan Party;  provided  that such
other Loan Party  shall be a  co-applicant,  along  with the  Borrower,  on such
letter of credit,  (iii) is governed by the Uniform  Customs and  Practices  for
Documentary   Credits  (1993  Revision),   International   Chamber  of  Commerce
Publication  500, except as otherwise  agreed by the LC Bank, (iv) has a term of
one year or less, and (v) is in form reasonably satisfactory to the LC Bank.

         "LIEN"  means  any  mortgage,  deed of  trust,  lien,  pledge,  charge,
security interest, hypothecation, assignment, deposit arrangement or encumbrance
of any kind in respect of any asset, whether or not filed, recorded or otherwise
perfected or effective under applicable law, as well as the interest of a vendor
or lessor under any  conditional  sale  agreement,  capital or finance  lease or
other title retention agreement relating to such asset.

         "LOAN DOCUMENTS"  means this Agreement,  the Notes, the Blocked Account
Letters,  the Letters of Credit,  each LC  Application,  the Fee Letters and all
other  guaranties and other  agreements,  instruments and written indicia of the
Obligations delivered to the Agent or any Lender by or on behalf of the Borrower
or any other Loan  Party  pursuant  to or in  connection  with the  transactions
contemplated hereby and thereby.

         "LOAN PARTIES" means the Borrower and each Guarantor.

         "MATERIAL  ADVERSE  CHANGE" means any materially  adverse change in (i)
the business,  condition  (financial  or  otherwise),  operations,  performance,
properties or prospects of the Borrower and the other Loan  Parties,  taken as a
whole,  (ii) the  ability  of the  Loan  Parties  to  perform  their  respective
obligations  under the Loan  Documents or (iii) the ability of the Agent and the
Lenders to enforce the Loan Documents.

         "MATERIAL   ENVIRONMENTAL   CLAIM"  means  any   Environmental   Claim,
regardless of merit,  which does or can  reasonably be expected to (i) result in
the Borrower or any of its Subsidiaries  expending in the aggregate an amount in
excess of $2,500,000 to defend  against,  settle or satisfy,  or (ii) prevent or
enjoin the  Borrower  or any of its  Subsidiaries  from  operating a Health Care
Facility on any property on which it conducts operations.

         "MATERIAL  LEASE"  means any  lease  agreement  in which the  aggregate
annual rental payments due thereunder exceed $2,500,000.

         "MATURITY DATE" means the second anniversary of the Closing Date.

         "MAXIMUM  CREDIT" means at any time, (i) the lesser of (A) the Facility
Amount in effect at such time and (B) the Borrowing Base at such time minus (ii)
any Availability Reserve in effect at such time.

         "MEDICAID  ACCOUNTS" means all Accounts for which the Account Debtor is
(A) any State acting pursuant to a health plan adopted  pursuant to Title XIX of
the Social Security Act or (B) any agent, carrier, administrator or intermediary
for such State in connection with any such plan.



                                       17
<PAGE>

         "MEDICAL SERVICES" means medical and health care services provided to a
Patient,  including,  but not  limited  to,  medical  and health  care  services
provided to a Patient and  performed by or on behalf of any Loan Party which are
covered by a policy of insurance  issued by an Insurer,  and includes  physician
services,  nurse and therapist  services,  dental services,  hospital  services,
skilled  nursing  facility  services,  comprehensive  outpatient  rehabilitation
services,  home health care services,  residential  and  out-patient  behavioral
healthcare  services,  and medicine or health care  equipment  provided by or on
behalf of any Loan Party to a Patient  for a valid and proper  medical or health
purpose.

         "MEDICARE  ACCOUNTS" means all Accounts for which the Account Debtor is
(A) the United States acting under the Medicare program established  pursuant to
the Social Security Act or (B) any agent, carrier, administrator or intermediary
for the United States in connection with any such program.

         "MEDICARE  SETOFF  ARRANGEMENT"  means  (i) an  agreement  between  the
Borrower and the applicable  federal  Governmental  Authorities that are Account
Debtors on all Medicare Accounts, which agreement shall have been approved by an
order of the Bankruptcy Court or (ii) a final,  Non-Stayed Order binding on such
federal  Governmental  Authorities,  in each case covering  issues of setoff and
recoupment  with  respect  to  Medicare  Accounts  and in each case on terms and
conditions acceptable to the Agent and the Requisite Lenders.

         "MOODY'S" means Moody's Investors Service, Inc., and its successors.

         "MORTGAGE"  means a  mortgage,  deed of  trust  or  other  real  estate
security  document  encumbering Real Property of any Loan Party made or required
herein to be made by such Loan Party.

         "MORTGAGE  VALUE"  means,  with respect to any parcel of Eligible  Real
Property,  the lesser of (a) the maximum  stated  amount  secured by the Lien on
such parcel of Eligible Real Property  granted in favor of the Agent pursuant to
the relevant Mortgage and (b) the value of such parcel of Eligible Real Property
set forth in the appraisal delivered with respect thereto.

         "MORTGAGEE'S  TITLE INSURANCE  POLICY" has the meaning specified in the
definition of Eligible Real Property.

         "MULTIEMPLOYER  PLAN"  means any  "multiemployer  plan," as  defined in
Section  4001(a)(3)  of  ERISA,  as to which  the  Borrower  or any of its ERISA
Affiliates has any obligation or liability (contingent or otherwise).

         "1934  ACT"  means  the  Securities   Exchange  Act  of  1934  and  the
regulations thereunder.

         "NET CASH PROCEEDS" means (a) proceeds received by any Loan Party after
the Closing  Date in cash or Cash  Equivalents  from any Asset Sale,  other than
Asset Sales permitted under clauses (i) and (ii) of Section 6.02(b),  net of (x)
the reasonable cash costs of sale,  assignment or other  disposition,  (y) taxes
paid  or  payable  as a  result  thereof  and  (z) any  amount  required  by the
Bankruptcy  Court to be paid or  prepaid  on Debt  secured  by a  perfected  and
unavoidable  lien on the assets subject to such Asset Sale;  provided,  however,
that the  evidence of each of (x), (y) and (z) are provided to the Agent in form
and  substance  satisfactory  to it;  (b) all money and other  Cash  Equivalents
obtained as a result of any claims  against third parties or any legal action or
proceeding  with respect to any of the  Collateral;  and (c) proceeds of fire or
other  insurance  on  account  of the loss of or  damage  to any such  assets or
property,  and payments of compensation for any such assets or property taken by
condemnation or eminent domain.



                                       18
<PAGE>

         "NON-STAYED  ORDER" means an order of the Bankruptcy  Court which is in
full force and  effect,  as to which no stay has been  entered and which has not
been reversed, modified, vacated or overturned.

         "NOTES" means the revolving notes of the Borrower which may be required
to be delivered  pursuant to Section 6.01(m) and all promissory  notes and other
evidence of  indebtedness  at any time  delivered by the Borrower in exchange or
substitution therefor or in replacement thereof or as additional evidence of the
Borrower's indebtedness for the Advances.

         "NOTICE  OF  BORROWING"  means a notice  in  substantially  the form of
Exhibit B-l.

         "NOTICE OF CONTINUANCE/CONVERSION"  means a notice in substantially the
form of Exhibit B-2.

         "NOTICE OF SWING LINE ADVANCE" means a notice in substantially the form
of Exhibit B-4.

         "OBLIGATIONS"  means all  present  and future  Debts,  obligations  and
liabilities  of every type and  description  of the  Borrower  or any other Loan
Party at any time arising under or in connection with this Agreement,  any other
Loan Document, cash management services or any agreement related thereto, or any
Hedging  Contract,  due or to become due to the Agent,  any  Lender,  any Person
required to be indemnified under any Loan Document or any other Person and shall
include (i) all liability  for  principal of and interest on any Advances,  (ii)
all liability for principal of and interest on any reimbursement  owed to the LC
Bank for a payment made by it under a Letter of Credit,  and (iii) all liability
under the Loan Documents, such cash management agreements and Hedging Agreements
for any additional interest, fees, taxes,  compensation,  costs, losses, expense
reimbursements and indemnification.

         "OECD" means the Organization for Economic Cooperation and Development.

         "ORDERS" means the Interim Order or the Final Order, as applicable.

         "OTHER  AGENTS"  means,  collectively,  the  Syndication  Agent and the
Co-Documentation Agents.

         "OTHER TAXES" is defined in Section 2.16(b).

         "OUTSTANDING  REVOLVING  CREDIT"  means  the  sum,  as of any  date  of
determination, of (i) the aggregate outstanding principal amount of the Advances
and (ii) the LC Exposure.

         "PATIENT"  means any Person  receiving  Medical  Services from any Loan
Party and all  Persons  legally  liable to pay any Loan  Party for such  Medical
Services other than Insurers.

         "PBGC" means the Pension  Benefit  Guaranty  Corporation  or any entity
succeeding to any of its functions under ERISA.

         "PENSION PLAN" means any pension plan (other than a Multiemployer Plan)
as to which the Borrower or any of its ERISA  Affiliates  has any  obligation or
liability (contingent or otherwise) and which is subject to Title IV of ERISA or
Section 412 of the Code.

         "PERMANENT  FACILITY" means the Facility made available to the Borrower
from and after the entry of the Final Order.



                                       19
<PAGE>

         "PERMIT" means any permit, approval,  authorization,  license, variance
or  permission  required  from a  Governmental  Authority  under  an  applicable
Requirement of Law.

         "PERMITTED LIENS" means Liens permitted under Section 6.02(a).

         "PERMITTED  PREPETITION  CLAIM  PAYMENT"  means a payment (as  adequate
protection  or  otherwise)  on  account  of any Claim  arising or deemed to have
arisen  prior to the  commencement  of the Cases,  which is made (i) pursuant to
authority  granted by a Non-Stayed  Order of the Bankruptcy  Court and (ii) when
aggregated with all such payments does not exceed $200,000,000;  provided,  that
no such payment shall be made after the occurrence and during the continuance of
a Potential Default or an Event of Default.

         "PERSON"  means  an  individual,   partnership,   corporation,  limited
liability company,  business trust, joint stock company,  trust,  unincorporated
association,  joint  venture or other  entity,  or a government or any political
subdivision or agency thereof.

         "PETITION DATE" is defined in the recitals to this Agreement.

         "POTENTIAL  DEFAULT" means any event or condition  described in Section
7.01 which, with any notice or passage of time (or both) expressly  described in
Section 7.01, would constitute an Event of Default.

         "PRIVATE  PAYOR  ACCOUNT" means an Account or any portion of an Account
that  is  payable  by  an  individual   beneficiary,   recipient  or  subscriber
individually  and not  directly  to a Loan  Party by  Medicaid,  Medicare  or an
Insurer.

         "PROCEEDS"  means any and all  "proceeds,"  as such term is  defined in
Section 9-306 of the UCC.

         "PROJECTIONS"  means the  Borrower's  projections  to be delivered in a
form consistent with the Initial Projections.

         "PRO RATA  SHARE"  means,  in respect  of any  Lender,  the  percentage
obtained  by dividing  (a) the  Commitment  of such Lender by (b) the  aggregate
Commitments  of all Lenders  (or, at any time after the  Termination  Date,  the
percentage obtained by dividing the aggregate  outstanding  principal balance of
the  Outstanding  Revolving  Credit  owing  to  such  Lender  by  the  aggregate
outstanding  principal balance of the Outstanding  Revolving Credit owing to all
Lenders).

         "QUARTER"  means,  with respect to any Person, a fiscal quarter of such
Person.

         "REAL PROPERTY" means all of those plots, pieces or parcels of land now
owned,  leased or hereafter  acquired or leased by any Loan Party (the  "LAND"),
together with the right,  title and interest of such Loan Party,  if any, in and
to the  streets,  the land lying in the bed of any  streets,  roads or  avenues,
opened or proposed, in front of, the air space and development rights pertaining
to the Land and the  right to use such air  space and  development  rights,  all
rights of way, privileges, liberties, tenements, hereditaments and appurtenances
belonging or in any way appertaining thereto, all fixtures, all easements now or
hereafter  benefiting the Land and all royalties and rights  appertaining to the
use and enjoyment of the Land,  including all alley, vault,  drainage,  mineral,
water,  oil and  gas  rights,  together  with  all of the  buildings  and  other
improvements now or hereafter erected on the Land, and any fixtures  appurtenant
thereto.



                                       20
<PAGE>

         "REGISTER" is defined in Section 11.07(c).

         "RELATED  FUND"  means,  with respect to any Lender that is a fund that
invests  in loans,  any other  fund that  invests in loans and is managed by the
same  investment  advisor as such Lender or by an Affiliate  of such  investment
advisor.

         "RELEASE"  means,  with  respect to any  Person,  any  release,  spill,
emission, leaking, pumping, injection, deposit, disposal, discharge,  dispersal,
leaching  or  migration,  in each case,  of any  Contaminant  into the indoor or
outdoor  environment  or  into or out of any  property  owned  by  such  Person,
including  the movement of  Contaminants  through or in the air,  soil,  surface
water, ground water or property.

         "REMEDIAL  ACTION" means all actions  required to (a) clean up, remove,
treat or in any other way  address  any  Contaminant  in the  indoor or  outdoor
environment,  (b)  prevent  the  Release or threat of Release  or  minimize  the
further  Release so that a Contaminant  does not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment or (c)
perform pre-remedial studies and investigations and post-remedial monitoring and
care.

         "REQUIREMENT  OF  LAW"  means  as to any  Person,  the  certificate  or
articles  of  incorporation  and  bylaws or other  organizational  or  governing
documents of such Person, and any law, statute,  ordinance, code, decree, order,
treaty, rule or regulation or determination of an arbitrator or a court or other
Governmental  Authority,  in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is subject
(including,  without limitation,  laws, ordinances and regulations pertaining to
the zoning, occupancy and subdivision of real property).

         "REQUISITE  LENDERS" means Lenders at the time in the aggregate holding
at least 51% of (i) the aggregate Commitments of all the Lenders and/or (ii) the
aggregate  outstanding  principal  amount of the sum of (x) the  Advances by all
Lenders and (y) LC Exposure of all Lenders.

         "RESTRUCTURING"   means   (i)  the   recapitalization   and   financial
restructuring of the Borrower and its Subsidiaries, including as accomplished in
the Cases, and (ii) the Borrower's facility rationalization  process,  including
as contemplated in the Initial Projections.

         "RESTRUCTURING  CHARGES"  means  all of the  following,  to the  extent
deducted in determining  the net income of a Person:  fees,  charges,  expenses,
write-offs and write-downs  relating to the Restructuring,  incurred prior to or
after the Petition Date,  including,  without  limitation,  (i) fees,  costs and
expenses, including without limitation, financing costs and fees, attorneys' and
accountants'  fees,  retention,  incentive and downsizing costs,  appraisals and
other fees and expenses,  incurred in connection with the  Restructuring  by the
Borrower,  any Filing Subsidiary or any other interested person which is payable
by the Borrower or any Filing Subsidiary,  (ii) fees paid to Warburg Dillon Read
LLC, KPMG LLP or any other  consultants or investment  advisors hired or engaged
by or for the benefit of any Borrower or any Filing Subsidiary or any interested
person  which are  payable by any  Borrower or any Filing  Subsidiary  and (iii)
costs and expenses relating to closed or terminated facilities, or facilities at
which operations have been materially  reduced,  including , without limitation,
continuing  occupancy  costs and other  related  expenses,  any payments made to
landlords of closed,  terminated or operationally reduced facilities or rejected
leases,  in  cancellation,  reduction  or  modification  of  lease  obligations,
severance   payments  to  employees  and   independent   contractors  and  other
miscellaneous  expenses related to closed,  terminated or operationally  reduced
facilities,  in each case,  including any reserves  therefor;  provided that the
amount of cash  charges  with  respect to the items  described  in  clauses  (i)
through (ii) above shall not exceed an aggregate  amount of (A) during the first
twelve months following the Closing


                                       21
<PAGE>

Date,  $30,000,000 and (B) during the twelve month period immediately  following
the first twelve months after the Closing Date, $25,000,000.

         "REVOLVING CREDIT ADVANCE" is defined in Section 2.01(a).

         "ROTECH" means RoTech Medical Corporation, a Florida corporation.

         "S&P"  means  Standard & Poor's  Ratings  Services,  A Division  of the
McGraw-Hill Companies, Inc., and its successors.

         "SECURED  PARTIES" means the Agent,  the Lenders,  the Swing Line Bank,
the  LC  Bank,  each  of  their  respective  successors  and  assigns,  and  the
beneficiaries of each indemnification  obligation undertaken by the Loan Parties
and the Agent.

         "SOCIAL  SECURITY ACT" means the Social  Security Act as codified at 42
U.S.C. Section 1395 et. seq.

         "STATE"  means the  District  of  Columbia  or any state of the  United
States of America.

         "STOCK" means shares of capital stock  (whether  denominated  as common
stock or preferred  stock),  beneficial,  partnership  or membership  interests,
participations  or other  equivalents  (regardless of how designated) of or in a
corporation,  partnership,  limited  liability  company  or  equivalent  entity,
whether voting or non-voting.

         "SUBSIDIARY"  means,  with  respect  to any  Person,  any  corporation,
association,  partnership,  joint venture or other business entity of which more
than 50% of the voting  stock or other equity  interests is owned or  controlled
directly or indirectly by such Person or one or more Subsidiaries of such Person
or a combination thereof.

         "SWING LINE  ADVANCE"  means an Advance made by (a) the Swing Line Bank
pursuant to Section 2.01(a)(ii) or (b) any Lender pursuant to Section 2.01(h).

         "SWING LINE BANK" means CUSA.

         "SWING LINE FACILITY" has the meaning specified in Section 2.01(a)(ii).

         "SYMPHONY"   means   Symphony   Health   Services,   Inc.,  a  Delaware
corporation.

         "SYNDICATION AGENT" means First Union National Bank.

         "TAXES" is defined in Section 2.16(a).

         "TERMINATION DATE" means the earliest of (a) the Maturity Date, (b) the
date of termination of the Commitments pursuant to Section 2.06(a), (c) the date
on which the Obligations become due and payable pursuant to Section 7.01 and (d)
the Effective Date.

         "'34 ACT COMPANY" means a Person that is a reporting  company under the
1934 Act.

         "UCC" means, at any time, the Uniform  Commercial Code in effect in the
State of New York at such time.



                                       22
<PAGE>

         "UNFUNDED LC EXPOSURE"  means the maximum  amount which the LC Bank may
be  required,  under  all  Letters  of  Credit  outstanding  as of any  date  of
determination, to pay on such date or at any future time.

         "UNFUNDED  PENSION  LIABILITY" means, with respect to any Pension Plan,
the excess of such Pension Plan's accrued benefits,  as defined in Section 3(23)
of ERISA,  over the current value of such Pension Plan's  assets,  as defined in
Section 3(26) of ERISA (but excluding from the definition of "current  value" of
"assets" of such Pension Plan, accrued but unpaid contributions).

         "UNITED STATES" and "U.S." mean the United States of America.

         "U.S.  TRUSTEE"  means the United  States  Trustee for the  District of
Delaware.

         "WITHDRAWAL LIABILITIES" means the aggregate amount of the liabilities,
if any,  pursuant  to  Section  4201 of ERISA  if the  Borrower  and each  ERISA
Affiliate  made a  complete  withdrawal  from all  Multiemployer  Plans  and any
increase in contributions pursuant to Section 4243 of ERISA.

         "YEAR 2000  COMPLIANT"  means the  ability  of  hardware,  firmware  or
software systems associated with information processing and delivery, operations
or services,  operated by, provided to or otherwise necessary to the business or
operations of the Borrower or the Filing  Subsidiaries to recognize and properly
perform  date-sensitive  functions  involving certain dates prior to, and at any
date after, December 31, 1999.

         SECTION 1.02.  Accounting  Terms.  All  accounting  terms not expressly
defined herein shall be construed,  except where the context otherwise requires,
and all financial  computations  required under this Agreement  shall be made in
accordance  with GAAP applied on a consistent  basis. If GAAP changes during the
term of this  Agreement  so as to affect  the  calculation  of any term  defined
herein or any measure of financial  performance or financial  condition employed
or referred to herein,  the Borrower and the Lenders  agree to negotiate in good
faith toward an  amendment of this  Agreement  which shall  approximate,  to the
extent  possible,  the economic effect of the original  provisions  hereof after
taking into account such change in GAAP, but until the parties are able to agree
upon such  amendment  (i) the Borrower  shall be deemed in  compliance  with the
provisions  hereof only if and to the extent it would have been in compliance if
such change in GAAP had not occurred and (ii) the Borrower  shall deliver to the
Agent,  with  each  financial  report  delivered  by  the  Borrower   hereunder,
information  sufficient to confirm such compliance as if such change in GAAP had
not occurred.

         SECTION 1.03. Other Definitional Provisionss.

         (a) Unless otherwise specified herein or therein,  all terms defined in
this  Agreement  shall  have the  defined  meanings  when used in any other Loan
Document or in any  certificate  or other  document  made or delivered  pursuant
hereto.

         (b) The words  "hereof,"  "herein" and "hereunder" and words of similar
import when used in this Agreement refer to this Agreement as a whole and not to
any particular  provision of this Agreement,  and section,  Schedule and Exhibit
references  are to this Agreement  unless  otherwise  specified.  The meaning of
defined  terms shall be equally  applicable  to the singular and plural forms of
the defined terms.  The term  "including"  is not limiting and means  "including
without limitation."

         (c) In the  computation  of periods of time from a specified  date to a
later specified date, the word "from" means "from and including"; the words "to"
and "until" each mean "to but  excluding";  and the word "through" means "to and
including."



                                       23
<PAGE>

         (d)  References to agreements  and other  documents  shall be deemed to
include all subsequent  amendments and other modifications  thereto, but only to
the extent such  amendments  and other  modifications  are not prohibited by the
terms of any Loan Document.

         (e)  References  to  statutes  or  regulations  shall be  construed  as
including all statutory and  regulatory  provisions  consolidating,  amending or
replacing the statute or regulation.

         (f) The captions and headings of this Agreement are for  convenience of
reference only and shall not affect the construction of this Agreement.

                                   ARTICLE II

                        AMOUNTS AND TERMS OF THE ADVANCES

         SECTION 2.01. Revolving Facility and Swing Line Facility.

         (a) Advances.

                  (i) Revolving Credit Advances. On the terms and subject to the
         conditions contained in this Agreement, each Lender severally agrees to
         make  revolving  loans  (each  a  "REVOLVING  CREDIT  ADVANCE")  to the
         Borrower from time to time on any Borrowing Date during the period from
         the Closing Date until the Termination  Date in an aggregate amount not
         to exceed at any time  outstanding  for all such  loans by such  Lender
         such Lender's Commitment;  provided, however, that at no time shall any
         Lender be obligated to make a Revolving  Credit Advance to the Borrower
         (i) in excess of such Lender's Pro Rata Share of the  Available  Credit
         of the Borrower at such time and (ii) to the extent that the  aggregate
         Outstanding  Revolving  Credit,  after giving effect to such  Revolving
         Credit Advance, would exceed the Maximum Credit at such time.

                  (ii)  Swingline  Advances.  The Borrower may request the Swing
         Line  Bank to  make,  and the  Swing  Line  Bank  may,  if in its  sole
         discretion  it elects  to do so,  make,  on the  terms  and  conditions
         hereinafter set forth, Swing Line Advances to the Borrower from time to
         time on any  Business Day during the period from the Closing Date until
         the Termination  Date in an aggregate  amount not to exceed at any time
         outstanding the lesser of (A) $20,000,000 and (B) the Swing Line Bank's
         Pro Rata Share of the Available Credit at such time; provided, however,
         that no Swing Line Advance may be made to the extent that the aggregate
         Outstanding  Revolving  Credit,  after giving effect to such Swing Line
         Advance,  would exceed the Maximum  Credit at such time.  No Swing Line
         Advance  shall  be used for the  purpose  of  funding  the  payment  of
         principal  of any other  Swing Line  Advance.  Each Swing Line  Advance
         shall be in an amount of $500,000 or an integral  multiple  thereof and
         shall be made as a Base Rate  Advance.  Within  the limits of the Swing
         Line Facility and within the limits referred to in this clause (ii), so
         long as the Swing Line  Bank,  in its sole  discretion,  elects to make
         Swing  Line  Advances,  the  Borrower  may borrow  under  this  Section
         2.01(a)(ii),  prepay  pursuant to Section 2.11 and reborrow  under this
         Section 2.01(a)(ii).

         (b) Amount of Revolving Credit Advances.  Each Revolving Credit Advance
shall be in an aggregate amount not less than $2,000,000 or an integral multiple
of $1,000,000  in excess  thereof and shall consist of either Base Rate Advances
or Eurodollar Rate Advances.  The Borrower may reborrow under Section 2.01(a)(i)
any Advances  comprising  part of the same Revolving  Credit Advance that it has
voluntarily prepaid pursuant to Section 2.11.



                                       24
<PAGE>

         (c) Notice of Borrowing.  To request a Revolving  Credit  Advance,  the
Borrower  shall  deliver a Notice of Borrowing to the Agent not later than 11:00
a.m. New York City time (i) three Business Days prior to the requested Borrowing
Date, in the case of Eurodollar  Rate Advances,  and (ii) one Business Day prior
to the requested  Borrowing  Date, in the case of Base Rate Advances.  The Agent
shall  give each  Lender  prompt  notice  thereof by  telecopier.  The Notice of
Borrowing shall specify (A) the requested  Borrowing Date, (B) the amount of the
Revolving  Credit  Advance and whether it will consist of Base Rate  Advances or
Eurodollar Rate Advances,  (C) the Available Credit at such time, and (D) in the
case of a Revolving  Credit Advance  comprised of Eurodollar Rate Advances,  the
initial Interest Period for such Eurodollar Rate Advances.

         (d)  Telephonic  Notice of  Borrowing.  The Borrower may give the Agent
telephonic notice of any proposed  Revolving Credit Advance by the time required
under  Section  2.01(c) and in such event shall  promptly (but in no event later
than the Borrowing Date for the requested  Revolving  Credit Advance)  deliver a
confirmatory  Notice of Borrowing to the Agent. The Agent shall give each Lender
prompt notice thereof by telecopier.  If the telephonic  request  differs in any
respect  from the  written  Notice  of  Borrowing  subsequently  delivered,  the
telephonic  request  shall  govern  as to the  terms  of all  Advances  made  in
accordance  with such  telephonic  request.  The  Agent's  determination  of the
contents of any telephonic  request shall,  absent manifest error, be conclusive
and binding on all parties hereto.

         (e) Funding of Advances.  Upon fulfillment of the applicable conditions
set forth in Article  III,  each Lender  shall,  before 12:00 noon New York City
time on the Borrowing  Date,  make  available for the account of its  Applicable
Lending Office to the Agent at its address referred to in Section 11.02, in same
day funds, such Lender's Pro Rata Share of a Revolving Credit Advance. After the
Agent in each case receives such funds, the Agent will, not later than 5:00 p.m.
New York City time on the  Borrowing  Date,  make such  funds  available  to the
Borrower at the Agent's aforesaid address.

         (f)  Assumption  of Funding.  Unless the Agent  receives  notice from a
Lender prior to any Borrowing  Date that such Lender will not make  available to
the Agent such  Lender's Pro Rata Share of the  Revolving  Credit  Advance to be
made on such Borrowing  Date, the Agent may assume that such Lender has made its
respective  share  available to the Agent on such  Borrowing  Date in accordance
with Section 2.01(e) and the Agent may, in reliance upon such  assumption,  make
available to the Borrower on such Borrowing Date a corresponding  amount. If and
to the extent that such Lender fails to make its respective  share  available to
the Agent,  such Lender and the Borrower  severally  agree to repay to the Agent
forthwith on demand such  corresponding  amount together with interest  thereon,
for each day from the date such amount is made  available to the Borrower  until
the date such amount is repaid to the Agent, at (i) in the case of the Borrower,
the interest rate  applicable at the time to such  Revolving  Credit Advance and
(ii) in the case of such Lender, the Federal Funds Rate until the third Business
Day after demand by the Agent to such Lender for such  repayment and  thereafter
at the rate  applicable at the time to such Revolving  Credit  Advance.  If such
Lender shall repay to the Agent such corresponding amount, such amount so repaid
shall  constitute such Lender's Advance as part of such Revolving Credit Advance
for purposes of this Agreement and the Borrower shall  thereupon be excused from
making the repayment described in the preceding sentence.

         (g) Failure of Lender to Fund. All obligations of the Lenders hereunder
shall be several,  but not joint.  The failure of any Lender to make the Advance
to be made by it as part of any Revolving  Credit  Advance shall not relieve any
other Lender of its obligation, if any, hereunder to make its Advance as part of
such  Revolving  Credit  Advance,  but no Lender  shall be  responsible  for the
failure of any other Lender to make an Advance on any Borrowing Date.

         (h) Swing  Line  Advances.  Each Swing  Line  Advance  shall be made on
notice,  given not later than 11:00 A.M. (New York City time) on the date of the
proposed  Swing Line  Advance,  by the


                                       25
<PAGE>

Borrower to the Swing Line Bank and the Agent.  Each such notice of a Swing Line
Advance (a "NOTICE OF SWING LINE ADVANCE")  shall be by telephone or telecopier,
confirmed (in the case of telephonic notice) immediately in writing,  specifying
therein the requested  (i) date of such Swing Line Advance,  (ii) amount of such
Swing Line Advance,  (iii) maturity of such Swing Line Advance  (which  maturity
shall be no later than the  seventh day after the  requested  date of such Swing
Line  Advance)  and (iv) the  Available  Credit  at such  time.  If, in its sole
discretion,  it elects to make the requested Swing Line Advance,  the Swing Line
Bank will make the amount thereof  available to the Agent at the Agent's address
referred to in Section 11.02,  in same day funds.  After the Agent's  receipt of
such  funds  and upon  fulfillment  of the  applicable  conditions  set forth in
Article  III,  the Agent will make such funds  available  to the Borrower at the
Agent's  aforesaid  address.  Upon written  demand by the Swing Line Bank with a
copy of such demand to the Agent,  each other  Lender  shall  purchase  from the
Swing  Line  Bank,  and the Swing  Line Bank  shall sell and assign to each such
other Lender,  such other Lender's Pro Rata Share of such outstanding Swing Line
Advance as of the date of such demand,  by making  available  for the account of
its  Applicable  Lending  Office to the Agent for the  account of the Swing Line
Bank, by deposit to the Agent's  address  referred to in Section 11.02,  in same
day funds, an amount equal to the portion of the outstanding principal amount of
such Swing Line  Advance to be purchased  by such  Lender.  The Borrower  hereby
agrees to each such sale and assignment.  Each Lender agrees to purchase its Pro
Rata Share of  outstanding  Swing Line  Advance on (i) the Business Day on which
demand  therefor  is made by the Swing Line Bank,  provided  that notice of such
demand is given not later than 11:00 A.M.  (New York City time) on such Business
Day or (ii) the first Business Day next succeeding such demand if notice of such
demand is given after such time. Upon any such assignment by the Swing Line Bank
to any other  Lender of a portion of a Swing Line  Advance,  the Swing Line Bank
represents  and  warrants  to such other  Lender that the Swing Line Bank is the
legal and  beneficial  owner of such interest being assigned by it, but makes no
other  representation or warranty and assumes no responsibility  with respect to
such Swing Line  Advance,  the Loan  Documents or any Loan Party.  If and to the
extent  that any  Lender  shall not have so made the  amount of such  Swing Line
Advance available to the Agent, such Lender agrees to pay to the Agent forthwith
on demand such amount together with interest thereon, for each day from the date
of  demand  by the Swing  Line  Bank  until the date such  amount is paid to the
Agent,  at the Federal  Funds Rate.  If such Lender  shall pay to the Agent such
amount for the account of the Swing Line Bank on any Business  Day,  such amount
so paid in respect of  principal  shall  constitute a Swing Line Advance made by
such  Lender  on such  Business  Day for  purposes  of this  Agreement,  and the
outstanding  principal  amount of the Swing Line  Advance made by the Swing Line
Bank shall be reduced by such amount on such Business Day.

         SECTION 2.02. Letter of Credit Subfacility.

         (a) Issuance of Letters of Credit.  Subject to the terms and conditions
set forth herein,  the LC Bank agrees to issue one or more Letters of Credit, at
the request and for the account of the Borrower, on any Business Day on or after
the Closing Date and prior to the Termination  Date, so long as (i) after giving
effect to the issuance of any Letter of Credit so requested, (A) the Outstanding
Revolving  Credit at such time does not exceed the  Maximum  Credit at such time
and (B) the LC Exposure does not exceed the LC  Subcommitment  in effect at such
time,  and (ii) the LC Bank has not  received  written  notice from the Agent or
Requisite Lenders that an Event of Default or Potential Default is continuing.

         (b) LC  Application.  The Borrower may request  issuance of a Letter of
Credit by delivering an LC  Application to the Agent not later than two Business
Days  prior to the date the Letter of Credit is to be  issued.  The Agent  shall
promptly deliver a copy of the LC Application to the LC Bank and each Lender.

         (c)  Reimbursement.  Any  payment  made by the LC Bank of a draft drawn
under any Letter of Credit shall  constitute  for all purposes of this Agreement
the making by the LC Bank of a


                                       26
<PAGE>

Revolving  Credit  Advance in the amount of such draft,  which Advance shall (i)
constitute a Base Rate Advance until converted, at the Borrower's election, into
a  Eurodollar  Rate  Advance  pursuant  to Section  2.10,  and (ii)  satisfy the
Borrower's  obligation to reimburse  the LC Bank under this Section  2.02.  With
respect to each Advance  made  pursuant to this  Section  2.02(c),  the Borrower
shall be deemed to have certified the statements contained in Section 3.02(e) as
of the date  the  payment  constituting  such  Advance  was made by the LC Bank;
provided, however, that in the event any such statement was not true and correct
as of such date, such Advance shall be repayable on demand;  provided,  further,
that upon any such repayment on demand,  the failure of any such statement to be
true and correct as of such date shall not  constitute an Event of Default under
Section 7.01, unless the failure of any such statement to be true and correct as
of such date would have  constituted an Event of Default under Section 7.01 even
if such repaid Advance had never been made.

         (d)   Reimbursement   Obligation   Absolute.   The   conversion   of  a
reimbursement  obligation  to an Advance as provided in Section  2.02(c) and the
obligation of the Borrower to reimburse the LC Bank for each payment made by the
LC Bank under any  Letter of Credit,  and to pay  interest  thereon as  provided
herein, shall be absolute,  unconditional and irrevocable and shall be performed
strictly in accordance with the terms of this Agreement under and without regard
to any  circumstances,  including (i) any lack of validity or  enforceability of
any of the Loan  Documents;  (ii) any  amendment  or waiver of or any consent to
departure  from  all or any  terms  of any of  the  Loan  Documents;  (iii)  the
existence of any claim, setoff,  defense or other right which any Loan Party may
have at any time  against any  beneficiary  or any  transferee  of any Letter of
Credit  (or any  Persons  for whom any such  beneficiary  or  transferee  may be
acting),  the LC Bank,  the Agent,  any Lender or any other  Person,  whether in
connection  with this Agreement,  the  transactions  contemplated  herein or any
unrelated  transaction;  (iv) any breach of contract or dispute among or between
any Loan Party, the Agent, the LC Bank, any Lender, or any other Person; (v) any
demand,  statement,  certificate,  draft or other document  presented  under any
Letter of Credit proving to be forged,  fraudulent,  invalid or  insufficient in
any respect or any statement  therein being untrue or inaccurate in any respect;
(vi)  payment by the LC Bank  (acting in good faith)  under any Letter of Credit
against  presentation  of any  demand,  statement,  certificate,  draft or other
document which does not strictly  comply with the terms of any Letter of Credit;
(vii) any  non-application or misapplication by any beneficiary or transferee of
the  proceeds  of any amount paid under any Letter of Credit or any other act or
omission of such beneficiary or such transferee in connection with any Letter of
Credit;  (viii) any extension of time for or delay,  renewal or compromise of or
other indulgence or modification granted or agreed to by the LC Bank, the Agent,
or any Lender, with or without notice to or approval by any Loan Party; (ix) any
failure  to  preserve  or  protect  any  Collateral,  any  failure to perfect or
preserve the perfection of any Lien thereon,  or the release of any  Collateral;
or (x) any other circumstance or event whatsoever  relating to any Loan Party or
such Letter of Credit or the reimbursement due therefor,  whether or not similar
to any of the foregoing.

         (e) Lender  Participation.  Each Lender severally agrees to participate
with the LC Bank in the  extension  of credit  arising  from the issuance of any
Letter of Credit in conformity with Section 2.02(a),  in an amount equal to such
Lender's Pro Rata Share of the amount available for payment under such Letter of
Credit.  Upon written  demand by the LC Bank,  with a copy of such demand to the
Agent,  each Lender shall  promptly fund its  participation  by paying to the LC
Bank Dollars in an amount  equal to such  Lender's Pro Rata Share of the payment
made by the LC Bank  under any  Letter of  Credit,  together  with all  interest
accrued  and unpaid  thereon for the period from the day on which the payment to
be  reimbursed  was demanded by the LC Bank until the Business Day on which such
funding  from such Lender is received by the LC Bank at the rate per annum equal
to the Federal Funds Rate until the second  Business Day following  such demand,
and  thereafter the rate per annum then  applicable to Base Rate Advances.  Upon
funding its  participation in accordance with this Section 2.02(e),  each Lender
shall be deemed to have made an Advance pursuant to Section 2.01(a)(i) as of the
date the relevant Letter of Credit was drawn,  and the Advance deemed,  pursuant
to Section 2.02(c), to have been made by the LC


                                       27
<PAGE>

Bank upon any such payment shall be reduced, in an amount equal to such Lender's
participation.  Each  Lender's  obligation  to make such  payment to the LC Bank
shall be absolute,  unconditional  and  irrevocable and shall not be affected by
any  circumstance  whatsoever,  including the  occurrence or  continuance of any
Potential  Default or Event of Default,  the failure to meet any condition  that
otherwise  must be met for the  funding of any  Advance,  or the  failure of any
other  Lender to make any payment  under this Section  2.02(e),  and each Lender
further  agrees that such payment  shall be made without any offset,  abatement,
withholding or reduction  whatsoever.  If after receipt of such funding from any
Lender the LC Bank  receives  payment  from the  Borrower or any other source on
account of the  reimbursement  obligation  that was so funded,  or the  interest
accrued thereon,  the LC Bank shall promptly remit such payment to the Agent for
prompt distribution to the Lenders to the extent of their participation therein.

         (f) Commercial Practices. Each Loan Party assumes all risks of the acts
or  omissions  of any  beneficiary  or  transferee  of any Letter of Credit with
respect to the use of any Letter of Credit.  Each Loan Party  agrees that the LC
Bank,  the Agent,  the  Lenders  and their  respective  directors,  officers  or
employees  shall not be liable or responsible  for (i) the use which may be made
of any  Letter of  Credit or for any acts or  omissions  of any  beneficiary  or
transferee in connection therewith; (ii) any reference which may be made to this
Agreement  or to any Letter of Credit in any  agreements,  instruments  or other
documents; (iii) the validity,  sufficiency or genuineness of any document other
than a Letter of Credit, or of any endorsement thereon, even if such document or
endorsement  should  in  fact  prove  to be in  any  or  all  respects  invalid,
insufficient,  fraudulent or forged or any statement  therein prove to be untrue
or inaccurate in any respect whatsoever;  (iv) payment by the LC Bank (acting in
good faith) against  presentation of documents which do not strictly comply with
the terms of any Letter of Credit; or (v) any other circumstances  whatsoever in
making or failing to make payment  under any Letter of Credit,  except only that
the LC Bank  shall be liable to the  Borrower  for acts or events  described  in
clauses  (i) through (v) above,  to the extent,  but only to the extent,  of any
direct (as opposed to indirect,  special or  consequential)  damages suffered by
the Borrower which the Borrower  proves were caused by (A) the LC Bank's willful
misconduct  or  gross  negligence  in  determining  whether  a draft  or  demand
presented  under  any  Letter  of Credit  strictly  complies  with the terms and
conditions therefor stated in such Letter of Credit or (B) the LC Bank's willful
failure to pay any draft or demand  presented  under any  Letter of Credit  that
strictly complies with the terms and conditions thereof.  The LC Bank may accept
any document that appears on its face to be in order, without responsibility for
further  investigation.  The determination whether a draft or demand is properly
presented  under any Letter of Credit prior to its expiration or whether a draft
or demand  presented under any Letter of Credit is in proper and sufficient form
may be made by the LC Bank in its sole discretion,  and such determination shall
be conclusive and binding upon the Borrower to the extent permitted by law. Each
Loan  Party  hereby  waives  any right to object to any  payment  made under any
Letter  of  Credit on  presentation  of any draft or demand  that is in the form
provided  in the  Letter of Credit  but  varies  with  respect  to  punctuation,
capitalization, spelling or similar matters of form.

         SECTION 2.03. Evidence of Debt.

         (a) Each Lender shall maintain in accordance with its usual practice an
account or accounts  evidencing the  indebtedness of the Borrower to such Lender
resulting  from each Advance  owing to such Lender from time to time,  including
the amounts of principal and interest  payable and paid to such Lender from time
to time hereunder.

         (b) The Register  maintained by the Agent pursuant to Section  11.07(c)
shall include accounts for each Lender, in which accounts (taken together) shall
be recorded  (i) the rate and amount of each Advance  made  hereunder,  (ii) the
terms of each  Assignment and Acceptance  delivered to and accepted by it, (iii)
the amount of any  principal  or  interest  due and payable or to become due and
payable


                                       28
<PAGE>

from the  Borrower  to each  Lender  hereunder  and (iv) the  amount  of any sum
received  by the Agent  from the  Borrower  hereunder  and each  Lender's  share
thereof.

         (c) The  entries  made  as  provided  in this  Section  2.03  shall  be
conclusive and binding for all purposes, absent manifest error.

         SECTION 2.04. Fees.

         (a) Unused Commitment Fees. The Borrower agrees to pay to each Lender a
commitment  fee on the daily  average  amount by which  the  Commitment  of such
Lender exceeds such Lender's Pro Rata Share of the Outstanding  Revolving Credit
from the date hereof  until the  Termination  Date at the  Commitment  Fee Rate,
payable in arrears (i) monthly on the first day of each month, commencing on the
first such day following the date of this Agreement and (ii) on the  Termination
Date.

         (b)  Facing  Fees.  On the first day of each  month  commencing  on the
Closing Date and continuing  thereafter  until the date the Facility  Amount and
Unfunded  LC  Exposure  have both been  reduced to zero (for the period from the
first day in the  respective  month  through  the last day of such month or such
date the  Facility  Amount and  Unfunded LC Exposure  have both been  reduced to
zero,  as the case may be),  including on the  Termination  Date (for the period
from the first day in the immediately  preceding month to the Termination Date),
the Borrower  shall pay to the Agent for the account of the LC Bank a facing fee
computed by applying 0.25% per annum to the Unfunded LC Exposure from day to day
in the prior month or partial month, as the case may be.

         (c) Letter of Credit Fee. On the first day of each month  commencing on
the first such day following the Closing Date and  continuing  thereafter  until
the date the Facility  Amount and Unfunded LC Exposure have both been reduced to
zero (for the period from the first day in the respective month through the last
day of such month or such date the Facility Amount and Unfunded LC Exposure have
both been reduced to zero,  as the case may be),  including  on the  Termination
Date (for the period from the first day in the  immediately  preceding  month to
the  Termination  Date),  the Borrower shall pay to the Agent for the account of
the Lenders,  a letter of credit fee computed by applying the LC Fee Rate to the
Unfunded LC Exposure from day to day in the prior month or partial month, as the
case may be. If an Event of Default shall occur and be continuing,  the Borrower
shall pay to the Agent a letter of credit  fee at a rate equal to the sum of (A)
2.0% per annum and (B) the rate otherwise payable pursuant to this clause (c).

         (d)  Letter of Credit  Administration.  The  Borrower  shall pay the LC
Bank's usual and customary charges for opening, amending, presenting or honoring
any Letter of Credit and for any wire transfers and other administration charges
applicable to each Letter of Credit.

         (e) Fees.  The Borrower  shall pay the Agent and the Arranger  when due
all fees payable  under the fee letter dated January 13, 2000 and the fee letter
dated the Closing Date  (collectively,  the "Fee Letters") from Citibank and the
Arranger to the Borrower.

         SECTION 2.05. Voluntary and Mandatory Facility Reductions.

         (a)  Voluntary.  The Borrower may,  upon at least five  Business  Days'
prior  notice to the Agent,  terminate  in whole or reduce in part  ratably  the
unused portions of the respective Commitments of the Lenders; provided, however,
that each partial  reduction  shall be in the aggregate  amount of not less than
$5,000,000 or an integral multiple of $1,000,000 in excess thereof



                                       29
<PAGE>

         (b)  RoTech  Asset  Sale.  In the event of an Asset  Sale of any of the
Stock of RoTech or all or  substantially  of the assets of RoTech  (which  Asset
Sale is subject to the approval of the Requisite Lenders), the Facility shall be
permanently  reduced  by an  amount  equal  to  $50,000,000  on the  date of the
consummation of such Asset Sale; provided,  however, that if an Event of Default
has occurred and is continuing on such date,  the Facility  shall be permanently
reduced by $100,000,000  (it being  understood and agreed that the Lenders shall
have no  obligation to make Advances or issue Letters of Credit unless and until
such Event of Default has been waived  pursuant to Section 11.01 or is otherwise
cured).

         SECTION 2.06. Principal Payments and Swing Line Payments.  The Borrower
shall repay the Advances and reduce the Facility Amount as follows:

         (a) Final Maturity.  On the Termination Date, all outstanding  Advances
shall be due and payable and the Facility Amount and LC  Subcommitment  shall be
automatically and permanently reduced to zero.

         (b) Excess Credit Exposure.  If at any time, by reason of any voluntary
or  mandatory  Facility  Reduction  or for any  other  reason,  the  Outstanding
Revolving  Credit exceeds the Maximum  Credit,  the Borrower shall  immediately,
without  notice or demand,  repay  Advances or, if no Advances are  outstanding,
deposit Dollars to the Citibank  Collateral  Account, in the manner described in
Section 7.02.

         (c) Excess LC Exposure.  If at any time,  by reason of any voluntary or
mandatory  Facility  Reduction or for any other reason,  the LC Exposure exceeds
the then LC Subcommitment,  the Borrower shall immediately deposit Dollars in an
amount  equal to such excess to the  Citibank  Collateral  Account in the manner
described in Section 7.02.

         (d) Swing Line Payments.  The Borrower shall repay to the Agent for the
account of the Swing Line Bank the  outstanding  principal  amount of each Swing
Line Advance,  together with all interest accrued thereon, on the earlier of (i)
the  maturity  date  specified  in the  applicable  Notice of Swing Line Advance
(which  maturity shall be no later than the seventh day after the requested date
of such Swing Line Advance) and (ii) the Termination Date.

         SECTION  2.07.  Interest.  The  Borrower  agrees to pay interest on the
unpaid  principal  amount of each  Revolving  Credit Advance made by each Lender
comprising  part of the same  Revolving  Credit  Advance  (or, in the case of an
Advance made pursuant to Section  2.02(c),  by the LC Bank), and each Swing Line
Advance  from the date of such  Advance  until such  principal  amount  shall be
repaid in full, at the following rates per annum:

         (a) Base Rate Advances. Whenever such Advance is a Base Rate Advance, a
rate per  annum  equal on each day to the sum of the Base  Rate as in  effect on
such day plus  the Base  Rate  Margin  determined  for such  day,  with all such
interest  accrued in any one month payable  monthly on the first day of the next
following  month and, in the case of the  Revolving  Credit  Advances,  when the
Facility Amount has been reduced to zero and all Advances  comprising  Revolving
Credit Advances are repaid in full. Interest shall be paid in cash for any Swing
Line  Advance at a rate per annum  equal on each day to the sum of the Base Rate
as in  effect  on such  day plus the Base  Rate  Margin  with all such  interest
payable on the date of payment when such Swing Line Advance is due.

         (b)  Eurodollar  Rate  Advances.  Whenever such Advance is a Eurodollar
Rate Advance,  a rate per annum equal on each day during the Interest Period for
such Eurodollar Rate Advance to the sum of the Eurodollar Rate for such Interest
Period plus the Eurodollar Rate Margin determined for such day with all interest
so accrued payable on the last day of such Interest Period and, if such Interest


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<PAGE>

Period has a duration of more than three  months,  on the day which occurs three
months after the first day of such Interest Period.

         (c) Default  Interest.  For any period of time during which an Event of
Default has occurred and is continuing, (i) the principal amount of all Advances
then  outstanding  shall bear  interest  payable upon demand at a rate per annum
equal to the sum of (A)  2.0%  per  annum  and (B) the  rate  otherwise  payable
pursuant to  subsection  (a) or (b) above,  but not to exceed the  maximum  rate
permitted by applicable  law and (ii) the amount of any  interest,  fee or other
amount  payable  hereunder  which is not paid when due, shall bear interest from
the date such  amount  shall be due  until  such  amount  shall be paid in full,
payable in arrears on the date such amount  shall be paid in full and on demand,
at a rate per annum  equal at all times to 2.0% per annum above the Base Rate as
in effect from time to time plus the Base Rate Margin.

         SECTION 2.08.  Additional  Interest on Eurodollar  Rate  Advances.  The
Borrower  shall pay each  Lender  additional  interest  on the unpaid  principal
amount  of each  Advance  of such  Lender  for  each day that  such  Advance  is
outstanding  as a  Eurodollar  Rate  Advance,  at a rate per annum  equal to the
remainder  obtained by  subtracting  (a) the  Eurodollar  Rate for such Interest
Period for such Eurodollar Rate Advance from (b) the rate determined by dividing
such  Eurodollar  Rate by a percentage  equal to 100% minus the Eurodollar  Rate
Reserve  Percentage of such Lender for such day. Such additional  interest shall
be  determined  by such Lender,  notified to the Borrower  through the Agent and
payable when and as interest is payable on such  Eurodollar  Rate Advance or, if
later,  five Business Days after the Borrower  receives notice  thereof.  If the
Borrower so requests, such Lender shall provide the Borrower through the Agent a
certificate  setting forth the calculation  and supporting  information for such
additional  interest,  which shall be  conclusive  and binding for all purposes,
absent manifest error.

         SECTION 2.09. Interest Rate Determination and Protection.

         (a)  Determination  of Eurodollar  Rate. The  Eurodollar  Rate for each
Interest  Period  for  Eurodollar  Rate  Advances  comprising  part of the  same
Revolving Credit Advance shall be determined by the Agent.

         (b) Notice of  Eurodollar  Rate.  The Agent shall give prompt notice to
the Borrower and the respective  Lenders of the applicable  Eurodollar  Rate for
any Interest Period when determined by the Agent.

         (c)  Failure to Provide  Information.  If the Agent is unable to obtain
timely  information  for determining the Eurodollar Rate for any Eurodollar Rate
Advances,  the Agent shall  forthwith  notify the  Borrower  and the  respective
Lenders that the interest rate cannot be  determined  for such  Eurodollar  Rate
Advances and the  obligation of such Lenders to make or continue,  or to convert
Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall
notify  the  Borrower  and such  Lenders  that the  circumstances  causing  such
suspension no longer exist.

         (d) Suspension of Eurodollar Rate Advances.  In the event that: (i) the
Agent  determines that adequate and fair means do not exist for ascertaining the
applicable  interest rates by reference to which the Eurodollar  Rate then being
determined is to be fixed;  or (ii) the Requisite  Lenders notify the Agent that
the Eurodollar Rate for any Interest Period will not adequately reflect the cost
to the Lenders of making or maintaining such Loans for such Interest Period, the
Agent shall  forthwith so notify the Borrower  and the Lenders,  whereupon  each
Eurodollar  Rate  Advance  will  automatically,  on the last day of the  current
Interest  Period  for  such  Advance,  convert  into a Base  Rate  Loan  and the
obligations of the Lenders to make  Eurodollar  Rate Advances or to convert Base
Rate Advances into  Eurodollar  Rate


                                       31
<PAGE>

Advances  shall be suspended  until the Agent shall notify the Borrower that the
Requisite Lenders have determined that the circumstances causing such suspension
no longer exist.

         (e) Failure to Specify  Duration.  If the Borrower fails,  prior to the
date the Eurodollar  Rate for any Interest  Period is determined by the Agent to
specify the duration of any Interest  Period for any  Eurodollar  Rate Advances,
such Interest Period shall be one month.

         (f) Agent's Determination  Conclusive.  Each determination by the Agent
of an interest rate hereunder  shall be conclusive and binding for all purposes,
absent manifest error.

         SECTION 2.10. Voluntary Conversion of Advances.

         (a)  Notice of  Continuance/Conversion.  Subject to the  provisions  of
Sections  2.09 and 2.14,  the Borrower  may on any  Business  Day, by giving the
Agent a Notice of  Continuance/Conversion  not later than  11:00 a.m.  (New York
City time) on the third  preceding  Business Day, (i) convert Base Rate Advances
comprising the same Revolving Credit Advance into Eurodollar Rate Advances, (ii)
convert  Eurodollar Rate Advances  comprising the same Revolving  Credit Advance
into Base Rate Advances or (iii) continue Eurodollar Rate Advances as Eurodollar
Rate Advances, but (A) the Borrower may convert a Eurodollar Rate Advance into a
Base Rate Advance only on the last day of an Interest Period for such Eurodollar
Rate  Advance,  (B) the Borrower  may  continue a  Eurodollar  Rate Advance as a
Eurodollar  Rate Advance only as of the last day of an Interest  Period for such
Eurodollar  Rate Advance,  and (C) no Advance may be converted into or continued
as a  Eurodollar  Rate Advance at any time when an Event of Default or Potential
Default has occurred and is continuing.

         (b)   Telephonic   Notice.   In  lieu  of   delivering   a  Notice   of
Continuance/Conversion, the Borrower may give the Agent telephonic notice of any
proposed  conversion or continuance  by the time required under Section  2.10(a)
and in such event  shall  promptly  (but in no event  later than the date of the
requested   conversion  or  continuance)   deliver  a  confirmatory   Notice  of
Continuance/Conversion  to the Agent.  If the telephonic  request differs in any
respect  from  the  written   Notice  of   Continuance/Conversion   subsequently
furnished,  the telephonic  request shall govern as to the terms of such notice.
The Agent's  determination  of the  contents of any  telephonic  request  shall,
absent manifest error, be conclusive and binding on all parties hereto.

         (c) Requirements.  Each Notice of  Continuance/Conversion or telephonic
request shall specify (i) the date of the  continuance or  conversion,  (ii) the
Advances to be converted or continued and (iii) when Advances are converted into
or continued as Eurodollar  Rate Advances,  the duration of the Interest  Period
for such Advances.

         (d) Base Rate Advances.  Unless a Eurodollar  Rate has been  determined
for a  particular  Advance and applies to such  Advance on a  particular  day in
accordance with the provisions hereof, such Advance shall be a Base Rate Advance
and shall accrue interest at the rate then applicable to Base Rate Advances.

         SECTION 2.11. Prepayments.

         (a) Voluntary  Prepayments . The Borrower from time to time may prepay,
without premium or penalty,  the outstanding  principal amounts of Advances,  in
whole or ratably in part, so long as (i) the Borrower  gives one Business  Day's
prior  written  notice to the Agent  stating  the  proposed  date and  aggregate
principal amount of the prepayment,  (ii) each partial  prepayment is made in an
aggregate  principal amount of $2,000,000 or an integral  multiple of $1,000,000
in excess  thereof,  (iii) if any  Eurodollar  Rate Advance is paid prior to the
last day of the Interest Period for such Advances,  all unpaid


                                       32
<PAGE>

interest  accrued to the date of prepayment on the principal  amount prepaid and
all Breakage  Costs  incurred as a result of the  prepayment  are also paid, and
(iv) all unpaid interest accrued to the date of prepayment is paid  concurrently
with any  prepayment  in full.  In addition,  the Borrower from time to time may
prepay,  without  premium or penalty,  the outstanding  principal  amount of any
Swing Line Advance in whole,  together with all unpaid  interest  thereon to the
date of prepayment.  Notice of any prepayment under this Section  2.11(a),  once
given, shall be irrevocable,  and the amount of the prepayment  specified in the
notice shall  accordingly  be due and payable on the  prepayment  date specified
therein.

         (b) Mandatory Prepayments.

                  (i) Upon receipt by any Loan Party of Net Cash  Proceeds,  the
         Borrower shall immediately  prepay the Advances (or deposit cash in the
         Citibank  Collateral  Account  in  respect  of Letters of Credit in the
         manner  described  in Section  7.02) in an amount equal to 100% of such
         Net  Cash  Proceeds;  provided,  however,  in the  event  such Net Cash
         Proceeds  are less than  $10,000,000  in any  transaction  or series of
         related  transactions,  such proceeds are not required to be applied to
         the Advances (or deposited in the Citibank  Collateral  Account) to the
         extent such  proceeds are deposited in a Collection  Account.  Any such
         mandatory  prepayment  shall be  applied  in  accordance  with  Section
         2.11(b)(ii) below.

                  (ii)  Any  prepayments  made by the  Borrower  required  to be
         applied  in  accordance  with  Section  2.11(b)(i)  shall be applied as
         follows: first, to repay the outstanding principal balance of the Swing
         Line Advances  until such Swing Line Advances shall have been repaid in
         full;  second, to repay the outstanding  principal balance of Revolving
         Credit  Advances which are Base Rate Advances until such Advances shall
         have  been paid in full;  third,  to repay  the  outstanding  principal
         balance of Revolving Credit Advances which are Eurodollar Rate Advances
         until such Advances  shall have been paid in full;  provided,  however,
         that as long as no  Potential  Default or Event of Default  shall occur
         and be  continuing,  such  prepayments  shall,  at the  request  of the
         Borrower,   be  held  in  the  Citibank   Collateral   Account  pending
         application  to any  Eurodollar  Rate  Advance  on the  last day of the
         Interest  Period  with  respect  thereto;  and  then,  to the  Citibank
         Collateral  Account to provide cash collateral for the then LC Exposure
         in the manner set forth in Section 7.02.

                  (iii) Each  Borrower  agrees that all  available  funds in the
         Citibank  Concentration Account shall be applied on a daily basis first
         to repay the  outstanding  principal  amount of the Swing Line Advances
         until such Swing Line Advances  shall have been repaid in full,  second
         to repay the outstanding principal balance of Revolving Credit Advances
         which are Base Rate Advances until such Advances shall have been repaid
         in full, third to repay the outstanding  principal balance of Revolving
         Credit  Advances which are Eurodollar Rate Advances until such Advances
         shall  have been paid in full;  provided,  however,  that as long as no
         Potential  Default or Event of Default  shall occur and be  continuing,
         the amount of such  Eurodollar  Rate Advances  shall, at the request of
         the Borrower, be transferred to the Citibank Collateral Account pending
         application  to any  Eurodollar  Rate  Advance  on the  last day of the
         Interest  Period  with  respect  thereto;   and  fourth  to  any  other
         Obligations then due and payable. If there are no Advances  outstanding
         and no other  Obligations  are then due and payable (and no  additional
         funds are required to be on deposit in the Citibank  Collateral Account
         pursuant to Section  2.06(b) or (c) or Section 7.02),  the Borrower may
         direct the Agent to (and the Agent shall) disburse the excess amount of
         such  funds  on  deposit  in  the  Citibank  Concentration  Account  as
         requested by the Borrower in writing.  Any excess  amount on deposit in
         the  Citibank   Concentration   Account  after  giving  effect  to  the
         applications  required in this Section 2.11(b)(iii) may, at the request
         of  the  Borrower,  or  shall,  upon  the  occurrence  and  during  the
         continuance  of any Event of Default and


                                       33
<PAGE>

         notice  to the  Borrower  by the  Agent or the  Requisite  Lenders,  be
         transferred  to,  and  held on  deposit  in,  the  Citibank  Collateral
         Account.

         SECTION 2.12.  Funding  Losses.  If (i) any Eurodollar  Rate Advance is
repaid or converted to a Base Rate Advance on any day other than the last day of
an Interest Period for such Eurodollar Rate Advance  (whether as a result of any
optional prepayment, mandatory prepayment, payment upon acceleration,  mandatory
conversion or otherwise),  (ii) after giving the respective notice thereof,  the
Borrower fails to borrow any Eurodollar Rate Advance in accordance with a Notice
of Borrowing or a telephonic request delivered to the Agent (whether as a result
of the failure to satisfy any  applicable  conditions or  otherwise),  (iii) any
Base Rate  Advance  is not  converted  into a  Eurodollar  Rate  Advance  or any
Eurodollar  Rate  Advance  is not  continued  as a  Eurodollar  Rate  Advance in
accordance  with  a  Notice  of  Continuance/Conversion  or  telephonic  request
delivered  to the Agent  (whether  as a result of the  failure  to  satisfy  any
applicable  conditions  or  otherwise),  or (iv) the Borrower  fails to make any
prepayment in accordance  with any notice of prepayment  delivered to the Agent,
the Borrower  shall,  upon demand by any Lender,  reimburse  such Lender for all
costs  and  losses  incurred  by such  Lender  as a  result  of such  repayment,
prepayment or failure ("BREAKAGE COSTS"), including costs and losses incurred by
a Lender as a result of funding  arrangements or contracts  entered into by such
Lender to fund Eurodollar Rate Advances. Breakage Costs shall be payable only if
demanded  within 90 days  after the end of the  applicable  Interest  Period and
shall be due 30 days  after  demand.  Demand  shall be made by  delivery  to the
Borrower and the Agent of a certificate of the Lender making the demand, setting
forth in  reasonable  detail the  calculation  of the  Breakage  Costs for which
demand is made.  Such  certificate  shall,  in the absence of manifest error, be
conclusive and binding on the Borrower.

         SECTION 2.13. Increased Costs.

         (a) Increase in Cost. If, due to either (i) the  introduction of or any
change  (other  than any  change by way of  imposition  or  increase  of reserve
requirements,  in  the  case  of  Eurodollar  Rate  Advances,  included  in  the
Eurodollar Rate Reserve  Percentage) in or in the  interpretation  of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other  Governmental  Authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender or any  participant  under
Section  11.07(e)  of  agreeing  to  make  or  making,  funding  or  maintaining
Eurodollar  Rate Advances,  then the Borrower shall from time to time pay to the
Agent  for  the  account  of  such  Lender  or  participant  additional  amounts
sufficient to compensate  such Lender or participant  for such  increased  cost.
Such costs shall be payable  only if demanded  within six months after they were
incurred and shall be due 30 days after demand. Demand shall be made by delivery
to the  Borrower  and the Agent of a  certificate  of the Lender or  participant
making the demand,  setting forth in reasonable  detail the  calculation  of the
costs for which  demand is made.  Such  certificate  shall,  in the  absence  of
manifest error, be conclusive and binding on the Borrower.

         (b) Increase in Capital  Requirements.  If any Lender  determines  that
compliance  with any law or  regulation  or any  guideline  or request  from any
central bank or other Governmental Authority (whether or not having the force of
law)  affects or would  affect the amount of capital  required or expected to be
maintained by such Lender or any  corporation  controlling  such Lender and that
the amount of such capital is  increased by or based upon the  existence of such
Lender's  commitment  to lend or  funding  hereunder  and other  commitments  or
funding of this type,  then,  upon demand by such Lender,  the  Borrower  shall,
within 30 days after demand from time to time by such  Lender,  pay to the Agent
for the account of such Lender additional  amounts sufficient to compensate such
Lender or such  corporation  in the light of such  circumstances,  to the extent
that such Lender  determines  such  increase in capital to be  allocable  to the
existence of such Lender's  commitment to lend or funding hereunder.  Demand for
such payment may be made at any time but must be made in writing, with a copy to
the  Agent.  No  such  compensation  may be  demanded  as to  increased  capital
maintained  by a Lender  more  than 12  months


                                       34
<PAGE>

before  compensation  was first  demanded  by such  Lender  under  this  Section
2.13(b).  Demand for such compensation shall be made by delivery to the Borrower
and the Agent of a certificate  of the Lender  making the demand,  setting forth
the amount demanded.  Such certificate  shall, in the absence of manifest error,
be conclusive and binding on the Borrower.

         (c)  Replacement  Lenders and  Participants.  If, and on each  occasion
that,  (i) a Lender or a participant  under Section  11.07(e) makes a demand for
compensation  pursuant to Section  2.13(a) or Section  2.13(b)  with  respect to
Eurodollar  Rate  Advances or (ii) a Lender is excused from  funding  Eurodollar
Rate Advances pursuant to Section 2.14 or (iii) Taxes are required,  pursuant to
Section  2.16(a),  to be deducted from or with respect to any amount  payable to
any Lender or the Agent,  the  Borrower  may in whole  permanently  replace such
Lender or participant,  as the case may be, with an Eligible Assignee willing to
become a Lender hereunder, on the following terms:

                  (A) The  Borrower  shall  give the  Agent  and the  Lender  or
         participant  being  replaced at least five Business Days' prior written
         notice of the  replacement.  The notice  must be given  within 180 days
         after the date of the event  specified  in  clause  (i),  (ii) or (iii)
         above, as the case may be, pursuant to which such  replacement is made,
         and must state the day (which  must be a Business  Day not more than 10
         days  after the  notice is  given)  on which  the  replacement  will be
         effective.

                  (B)  On  the  effective  date  of  the  replacement,  (a)  the
         replacement  Lender shall  purchase the Advances  owed to such replaced
         Lender or  participant  for a  purchase  price  equal to the  principal
         amount  thereof and all interest  accrued  thereon as of such effective
         date,  payable in cash on such  effective  date,  (b) an Assignment and
         Acceptance in compliance  with (this  Agreement  covering such Advances
         shall be  delivered  to the  replacement  Lender  by the  Lender  being
         replaced or by the participant being replaced and the Lender from which
         it holds its participation, and (c) the Borrower shall pay to the Agent
         for the account of the  replaced  Lender or  participant  all  Breakage
         Costs resulting from the replacement and all additional interest, fees,
         compensation, costs, losses, taxes, expense reimbursements, indemnities
         and other Obligations due to the Lender or participant being replaced.

                  (C) The Borrower will remain liable to each replaced Lender or
         participant  for all  Obligations  that  survive the  repayment  of the
         Advances.

                  (D) The Borrower  shall have  received the written  consent of
         the Agent (which consent shall not be unreasonably withheld).

         SECTION 2.14.  Illegality.  Notwithstanding any other provision of this
Agreement,  if any Lender shall notify the Agent that the introduction of or any
change in or in the  interpretation  of any law or regulation makes it unlawful,
or any central bank or other Governmental Authority asserts that it is unlawful,
for any  Lender or its  Eurodollar  Lending  Office to perform  its  obligations
hereunder to make  Eurodollar  Rate  Advances or to fund or maintain  Eurodollar
Rate  Advances  hereunder,  then (i) the  obligation  of such  Lender to make or
continue,  or to  convert  Advances  into  Eurodollar  Rate  Advances  shall  be
suspended  until the Agent shall  notify the  Borrower  and the Lenders that the
circumstances  causing such  suspension no longer  exist,  and (ii) the Borrower
shall  forthwith  either (A) prepay in full all Eurodollar Rate Advances of such
Lender then  outstanding,  together with interest  accrued  thereon and Breakage
Costs related thereto or (B) convert all Eurodollar Rate Advances of such Lender
then outstanding into Base Rate Advances and pay all interest accrued thereon to
the date of conversion and all Breakage Costs related thereto.

         SECTION 2.15. Payments and Computations.



                                       35
<PAGE>

         (a) Payments.The  Borrower shall make each payment  hereunder and under
the Notes not later than 11:00 a.m.  (New York City time) on the day  payment is
due,  in Dollars  received  by the Agent at its  address  referred to in Section
11.02 in same day funds.  Any payment due to a Lender shall be paid to the Agent
for  account of such  Lender.  If the Agent  receives a payment for account of a
Lender not later than 11:00 a.m. (New York City time), the Agent will cause like
funds to be  distributed  to such Lender for account of its  Applicable  Lending
Office by the close of business on the same day; if the Agent receives a payment
for account of a Lender  after 11:00 a.m.  (New York City time),  the Agent will
cause like funds to be  distributed to such Lender for account of its Applicable
Lending  Office  no later  than the  close of  business  on the next  succeeding
Business Day.

         (b) Charging of Accounts.  If and to the extent any payment owed to the
Agent or any Lender is not made within three Business Days after the date it was
due  hereunder  or under the Note held by such  Lender,  each Loan Party  hereby
authorizes the Agent and such Lender,  subject to any notice period  provided in
the Orders,  to setoff and charge any amount so due against any deposit  account
maintained by such Loan Party with the Agent or such Lender,  whether or not the
deposit therein is then due.

         (c) Computations. All computations of interest, additional interest and
fees  accruing  at a per annum  rate  shall be made on the  basis of the  actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest,  additional  interest or commitment fees are
payable and a year of 360 days.

         (d) Payment on Business  Day.  Whenever any payment  hereunder or under
the Notes is due on a day other than a Business  Day, such payment shall be made
on the next  succeeding  Business  Day,  and  such  extension  of time  shall be
included in the  computation  of interest or fees. If,  however,  such extension
would cause payment of interest on or principal of  Eurodollar  Rate Advances to
be made in the next following  calendar month, such payment shall be made on the
next preceding Business Day.

         (e)  Presumption of Payment.  Unless the Agent receives notice from the
Borrower  prior to the date on which  any  payment  is due to the  Agent for the
benefit of the Lenders hereunder that the Borrower will not make such payment in
full,  the Agent may assume that the  Borrower  has made such payment in full to
the Agent on such date and the Agent  may,  in  reliance  upon such  assumption,
cause to be  distributed  to each Lender on such due date an amount equal to the
amount then due such  Lender.  If and to the extent the  Borrower  does not make
such payment to the Agent in full when due, each Lender shall repay to the Agent
forthwith  on demand such  amount  distributed  to such  Lender,  together  with
interest  thereon for each day from the date such amount was distributed to such
Lender until the Business  Day such Lender  repays such amount to the Agent,  at
the  Federal  Funds Rate  until the third  Business  Day after  such  demand and
thereafter at the rate applicable to Base Rate Advances.

         SECTION 2.16. Taxes.

         (a) Net  Payments.  Any and all payments by the  Borrower  hereunder or
under the Notes  shall be made free and clear of and without  deduction  for any
and all  present  or future  taxes,  levies,  imposts,  deductions,  charges  or
withholdings,  and all liabilities with respect thereto,  excluding, in the case
of each Lender and the Agent,  taxes  imposed on its net income,  and  franchise
taxes imposed on it, by the jurisdiction  under the laws of which such Lender or
the Agent (as the case may be) is organized or any political subdivision thereof
and, in the case of each Lender,  taxes imposed on its net income, and franchise
taxes imposed on it, by the  jurisdiction  of such Lender's  Applicable  Lending
Office  or any  political  subdivision  thereof  (all such  non-excluded  taxes,
levies,   imposts,   deductions,    charges,   withholdings   and   liabilities,
collectively,  are  "TAXES").  If the  Borrower is required by law to deduct any
Taxes from or in respect of any sum payable  hereunder  or under any Note to any
Lender or the Agent,


                                       36
<PAGE>

(i) the sum payable  shall be increased as may be necessary so that after making
all required  deductions  (including  deductions  applicable to additional  sums
payable  under this Section  2.16) such Lender or the Agent (as the case may be)
receives an amount equal to the sum it would have received if no such deductions
had been  made,  (ii) the  Borrower  shall make such  deductions,  and (iii) the
Borrower shall pay the full amount deducted to the relevant  taxation  authority
or other authority in accordance with applicable law.

         (b) Payment of Other Taxes. In addition, the Borrower agrees to pay any
present or future  stamp or  documentary  taxes or any other  excise or property
taxes,  charges or similar levies which arise from any payment made hereunder or
under the Notes or from the execution, delivery or registration of, or otherwise
similarly with respect to, this Agreement,  the Notes or any other Loan Document
("OTHER TAXES").

         (c)  Indemnification.  The Borrower will  indemnify each Lender and the
Agent for the full amount of Taxes or Other Taxes  (including any Taxes or Other
Taxes imposed by any  jurisdiction  on amounts  payable under this Section 2.16)
paid  by  such  Lender  or the  Agent  (as the  case  may be) and any  liability
(including penalties, interest and expenses, but excluding any liability arising
from  the  gross  negligence  or  willful  misconduct  of such  Person)  arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Payment under this indemnity shall be due 30 days
after written demand  therefor.  Any Person entitled to  indemnification  by the
Borrower pursuant to this Section 2.16(c) shall give the Borrower written notice
of any matter  which such  Person  has  determined  has given rise to a right of
indemnification  hereunder  within 120 days after the earlier of (i) the date on
which such Person makes  payment of the Taxes or Other Taxes giving rise to such
right or (ii) the date on which such Person receives  written demand for payment
of such  Taxes  or  Other  Taxes  from the  applicable  Governmental  Authority;
provided,  however, that the failure by any Person timely to provide such notice
(A) shall not  release  the  Borrower  from any of its  obligations  under  this
Section  2.16(c)  except to the extent the Borrower is materially  prejudiced by
such  failure,  or such notice was provided  more than 240 days after the latest
date such  notice  could have been timely  given,  and (B) shall not relieve the
Borrower from any other  obligation or liability that it may have to such Person
otherwise than under this Section 2.16(c).

         (d) Evidence of Payments.  Within 30 days after the date of any payment
of Taxes  hereunder by the Borrower,  the Borrower will furnish to the Agent, at
its address  referred to in Section  11.02,  the original or a certified copy of
any receipt issued to the Borrower evidencing payment thereof.

         (e)  Withholding  Tax  Exemption.  If any Lender is a "foreign  person"
within the meaning of the Code,  such Lender shall  deliver to the Agent (i) (A)
if such Lender qualifies for an exemption from, or a reduction of, United States
withholding tax under a tax treaty, a properly  completed and executed  Internal
Revenue  Service Form 1001 (or applicable  successor form) before the payment of
any interest in the first  calendar  year and in each  succeeding  calendar year
during  which  interest  may be paid under this  Agreement,  (B) if such  Lender
qualifies for an exemption from United States  withholding tax for interest paid
under this Agreement  because it is  effectively  connected with a United States
trade or business of such Lender,  two properly completed and executed copies of
Internal  Revenue  Service Form 4224 (or applicable  successor  form) before the
payment of any interest is due in the first taxable year of such Lender,  and in
each succeeding  taxable year of such Lender,  during which interest may be paid
under  this  Agreement,  or (C) if such  Lender  is not a "bank" as  defined  in
Section  881(c)(3)(A)  of the Code, a properly  completed and executed  Internal
Revenue  Service Form W-8 (or applicable  successor  form) before the payment of
any  interest  is due in the  first  taxable  year of such  Lender,  and in each
succeeding taxable year of such Lender,  during which interest may be paid under
this  Agreement,   certifying  that  such  Lender  is  a  foreign   corporation,
partnership,  estate or trust,  together with a certificate


                                       37
<PAGE>

of a duly authorized  officer  representing that such Lender is not a "bank" for
purposes of Section  881(c) of the Code,  is not a 10%  shareholder  (within the
meaning  of  Section  871(h)(3)(B)  of the  Code) of the  Borrower  and is not a
controlled  foreign  corporation  related to the Borrower (within the meaning of
Section  864(d)(4)  of the  Code),  and (ii) such  other form or forms as may be
required or  reasonably  requested  by the Agent to  establish  or  substantiate
exemption from, or reduction of, United States withholding tax under the Code or
other laws of the United  States.  Each Lender agrees to notify the Agent of any
change  in  circumstances  which  would  modify or render  invalid  any  claimed
exemption or reduction.  If any form or document  referred to in this subsection
(e) requires the disclosure of information,  other than information necessary to
compute the tax payable and information  required on the date hereof by Internal
Revenue Service Form 1001, 4224 or W-8 (or applicable  successor  forms) (or the
related certificate described above), that the Lender reasonably considers to be
confidential, the Lender shall give notice thereof to the Borrower and shall not
be obligated to include in such form or document such confidential information.

         (f) Withholding  Taxes. Where any Lender which is a "foreign person" is
entitled  to a  reduction  in the  applicable  withholding  tax,  the  Agent may
withhold  from any interest  payment to such Lender an amount  equivalent to the
applicable  withholding  tax after taking into account  such  reduction.  If the
forms or other  documentation  required by Section  2.16(e) are not delivered to
the Agent,  then the Agent may withhold from any interest  payment to any Lender
not providing  such forms or other  documentation,  an amount  equivalent to the
applicable withholding tax.

         (g)  Subsequent  Lenders.  For purposes of this Section 2.16,  the term
"Lender" shall include any assignee  pursuant to, and after  compliance with the
requirements of, Section 11.07; provided,  however, that no Person acquiring any
participation  pursuant  to  Section  11.07(e)  shall be deemed a  "Lender"  for
purposes of this Section 2.16 unless and until the Borrower has been notified of
such participation. If any Lender grants participation in or otherwise transfers
its rights under this Agreement, the participant or transferee shall be bound by
the terms of Sections 2.16(e) and (f) as though it were such Lender.

         (h) Refund, Deduction or Credit of Taxes. If any Lender determines,  in
its sole good faith discretion,  that it has actually and finally  realized,  by
reason of a refund,  deduction or credit of any Taxes paid or  reimbursed by the
Borrower  pursuant to  subsection  (a),  (b) or (c) above in respect of payments
under the Loan Documents, a current monetary benefit that it would otherwise not
have  obtained,  and that would result in the total  payments under this Section
2.16  exceeding the amount  needed to make such Lender whole,  such Lender shall
pay to the Borrower,  with reasonable  promptness following the date on which it
actually  realizes such benefit,  an amount equal to the lesser of the amount of
such  benefit or the amount of such excess,  in each case net of all  reasonable
out-of-pocket  expenses in securing such refund,  deduction or credit,  provided
that  nothing in this  subsection  shall  require  any Lender to provide its tax
returns to the Borrower or to manage its tax affairs in any particular manner.

         (i) Exclusion of Certain Taxes.  Notwithstanding any other provision of
this Agreement,  the Borrower shall not be required to pay any amount  hereunder
to any Lender or the Agent in respect  of any Taxes to the extent  that,  on the
date hereof or any other date such Lender became a party to (or participant with
respect to) this Agreement or (with respect to payments to an Applicable Lending
Office) the date such Lender  designated  which  Applicable  Lending Office with
respect to this  Agreement or any Notes,  the obligation to withhold or pay such
Taxes existed or would exist upon the payment of an amount by the Borrower under
this Agreement or any Note;  provided,  however,  that this paragraph  shall not
apply (A) to any Lender or  Applicable  Lending  Office  that became a Lender or
Applicable Lending Office as a result of an assignment, transfer, or designation
made at the  request  of the  Borrower,  or (B) to the  extent  that the  amount
otherwise  payable by the  Borrower  pursuant to this Section 2.16 to any Lender
that is an assignee  pursuant to (and in compliance  with the  requirements  of)
Section 11.07 does not


                                       38
<PAGE>

exceed the amount that would have been  payable  under this  Section 2.16 to the
assigning Lender in the absence of such assignment.

         (j) Additional Cooperation.  Any Lender claiming any amount pursuant to
this  Section  2.16  shall use  reasonable  efforts  (consistent  with legal and
regulatory   restrictions)  to  file  any  certificate  or  document  reasonably
requested  by the  Borrower  or to  change  the  jurisdiction  of such  Lender's
Applicable Lending Office if such a filing or change would avoid the need for or
reduce the amount payable by the Borrower under this Section 2.16 and would not,
in the good-faith  determination of such Lender, otherwise be disadvantageous to
such Lender.

         SECTION 2.17.  Sharing of Payments.  If after the occurrence and during
the  continuance  of any Event of Default  any Lender  shall  obtain any payment
(whether voluntary,  involuntary,  through the exercise of any right of set-off,
or  otherwise)  on account of any Advances  owed to it in excess of its Pro Rata
Share of all such payments,  such Lender shall forthwith purchase from the other
Lenders such  participations  in the Advances made by them as shall be necessary
to cause such purchasing Lender to share the excess payment ratably with each of
them. If all or any portion of such excess payment is thereafter  recovered from
such purchasing Lender,  such purchase from the other Lenders shall be rescinded
and each such other  Lender  shall repay to the  purchasing  Lender the purchase
price to the extent of its allocable  share of such  recovery  together with its
allocable share of any interest  required to be paid by the purchasing Lender on
the amount so  recovered.  The  Borrower  agrees  that any Lender  purchasing  a
participation  from  another  Lender  pursuant to this  Section 2.17 may, to the
fullest extent permitted by law, exercise collection rights (including the right
of set-off) with respect to such  participation  as fully as if such Lender were
the direct creditor of the Borrower in the amount of such participation.

                                  ARTICLE III

                              CONDITIONS OF LENDING

         SECTION 3.01.  Conditions Precedent on the Closing Date. This Agreement
shall become  effective and binding upon the parties  hereto only if each of the
following conditions precedent is satisfied by no later than March 31, 2000:

         (a) Bankruptcy Court Order. The Bankruptcy Court shall have entered the
Interim  Order,  certified by the Clerk of the  Bankruptcy  Court as having been
duly  entered,  and the Interim  Order is in full force and effect and shall not
have been  vacated,  reversed,  modified,  amended or stayed  without  the prior
written consent of the Agent and the Requisite Lenders.

         (b) Loan  Documents.  The Agent  must have  received,  with  sufficient
copies for each Lender, and all in form and substance  satisfactory to the Agent
and each Lender and each of their respective counsels:

                  (i) the Revolving Credit Notes (to the extent  requested) duly
         executed by the Borrower;

                  (ii) this Agreement duly executed by each of the Loan Parties,
         the Agent and each of the Lenders;

                  (iii)  interim  unaudited   quarterly  and  monthly  financial
         statements of the Borrower and its  Subsidiaries,  consistent  with the
         Borrower's  past  practices  and in a form  satisfactory  to the


                                       39
<PAGE>

         Agent,  through the Quarter  ending  September 30, 1999 and each fiscal
         month ending thereafter for which financial statements are available;

                  (iv) the executed  legal  opinion of Kaye,  Scholer,  Fierman,
         Hays & Handler,  LLP, counsel to the Loan Parties, in substantially the
         form of Exhibit D;

                  (v) such  other  legal  opinions  as the Agent may  reasonably
         require;

                  (vi) copies of the articles or  certificate  of  incorporation
         and by-laws or other  governing  documents of the Borrower,  RoTech and
         Symphony as in effect on the Closing Date,  certified as of the Closing
         Date by a Secretary or an Assistant  Secretary of the Borrower,  RoTech
         or Symphony, as applicable;

                  (vii) copies of  resolutions  of the Board of Directors of the
         Borrower,  RoTech and Symphony approving the transactions  contemplated
         hereby and authorizing the execution,  delivery and performance thereof
         by the Borrower,  RoTech and Symphony,  as applicable,  certified as of
         the  Closing  Date by a  Secretary  or an  Assistant  Secretary  of the
         Borrower, RoTech or Symphony, as applicable;

                  (viii)  a  certificate   of  the  Secretary  or  an  Assistant
         Secretary of the Borrower,  RoTech and Symphony,  certifying  the names
         and  true  signatures  of the  officers  of the  Borrower,  RoTech  and
         Symphony, as applicable, authorized to sign each Loan Document to which
         it is a party and to request an extension of credit hereunder;

                  (ix) a certificate of the Secretary or an Assistant  Secretary
         of the  Borrower,  certifying  the  names  and true  signatures  of the
         officers of each other Loan Party authorized to sign each Loan Document
         to which it is a party;

                  (x) a good standing  certificate for the Borrower,  RoTech and
         Symphony,  issued as of a recent date by the  Secretary of State of the
         state in which the Borrower,  RoTech and Symphony,  as  applicable,  is
         incorporated or formed and each state in which the Borrower, RoTech and
         Symphony is qualified to do business;

                  (xi) the fee letter dated the Closing  Date from  Citibank and
         the Arranger to the Borrower.

                  (xii)  all  documents  evidencing  other  necessary  corporate
         action  and  governmental  approvals,  if  any,  with  respect  to this
         Agreement or any other Loan Document;

                  (xiii)  such  other  certificates,  agreements,  documents  or
         instruments  as the Agent or the  Arranger  may  reasonably  request in
         writing.

         (c) Governmental Consents.  Each Loan Party must have obtained (without
the  imposition  of any  conditions  that are not  reasonably  acceptable to the
Agent) all necessary  consents,  approvals and authorizations  required from any
Governmental   Authority  in  connection   with  the  execution,   delivery  and
performance of its  obligations  under the Loan  Documents and the  transactions
contemplated  thereby and such consents or approvals  shall be in full force and
effect.

         (d) No Injunction.  No law or regulation shall prohibit,  and no order,
judgment  or decree of any  Governmental  Authority  shall  enjoin,  prohibit or
restrain,  and no  litigation  shall be  pending  or  threatened  which,  in the
reasonable judgment of the Agent, would enjoin, prohibit, prevent or restrain


                                       40
<PAGE>

or impose  materially  adverse  conditions  upon (i) the making of the Advances,
(ii) the  issuance  of any  Letter of Credit  or (iii) the  consummation  of the
transactions contemplated by the Loan Documents.

         (e) Material Adverse Change. Other than (i) the filing of the Cases and
(ii) the  circumstances  and  conditions  set forth in the Initial  Projections,
there shall have occurred no Material Adverse Change since September 30, 1999.

         (f) Security.  The Agent shall have a valid and  perfected  lien on and
security  interest in the Collateral  having the priorities set forth herein and
in the Orders.

         (g) Payment of Fees. All fees and expenses  (including  reasonable fees
and expenses of counsel) due to the Agent,  the Lenders and the Arranger and all
fees and  expenses  provided  for in the fee letter  dated  January 13, 2000 and
referred to in Section 2.04(e) must have been paid.

         SECTION 3.02.  Conditions  Precedent to Each  Extension of Credit.  The
obligation  of each Lender to make an Advance on the  occasion of any  Revolving
Credit Advance,  the obligation of the LC Bank to issue any Letter of Credit and
the right of the  Borrower  to  request a Swing  Line  Advance is subject to the
conditions precedent that on the date the Revolving Credit Advance or Swing Line
Advance  is to be made or Letter of Credit  is to be  issued,  including  on the
Closing Date:

         (a) Notice.  The Borrower shall have delivered a fully completed Notice
of Borrowing,  Notice of Swing Line Advance or LC  Application,  as the case may
be, dated on or before such date.

         (b) Borrowing Base. After giving effect to the Advances requested to be
made on any such date,  the use of  proceeds  thereof  and any Letters of Credit
requested to be issued on any such date,  the  Outstanding  Revolving  Credit at
such time shall not exceed the Maximum Credit at such time.

         (c)  Borrowing  Base  Certificate.  The Agent  shall  have  received  a
Borrowing Base Certificate,  executed and delivered by an Authorized  Officer of
the Borrower, as required by Section 6.01(c)(xii).

         (d) Bankruptcy Court Approval.

                  (i) With respect to the Interim  Facility,  the Interim  Order
         authorizing  and  approving the Interim  Facility and the  transactions
         contemplated  thereby and, with respect to the Permanent Facility,  the
         Final Order,  authorizing and approving the Permanent  Facility and the
         transactions contemplated thereby, shall have been duly entered and are
         in full  force and effect  and shall not have been  vacated,  reversed,
         modified,  amended or stayed  without the prior written  consent of the
         Agent and the Requisite Lenders; and

                  (ii) the First Day Orders and all motions and other  documents
         filed with and submitted to the  Bankruptcy  Court in  connection  with
         this  Agreement  and the  transactions  contemplated  hereby  shall  be
         satisfactory in form and substance to the Agent.

         (e) Statements. Each of the following statements shall be true:

                  (i) the representations and warranties contained in Article IV
         are correct on and as of such date,  before and after giving  effect to
         the  extension  of  credit  to be made  hereunder  on such date and the
         application of the proceeds therefrom, as though made on and as of such
         date;



                                       41
<PAGE>

                  (ii) no event has occurred and is continuing,  or would result
         from such  extension of credit or from the  application of the proceeds
         therefrom,  which  constitutes  an  Event  of  Default  or a  Potential
         Default;

                  (iii)  other  than (A) the  filing  of the  Cases  and (B) the
         circumstances and conditions set forth in the Initial  Projections,  no
         Material Adverse Change has occurred; and

                  (iv) the making of such Advance or the issuance of such Letter
         of Credit  does not violate  any  Requirements  of Law and has not been
         enjoined, temporarily, preliminarily or permanently.

The  delivery of a Notice of  Borrowing,  Swing Line Notice of  Borrowing  or LC
Application and the acceptance by the Borrower of the proceeds of any Advance or
of a Letter of Credit  shall  constitute  a  representation  and warranty by the
Borrower  that,  on the date such Advance is made or Letter of Credit is issued,
the foregoing statements are true.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

         SECTION 4.01.  Representations and Warranties of the Loan Parties.  The
Borrower  represents  and warrants as to itself and as to each other Loan Party,
and each other Loan Party  represents  and  warrants as to such Loan  Party,  as
follows:

         (a) Organization.  Each Loan Party is a corporation or partnership duly
organized,  validly  existing and in good standing  (except where the failure of
one or more Loan Parties, other than the Borrower,  RoTech or Symphony, to be in
good standing  after the Closing Date could not reasonably be expected to result
in a Material  Adverse Change) under the laws of the jurisdiction in which it is
organized and is duly qualified to do business as a foreign  corporation in each
jurisdiction  where  the  character  of  its  properties  or the  nature  of its
activities makes such qualification necessary.

         (b) Power and  Authority.  Each  Loan  Party (i) has all the  requisite
corporate  or  partnership  power and  authority to carry on its business as now
being  conducted and as proposed to be conducted by it, (ii) has the legal right
to own, pledge, mortgage and operate its properties and to lease the property it
operates  under  lease and (iii)  subject  to the entry of the  Orders,  has all
requisite power and authority to execute, deliver and perform each Loan Document
to which it is a party  and to take  all  action  necessary  to  consummate  the
transactions contemplated under each Loan Document to which it is a party).

         (c) Due Authorization.  The execution, delivery and performance by each
Loan  Party of each Loan  Document  to which it is or will be a party  have been
duly  authorized by all necessary  action of its board of directors (or, in case
of a partnership, of its governing authority).

         (d)   Subsidiaries   and  Ownership  of  Capital  Stock  and  Ownership
Interests. Set forth in Part I of Schedule 4.01(d) hereto is a complete list, as
of the Closing  Date, of all direct and indirect  Subsidiaries  of the Borrower.
Each Filing Subsidiary is a wholly-owned  Subsidiary of the Borrower.  Except as
set forth in such schedules,  no capital stock of or other equity,  ownership or
profit  interest in any such Subsidiary is subject to issuance or sale under any
warrant,   option  or  purchase  right,  conversion  or  exchange  right,  call,
commitment  or claim of any right,  title or interest  therein or  thereto.  The
outstanding  capital stock of each such Subsidiary is duly  authorized,  validly
issued,  fully paid and


                                       42
<PAGE>

nonassessable  and is not "margin stock," as that term is defined in Regulations
T, U and X of the Board of Governors of the Federal Reserve System.

         (e) Health Care  Facilities.  Set forth in Schedule 4.01(e) hereto is a
complete  list,  as of the Closing  Date,  of each Health Care  Facility  owned,
leased,  managed or operated by the Borrower or any  Subsidiary  of the Borrower
which is a skilled  nursing  facility,  hospital,  assisted  living  facility or
retirement  facility,  and  Schedule  4.01(e)  hereto,  as it may be so amended,
specifically sets forth, with respect to each such Health Care Facility, whether
such Health Care Facility is a leased facility or an owned facility.

         (f) Governmental Approval. No authorization or approval or other action
by, and no notice to or filing with, any Governmental  Authority is required for
the due execution,  delivery and  performance by each of the Loan Parties of any
Loan  Document  to which it is or will be a party,  except  for those  listed on
Schedule 4.01(f) hereto,  each of which has been duly obtained or made and is in
full force and effect.

         (g) Binding and Enforceable.  Subject to the entry of the Orders,  this
Agreement is, and each other Loan Document to which any Loan Party is or will be
a  party  is the  legal,  valid  and  binding  obligation  of the  Loan  Parties
enforceable against the Loan Parties in accordance with their respective terms.

         (h) Government Regulation.  No Loan Party is an "investment company" or
an  "affiliated  person" of, or "promoter" or  "principal  underwriter"  for, an
"investment company," as such terms are defined in the Investment Company Act of
1940. No Loan Party is subject to regulation  under the Public  Utility  Holding
Company  Act of 1935,  the  Federal  Power  Act,  or any other  federal or state
statute  that  restricts  or limits its  ability to incur Debt or to perform its
obligations  hereunder.  The  making  of  the  Advances  by the  Lenders  to the
Borrower,  the  issuance of the Letters of Credit on behalf of the  Borrower and
the  application  of the  proceeds  and  repayment  thereof will not violate any
provision  of any such  statute or any rule,  regulation  or order issued by the
Securities and Exchange Commission.

         (i)  Financial  Information.  The  consolidated  balance  sheet  of the
Borrower and its  Subsidiaries as at September 30, 1999 and their related income
and cash flow  statements  for the  period  then  ended,  each  other  financial
statement of the Borrower  and its  Subsidiaries  delivered to the Lenders on or
prior to the Closing Date, and each financial statement delivered to the Lenders
pursuant  to  Section  6.01(c),  as and when  delivered  to the  Lenders  fairly
presents  the  consolidated   financial   condition  of  the  Borrower  and  its
Subsidiaries  as at the  date  thereof  and the  consolidated  results  of their
operations for the period then ended,  all in accordance with GAAP  consistently
applied.

         (j) Material Adverse Change. Other than (i) the filing of the Cases and
(ii) the  circumstances  and  conditions  set forth in the Initial  Projections,
there has been no Material Adverse Change since September 30, 1999.

         (k)  Compliance.  Except as permitted  pursuant to Section  6.02(n) and
Section 6.02(p),  each Loan Party is in compliance in all material respects with
all material Requirements of Law.

         (l)  Litigation.  Other than the Cases,  there is no pending or overtly
threatened  action or  proceeding  affecting  any Loan  Party  before any court,
governmental agency or arbitrator, which would, if adversely determined,  result
in a Material Adverse Change or which relates to or could reasonably be expected
to affect the legality, validity or enforceability of any Loan Document.



                                       43
<PAGE>

         (m) No  Conflict.  Subject to the entry of the Orders,  the  execution,
delivery  and  performance  by each Loan Party of each of the Loan  Documents to
which it is a party do not and will not (i)  conflict  with,  result in a breach
of,  or  constitute  (with or  without  notice  or the  lapse of time or both) a
default  under,  any  Contractual  Obligation  of any Loan Party or  enforceable
against it or any of its property or assets,  except under immaterial agreements
for  supplies or  services  which are  readily  replaceable  without any adverse
effect on such Loan Party or its business,  (ii) conflict with or contravene any
Requirement of Law, (iii)  contravene its Constituent  Documents or (iv) require
any approval of its stockholders (if applicable).

         (n)  No  Default.  No  event  has  occurred  and  is  continuing  which
constitutes an Event of Default or a Potential Default.

         (o) Payment of Taxes.  Each Loan Party has filed all federal income tax
returns and all other  material  tax returns  required to be filed by it and has
paid all  material  taxes and  assessments  payable by it which have  become due
except to the extent being contested.

         (p) Margin Regulations.  No proceeds of any Advance or Letter of Credit
will be used for any purpose  that  requires any Lender to deliver or obtain any
certification under, or to comply with any margin requirement or other provision
of,  Regulations  T, U or X of the Board of  Governors  of the  Federal  Reserve
System.

         (q) Conduct of  Business.  The  Borrower is a holding  company  engaged
primarily  in the  business  of (i)  holding  stock of and  claims  against  its
Subsidiaries;  (ii) managing and developing corporate  opportunities  related to
the business of its  Subsidiaries;  (iii)  administering  and  coordinating  the
overall operating  business of its Subsidiaries and other investments  permitted
hereunder; (iv) obtaining of financing for the business of its Subsidiaries; and
(v)  holding  interests  in and  title  to  assets  and  property  necessary  or
appropriate to conduct such business in the ordinary course.  Each Subsidiary of
the  Borrower is either (i) inactive or (ii) engaged in the business of a Health
Care Company,  including making  Investments in Subsidiaries or Persons that are
Health Care Companies.

         (r) Health Care Permits.

                  (i)  Except as  permitted  pursuant  to  Section  6.01(k)  and
         Section  6.02(n),  (A) each Loan Party now has, and except  solely as a
         result of the filing of the Cases, has no reason to believe it will not
         be able to maintain in effect,  all Health Care Permits  necessary  for
         the lawful conduct of its business or operations wherever now conducted
         and as planned to be  conducted,  including the ownership and operation
         of its Health Care Facilities,  pursuant to all applicable laws and all
         requirements of Governmental  Authorities having jurisdiction over such
         Loan Party or over any part of its operations; (B) all such Health Care
         Permits  are in full  force and  effect  and have not been  amended  or
         otherwise  modified (except for  modifications  which do not constitute
         and cannot  reasonably  be  expected  to result in a  Material  Adverse
         Change),  rescinded,  revoked  or  assigned;  (C) no Loan  Party  is in
         default in any material  respect under, or in violation in any material
         respect of, any such Health Care Permit (and to the best  knowledge  of
         the Borrower,  no event has occurred,  and no condition exists,  which,
         with the giving of notice or passage of time or both,  would constitute
         a default  thereunder  or violation  thereof)  that has caused or could
         reasonably  be  expected  to cause  the loss of any  such  Health  Care
         Permit;  (D) neither the Borrower nor any other Loan Party has received
         any  notice of any  violation  of  applicable  laws which has caused or
         could reasonably be expected to cause any such Health Care Permit to be
         modified,  rescinded or revoked (except for modifications,  rescissions
         or revocations not amounting to a Material Adverse Change);  (E) to the
         best  knowledge  of the  Borrower,  no  condition  exists  or event has
         occurred   which  could   reasonably  be  expected  to  result  in  the


                                       44
<PAGE>

         suspension,  revocation,  impairment,  forfeiture or non-renewal of any
         such  Health  Care  Permit;  and (F)  the  continuation,  validity  and
         effectiveness  of all such Health Care  Permits  will not in any way be
         adversely affected by the transactions  contemplated by this Agreement,
         except  that the  exercise  by the Agent of its rights and  remedies in
         respect of the  Collateral  may be subject  to the  licensing  power of
         health care regulatory authorities.

                  (ii)  Except as  permitted  pursuant  to Section  6.01(k)  and
         Section 6.02(n), all Health Care Facilities owned,  leased,  managed or
         operated by any Loan Party are entitled to participate  in, and receive
         payment  under,   the  appropriate   Medicare,   Medicaid  and  related
         reimbursement   programs   and   in  any   similar   state   or   local
         government-sponsored  program,  to the extent  that such Loan Party has
         decided  to  participate  in any such  state or local  program,  and to
         receive  reimbursement  from private and  commercial  payers and health
         maintenance organizations to the extent applicable thereto.

         (s)  Environmental  Matters.  Except as set forth in  Schedule  4.01(s)
hereto, as it may from time to time be amended by the Borrower,  (i) no Material
Environmental  Claim is pending or, to the  knowledge of the  Borrower,  overtly
threatened  against the Borrower or any of its Subsidiaries,  or any property or
assets  currently  owned or leased  thereby,  and (ii) to the  knowledge  of the
Borrower,  no  Material  Environmental  Claim is pending  or overtly  threatened
against any property or assets previously owned, leased or otherwise used by the
Borrower or any of its  Subsidiaries.  Except in respect of matters that, in the
aggregate,  are not and cannot  reasonably  be  expected to result in a Material
Environmental  Claim or a Material  Adverse  Change,  (i) the  operations of the
Borrower  and its  Subsidiaries  comply and have  complied  with all  applicable
Environmental Laws, (ii) no facts,  circumstances or conditions exist that could
reasonably  be expected to result in the  assertion of a Material  Environmental
Claim  against  the  Borrower  or  its  Subsidiaries  or  to  prevent  continued
compliance by the Borrower and its  Subsidiaries  with  Environmental  Laws, and
(iii) to the knowledge of the Borrower,  no material  capital  expenditures  not
disclosed  on  Schedule  4.01(s)  are  anticipated  or  necessary  to achieve or
maintain  compliance  with  existing  or  promulgated,  but not  yet  effective,
Environmental Laws.

         (t) ERISA Compliance.

                  (i) Except as set forth on Schedule 4.01(t), each Pension Plan
         is  in  compliance  in  all  material   respects  with  the  applicable
         provisions  of ERISA,  the Code and other  applicable  Federal or state
         law.

                  (ii) Each Pension  Plan which is intended to be  tax-qualified
         under  Section  401(a)  of the Code has been  determined  by the IRS to
         qualify  under  Section  401  of  the  Code,  and  the  trusts  created
         thereunder  have  been  determined  to be  exempt  from tax  under  the
         provisions of Section 501 of the Code, and to the best knowledge of the
         Borrower  nothing  has  occurred  which  would  cause  the loss of such
         qualification or tax-exempt status.

                  (iii) Except as set forth in Schedule 4.01(t) hereto, (A) none
         of the Pension Plans has any material  Unfunded Pension Liability as to
         which the  Borrower  or any ERISA  Affiliate  is or may be liable;  (B)
         neither the Borrower nor any ERISA Affiliate has nor reasonably expects
         to incur any material  liability (and no event has occurred which, with
         the giving of notice under Section 4219 of ERISA,  would result in such
         material liability) under Section 4201 or 4243 of ERISA with respect to
         any  Multiemployer  Plan; and (C) other than the Cases,  no ERISA Event
         has occurred or, to the best  knowledge of the Borrower,  is reasonably
         expected to occur.

                  (iv) Neither the Borrower nor any ERISA Affiliate has engaged,
         directly or  indirectly,  in a  prohibited  transaction  (as defined in
         Section  4975  of the  Code or  Section  406 of


                                       45
<PAGE>

         ERISA) for which no statutory or administrative exemption is applicable
         in  connection  with  any  Plan  the  consequences  of  which,  in  the
         aggregate,  constitute  or can  reasonably  be  expected to result in a
         Material Adverse Change.

         (u) Title to Assets.  Each Loan Party has title, as of the date of each
of its financial statements  delivered hereunder,  to all of its material assets
reflected  therein,  except assets leased to it under a Capital Lease,  free and
clear of all Liens except Permitted Liens.

         (v) Loan  Documents.  On and after the Closing Date,  the provisions of
the Loan Documents and the Orders are effective to create in favor of the Agent,
for the benefit of the Secured Parties,  legal, valid and perfected Liens on and
security interests (having the priority provided for herein) in all right, title
and interest in the Collateral, enforceable against each Loan Party that owns an
interest in such Collateral.

         (w)  Security.  Pursuant  to  subsections  364(c)(2)  and  (3)  of  the
Bankruptcy  Code and the Orders,  all amounts  owing by the  Borrower  under the
Facility  and  by  the  Guarantors  in  respect  thereof   (including,   without
limitation, any exposure of a Lender or any of its affiliates in respect of cash
management  or hedging  transactions  incurred on behalf of the  Borrower or any
Guarantor) will be secured by a first priority perfected Lien on the Collateral,
subject  only  to (i)  valid,  perfected,  nonavoidable  and  enforceable  Liens
existing as of the Petition Date and (ii) the Carve-Out.

         (x) Priority. Pursuant to section 364(c) of the Bankruptcy Code and the
Orders, all Obligations and all Obligations of the Guarantors in respect thereof
(including,  without  limitation,  any  exposure  of a Lender in respect of cash
management  or hedging  transactions  incurred on behalf of the  Borrower or any
Guarantor) at all times will constitute  allowed  super-priority  administrative
expense  claims in each of the Cases  having  priority  over all  administrative
expenses of the kind  specified in sections  503(b) or 507(b) of the  Bankruptcy
Code, subject only to the Carve-Out.

         (y) Orders.  The Orders and the  transactions  contemplated  hereby and
thereby,  are in full  force and  effect  and have not been  vacated,  reversed,
modified, amended or stayed without the prior written consent of the Agent.

         (z)  Accounts  Receivable  Each  Account is genuine and in all respects
what it purports to be, and is not evidenced by a judgment.  Each Account arises
from an actual and bona fide sale and  delivery of goods or rendition of Medical
Services  to  customers,  made by a Loan  Party in the  ordinary  course  of its
business,  in accordance  with the terms and conditions of all purchase  orders,
contracts,  certifications,   participations,  certificates  of  need  or  other
documents  relating  thereto  and  forming a part of the  contract  between  the
relevant  Loan Party and Account  Debtor.  Each  Account  covers the sale or the
rendition of services that gave rise to the Account and each invoice relating to
the Account and such services has been forwarded to the relevant  Account Debtor
for payment in accordance  with applicable laws and in compliance and conformity
with any and all requisite  procedures,  requirements and regulations  governing
payment by such Account  Debtor with respect to such  Account,  and all Medicare
Accounts and Medicaid  Accounts are properly payable directly to a Loan Party in
the amount stated as the balance of such Account.  The invoices  evidencing  the
Accounts are in the name of the Loan Party to which such Account is owed and are
available to the Agent.  The  customers  of the Loan  Parties have  accepted the
goods or  Medical  Services  the sale or  rendition  of which  gave  rise to the
Accounts,  owe and are  obligated to pay the full amounts  stated in the related
invoices  according to their terms.  There are no facts,  events or  occurrences
which in any way impair the validity or  enforceability  of any Accounts or tend
to reduce the amount  payable  thereunder  from the face  amount of the claim or
invoice and statements  related thereto.  None of the Loan Parties has knowledge
of  information  that  would  lead  it to  believe  that  any of  the  following
statements  is  incorrect:  (1) the Account  Debtor  under each  Account had


                                       46
<PAGE>

the capacity to contract at the time any contract or other document  giving rise
to such Account was executed;  and (2) there are no proceedings or actions known
to the Borrower which are threatened or pending against any Account Debtor which
might result in any material adverse change in such Account  Debtor's  financial
condition or the collectibility of any Account owing by such Account Debtor.

         (aa) Year 2000 Compliance.  The Loan Parties are Year 2000 Compliant in
all material respects.

         (bb) Full  Disclosure.  The information  prepared or furnished by or on
behalf of the Borrower or any Loan Party in  connection  with this  Agreement or
the consummation of the transactions  contemplated  hereby taken as a whole does
not contain any untrue  statement of a material fact or omit to state a material
fact  necessary  to  make  the  statements   contained  therein  or  herein  not
misleading.  All  facts  known  to  the  Borrower  which  are  material  to  any
understanding of the financial condition,  business,  properties or prospects of
the Borrower and its Subsidiaries taken as one enterprise have been disclosed to
the Lenders.

         (cc)  Liens.As of the date hereof,  there are no existing  Liens on any
assets of the Loan Parties other than Permitted  Liens and there are no existing
Liens on any material portion of the Accounts of any Loan Party.

         (dd) Debt.  As of the date hereof,  there is no Debt of the Borrower or
any of its Subsidiaries other than Debt permitted by Section 6.02(d).

         (ee) Depositary  Banks.  Schedule 1.01 sets forth a complete list as of
the Closing Date of each bank or financial  institution  at which any Loan Party
maintains any depositary account.

                                   ARTICLE V

                       FINANCIAL COVENANTS OF THE BORROWER

         SECTION 5.01.  Financial  Covenants.  So long as any Obligation remains
unpaid,  any Letter of Credit remains  outstanding or any Lender is obligated to
extend credit  hereunder,  unless the  Requisite  Lenders  otherwise  consent in
writing the Borrower will:

         (a)  Minimum  Adjusted  EBITDA.  Have during any period set forth below
Adjusted  EBITDA for such period in an amount not less than the amount set forth
opposite such period:

                  For the period beginning
                  on January 1, 2000                 Minimum Cumulative
                  and ending on:                     Adjusted EBITDA

                  March 31, 2000                     $45,000,000
                  June 30, 2000                      $90,000,000
                  September 30, 2000                 $145,000,000
                  December 31, 2000                  $200,000,000

                  For the period beginning
                  on January 1, 2001                 Minimum Cumulative
                  and ending on:                     Adjusted EBITDA

                  March 31, 2001                     $52,500,000


                                       47
<PAGE>

                  June 30, 2001                      $105,000,000
                  September 30, 2001                 $157,500,000
                  December 31, 2001                  $210,000,000

         (b) Maximum Capital Expenditures.  The Borrower will not permit Capital
Expenditures  to be made or incurred during any period set forth below in excess
of the amount set forth opposite such period:

                  For the period beginning
                  on January 1, 2000                 Maximum Cumulative
                  and ending on:                     Capital Expenditures

                  March 31, 2000                     $37,500,000
                  June 30, 2000                      $75,000,000
                  September 30, 2000                 $112,500,000
                  December 31, 2000                  $150,000,000

                  For the period beginning
                  on January 1, 2001                 Maximum Cumulative
                  and ending on:                     Capital Expenditures

                  March 31, 2001                     $37,500,000
                  June 30, 2001                      $75,000,000
                  September 30, 2001                 $112,500,000
                  December 31, 2001                  $150,000,000



                                   ARTICLE VI

                            COVENANTS OF THE BORROWER

         SECTION 6.01. Affirmative Covenants.  So long as any Obligation remains
unpaid,  any Letter of Credit remains  outstanding or any Lender is obligated to
extend credit  hereunder,  unless the  Requisite  Lenders  otherwise  consent in
writing, the Loan Parties will, and will cause their respective Subsidiaries to:

         (a)  Compliance  with Laws.  Comply in all material  respects  with all
Requirements of Law.

         (b) Inspection of Property and Books and Records.  (i) Maintain  proper
books of  record  and  account,  in which  full,  true and  correct  entries  in
conformity  with  GAAP  consistently  applied  shall  be made  of all  financial
transactions  and matters  involving  its assets and  business,  and (ii) permit
representatives  of the  Agent or any  Lender to visit  and  inspect  any of its
properties,  to examine its corporate,  financial and operating records and make
copies thereof or abstracts therefrom, and to discuss its affairs,  finances and
accounts with its officers, employees and independent public accountants, all at
the expense of the Borrower,  in the case of visits or  inspections by the Agent
and,  if an Event of  Default is then  continuing,  by any  Lender,  and at such
reasonable  times during normal business hours and as often as may be reasonably
requested,  upon reasonable advance notice to the Borrower,  except that when an
Event of Default  exists the Agent or any Lender may take any such action at any
time during business hours and on same-day notice.



                                       48
<PAGE>

         (c)  Reporting  Requirements.  Furnish to the Lenders,  all in form and
substance satisfactory to the Agent:

                  (i) within 40 days after the end of each fiscal  month in each
         Fiscal Year (other  than the third  month in each  Quarter),  financial
         information  regarding the Borrower and its Subsidiaries  consisting of
         consolidated unaudited balance sheets as of the close of such month and
         the related  statements of income and cash flow for such month and that
         portion of the current Fiscal Year ending as of the close of such month
         (including  separate  balance sheets and income  statements by business
         line),  setting forth in comparative form the figures  contained in the
         Initial  Projections  and the Business  Plan,  as  applicable,  for the
         current Fiscal Year, in each case certified by an Authorized Officer of
         the Borrower as fairly presenting the consolidated  financial  position
         of the Borrower and its  Subsidiaries as at the dates indicated and the
         results of their operations and cash flow for the periods  indicated in
         accordance with GAAP (subject to the absence of footnote disclosure and
         normal year-end audit adjustments).

                  (ii)  within 55 days after the end of each of the first  three
         Quarters of each  Fiscal  Year,  financial  information  regarding  the
         Borrower and its  Subsidiaries  consisting  of  consolidated  unaudited
         balance  sheets  as of the  close  of  such  Quarter  and  the  related
         statements of income and cash flow for such Quarter and that portion of
         the  Fiscal  Year  ending  as of the close of such  Quarter  (including
         separate  balance  sheets  and income  statements  by  business  line),
         setting  forth in  comparative  form the figures for the  corresponding
         period in the  prior  year and the  figures  contained  in the  Initial
         Projections  and the  Business  Plan,  as  applicable,  for the current
         Fiscal Year,  in each case  certified by an  Authorized  Officer of the
         Borrower as fairly  presenting the consolidated  financial  position of
         the Borrower and its  Subsidiaries  as at the dates  indicated  and the
         results of their operations and cash flow for the periods  indicated in
         accordance with GAAP (subject to the absence of footnote disclosure and
         normal year-end audit adjustments).

                  (iii)  within  100 days  after  the end of each  Fiscal  Year,
         financial  information  regarding  the  Borrower  and its  Subsidiaries
         consisting  of  consolidated  balance  sheets of the  Borrower  and its
         Subsidiaries  as of the end of such  year  and  related  statements  of
         income and cash flows of the  Borrower  and its  Subsidiaries  for such
         Fiscal Year, all prepared in conformity with GAAP and certified, in the
         case of such consolidated  financial statements,  without qualification
         as to the  scope of the audit by KPMG LLP or other  independent  public
         accountants  acceptable to the Administrative  Agent, together with the
         report  of  such  accounting  firm  stating  that  (A)  such  financial
         statements  fairly present the consolidated  financial  position of the
         Borrower and its Subsidiaries as at the dates indicated and the results
         of  their  operations  and  cash  flow  for the  periods  indicated  in
         conformity  with GAAP  applied on a basis  consistent  with prior years
         (except  for  changes  with which  such  independent  certified  public
         accountants  shall  concur and which shall have been  disclosed  in the
         notes to the financial  statements),  and (B) the  examination  by such
         accountants in connection with such consolidated  financial  statements
         has been made in accordance with generally accepted auditing standards,
         and  accompanied  by a  certificate  stating  that in the course of the
         regular audit of the business of the Borrower and its Subsidiaries such
         accounting  firm has obtained no knowledge  that an Event of Default in
         respect of the financial  covenants contained in Article V has occurred
         and is  continuing,  or, if in the opinion of such  accounting  firm, a
         Potential Default or Event of Default has occurred and is continuing in
         respect  of such  financial  covenants,  a  statement  as to the nature
         thereof.

                  (iv) together  with each  delivery of any financial  statement
         pursuant  to  clauses  (ii)  and  (iii)  of  this  Section  6.01(c),  a
         certificate of an Authorized  Officer of the Borrower in  substantially
         the form of Exhibit E-1 (A)  demonstrating  compliance with each of the
         financial  covenants  contained  in Article V and (B)  stating  that no
         Potential  Default or Event of Default has occurred


                                       49
<PAGE>

         and is continuing or, if a Potential Default or an Event of Default has
         occurred and is  continuing,  stating the nature thereof and the action
         which the Borrower proposes to take with respect thereto.

                  (v) no later than July 31, 2000, the Business Plan  (including
         updated Projections for the balance of the Facility);

                  (vi) promptly after the filing thereof,  copies of all reports
         on Form  10-K,  10-Q or 8-K and all  other  documents  filed  with  the
         Securities and Exchange Commission or any national securities exchange;

                  (vii) notice when,  but in no event later than ten days after,
         it becomes  aware of any pending or threatened  Material  Environmental
         Claim or the presence of any Hazardous  Material in, on or under any of
         its  property  that is likely to prohibit or  restrict  materially  the
         occupancy,   transferability   or  use  of  such  property   under  any
         Environmental Laws or result in a Material Environmental Claim;

                  (viii) notice upon, but in no event later than ten days after,
         the  occurrence of any ERISA Event  affecting the Borrower or any ERISA
         Affiliate,  together with (A) a copy of any notice with respect to such
         ERISA  Event that may be required to be filed with the PBGC and (B) any
         notice  delivered  by the PBGC to the  Borrower or any ERISA  Affiliate
         with respect to such ERISA Event;

                  (ix) As soon as  practicable,  and in any  event  within  five
         Business Days after any executive  officer of any Loan Party has actual
         knowledge of the existence of any Potential  Default,  Event of Default
         or other event which has resulted in a Material Adverse Change or which
         has any  reasonable  likelihood  of causing or  resulting in a Material
         Adverse Change, the Borrower shall give the Agent notice specifying the
         nature of such  Default or Event of Default or other  event,  including
         the anticipated  effect thereof,  which notice,  if given by telephone,
         shall be promptly confirmed in writing on the next Business Day;

                  (x) as soon as possible, and in any event within five Business
         Days (A) after becoming aware thereof,  notice of the occurrence of any
         event that is or would (with the passage of time,  notice or both) be a
         default  under or a violation of any Health Care Permit  necessary  for
         the lawful  conduct of the  business or  operations  of any Loan Party,
         including the  ownership  and operation of its Health Care  Facilities;
         (B) after  receipt  thereof,  any notice of any violation of applicable
         laws that  causes or could  reasonably  be  expected  to cause any such
         Health Care Permit to be materially modified, rescinded or revoked; and
         (C) after becoming aware thereof, notice of the occurrence of any event
         that  constitutes or can reasonably be expected to result in a Material
         Adverse Change;

                  (xi) as soon as possible,  but in no event later than ten days
         after becoming aware thereof,  notice of any contingent  liabilities of
         the  Borrower  or any of its  Subsidiaries  that  could  reasonably  be
         expected to result in a Material Adverse Change;

                  (xii)  within five days after the end of each fiscal  month of
         the  Borrower,  the  Borrowing  Base  Certificate,  together  with  all
         appropriate   supporting   data   pursuant  to  such   Borrowing   Base
         Certificate;  provided, that if the Available Credit shall be less than
         $100,000,000, such Borrowing Base Certificate shall be delivered within
         two days after the end of each Calendar Week of the Borrower;



                                       50
<PAGE>

                  (xiii)  within five days after the end of each fiscal month of
         the  Borrower,  average  RUG rate and other payor rates for such fiscal
         month;

                  (xiv) within three days after the end of each Calendar Week of
         the  Borrower,  (A) rolling  13-week cash flow  forecast,  (B) facility
         census by payor for such  week;  provided,  that the  delivery  of such
         census required  pursuant to this clause (B) shall commence thirty days
         after the Closing Date, (C) PIP collections in total for such week, (D)
         Medicaid  collections  wired to the Borrower's  corporate office during
         such week, (E) daily  collections  compared to the Initial  Projections
         and  the  Business  Plan,  as   applicable,   for  such  week  and  (F)
         consolidated facility occupancy rate for such week;

                  (xv) promptly after the commencement  thereof,  written notice
         of the  commencement of all actions,  suits and proceedings  before any
         domestic or foreign Governmental Authority or arbitrator, affecting the
         Borrower or any of its Subsidiaries,  which in the reasonable  judgment
         of the  Borrower,  expose  the  Borrower  or  any  such  Subsidiary  to
         liability  in an amount  aggregating  $1,000,000  or more or which,  if
         adversely determined,  could reasonably be expected to result in having
         a Material Adverse Change.

                  (xvi) promptly after the sending or filing thereof,  copies of
         all material notices, certificates or reports delivered pursuant to the
         Existing Agreement;

                  (xvii) as soon as  available,  all  schedules  of  assets  and
         liabilities,   all  statements  of  financial  affairs,  all  operating
         reports,  all claims  registers and all other  pleadings,  in each case
         filed in the Cases by or on behalf of any Loan Party; and

                  (xviii) such other  information  respecting  the  condition or
         operations,  financial  or  otherwise,  of the  Borrower  or any of its
         Subsidiaries as the Agent (on behalf of itself or any Lender) from time
         to time may reasonably request.

         (d)  Preservation  of  Corporate  Existence,  Etc.  Subject  to Section
6.02(k),  (i) preserve  and  maintain in full force and effect its  corporate or
partnership  existence  and  good  standing  under  the  laws  of its  State  or
jurisdiction  of  incorporation  or  organization  and all  rights,  privileges,
qualifications,  permits,  licenses and franchises necessary or desirable in the
normal  conduct of its business  (provided,  that the failure at any one time to
maintain  Health Care Permits  with respect to any seven Health Care  Facilities
owned or leased by any one or more Filing  Subsidiaries  shall not  constitute a
failure to comply with this  Section  6.02(d)(i)),  (ii)  conduct  its  business
consistent with past practice, (iii) use its reasonable efforts, in the ordinary
course and consistent with past practice,  to preserve its business organization
and preserve the goodwill and business of the  customers,  suppliers  and others
doing  business  with it,  and (iv)  preserve  or  renew  all of its  registered
trademarks,  trade names, patents, permits, material licenses, service marks and
other intellectual  property, the non-preservation of which constitutes or could
reasonably be expected to result in a Material Adverse Change.

         (e)  Maintenance  of  Property.  Except as  otherwise  required  by the
Bankruptcy  Code,  maintain and preserve all its property which is necessary for
use in its business in good working order and  condition,  except  ordinary wear
and tear and except as permitted under Section 6.02(b),  and use the standard of
care typical in the industry in the operation of the Health Care Facilities.

         (f)  Bankruptcy  Court.  Use its best efforts to obtain the approval of
the Bankruptcy  Court of this Agreement and the other Loan Documents and deliver
to the Agent and the Agent's counsel all material  pleadings,  motions and other
documents filed on behalf of the Loan Parties with the Bankruptcy Court.



                                       51
<PAGE>

         (g) Insurance.  Maintain insurance with financially sound and reputable
insurers with respect to its properties  and business  against loss or damage of
the kinds customarily  insured against by Persons engaged in the same or similar
business,  of such types and in such amounts as are  customarily  carried  under
similar  circumstances by such other Persons,  including  workers'  compensation
insurance, public liability and property and casualty insurance, except that the
Borrower  shall be permitted to maintain self  insurance  with respect to health
care benefits  provided to employees  and with respect to workers'  compensation
insurance so long as the Borrower also  maintains,  with  financially  sound and
reputable  insurers,  stop loss insurance of the type and in amounts customarily
maintained by Persons engaged in the same or similar business as are customarily
carried under similar  circumstances by such other Persons.  Upon request of the
Agent,  the Borrower  shall furnish the Agent,  with copies for each Lender,  at
reasonable  intervals (but not more than once per calendar  year), a certificate
of an Authorized  Officer (and, if requested by the Agent,  any insurance broker
of the Borrower) setting forth the nature and extent of all insurance maintained
by the Borrower and its  Subsidiaries  in accordance  with this Section  6.01(g)
(and which,  in the case of a certificate  of a broker,  was placed through such
broker).

         (h) Cash Management

                  (i) The Loan Parties shall maintain a cash  management  system
         acceptable  to the Agent  including one or more  lockboxes,  which cash
         management  system  shall  provide  for all funds  received by any Loan
         Party to be  deposited  in a  Collection  Account  covered by a Blocked
         Account  Letter,  the  Citibank  Concentration  Account  or into a bank
         account the  deposits in which are swept into a  Collection  Account or
         the Citibank Concentration Account a periodic basis (no less frequently
         than bi-weekly).

                  (ii) Within 45 days of the Closing Date (or by such later date
         as the  Borrower  may request in writing and the Agent may agree),  the
         Borrower shall deliver to the Agent the Blocked Account  Letters,  duly
         executed  by  all of  the  applicable  Collection  Account  Banks,  the
         Borrower and the appropriate Loan Party;

                  (iii)  Notwithstanding  anything to the contrary  contained in
         this Section  6.01(h),  to the extent that at the close of any Business
         Day (x)  cash  and  Cash  Equivalents  of any  Loan  Party  held in any
         Collection  Account or other cash deposit account exceeds  $10,000,000,
         or (y) cash  and  Cash  Equivalents  of all  Loan  Parties  held in all
         Collection  Accounts and cash deposit accounts  exceeds  $50,000,000 in
         the aggregate,  such excess , in the case of clause (x) or (y) shall be
         transferred  to the  Citibank  Concentration  Account on the  following
         Business  Day.  All  funds on  deposit  in the  Citibank  Concentration
         Account   shall  be  applied  in  the  manner   specified   in  Section
         2.11(b)(iii).

                  (iv) If at any time prior to the Termination  Date no Event of
         Default or Potential  Default has occurred  and is  continuing  and the
         amount on deposit in the Citibank Collateral Account exceeds the amount
         of cash  collateral  required to be deposited in respect of the then LC
         Exposure  pursuant to Section  2.06(b) or (c) or otherwise  pursuant to
         Section  2.11(b)(ii)  or (iii),  the Agent  shall,  if so  directed  in
         writing by the  Borrower,  cause such  deposit  to be  released  to the
         Borrower to the extent,  but only to the extent,  such deposit  exceeds
         the  sum of (A)  105%  of the  then  LC  Exposure  required  to be cash
         collateralized pursuant to Section 2.06(b) or (c) and (B) the amount of
         cash  collateral  required to be deposited  in the Citibank  Collateral
         Account pursuant to Section 2.11(b)(ii) or (iii).

                  (v) As  long  as no  Event  of  Default  has  occurred  and is
         continuing,  the Agent shall, upon the request of the Borrower, use all
         funds on deposit in the Citibank Collateral Account to make Investments
         in Cash Equivalents selected by the Borrower.



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<PAGE>

         (i) Environmental  Laws. Except as otherwise required by the Bankruptcy
Code or by a Final Order of the  Bankruptcy  Court,  conduct its  operations and
keep and maintain its property in compliance  in all material  respects with all
applicable  Environmental  Laws and  Environmental  Permits;  and prepare at the
Borrower's  sole cost and expense and deliver to the Agent and the Lenders  such
updates as the Agent or the Requisite Lenders may reasonably request relating to
any Material Environmental Claim.

         (j) Use of Proceeds.  Use the  proceeds of the  Advances  solely (i) to
fund  post-petition  operating  expenses  of the Loan  Parties  incurred  in the
ordinary  course of  business,  (ii) to pay certain  other costs and expenses of
administration  of the Cases to be specified in writing to the Agent  (including
by  notice of  application  for  Orders),  (iii) for  working  capital,  capital
expenditures  and other  general  corporate  purposes of the Loan Parties not in
contravention  of any  Requirement of Law or the Loan Documents and (iv) as long
as no Potential  Default or Event of Default has occurred and is continuing,  to
pay certain  Permitted  Prepetition  Claim Payments.  The Borrower shall use the
entire  amount of the proceeds of each Advance in  accordance  with this Section
6.01(j);  provided,  however,  that nothing herein shall in any way prejudice or
prevent  the  Agent  or the  Lenders  from  objecting,  for any  reason,  to any
requests,  motions or applications made in the Bankruptcy  Court,  including any
applications  for  interim or final  allowances  of  compensation  for  services
rendered or reimbursement of expenses incurred under section 105(a),  330 or 331
of the Bankruptcy Code, by any party in interest,  and provided,  further,  that
the Borrower  shall not use the proceeds  from any Advances for any purpose that
is prohibited under the Bankruptcy Code.

         (k) Health Care Permits and Approvals. Take all action necessary (i) to
maintain  in full force and effect all Health  Care  Permits  necessary  for the
lawful  conduct of its  business or  operations  wherever now  conducted  and as
planned to be  conducted,  including  the  ownership and operation of its Health
Care  Facilities,  pursuant  to all  applicable  laws  and all  requirements  of
Governmental  Authorities  having  jurisdiction  over  it or  any  part  of  its
operations;  and (ii) ensure that all Health Care Facilities  owned or leased by
it are entitled to participate  in, and receive  payment under,  the appropriate
Medicare,  Medicaid and related reimbursement programs, and any similar state or
local  government-sponsored  program  to  the  extent  that  it has  decided  to
participate  in any such state or local  program,  and to receive  reimbursement
from private and commercial payers and health  maintenance  organizations to the
extent  applicable  thereto;  provided,  that  the  failure  at any one  time to
maintain  Health Care Permits  with respect to any seven Health Care  Facilities
owned or leased by any one or more Filing  Subsidiaries  shall not  constitute a
failure to comply with this Section 6.01(k).

         (l) Further Assurances.

                  (i)  Promptly  and in no event later than five  Business  Days
         after  becoming  aware  thereof,  notify  the  Lenders  if any  written
         information,  exhibits and reports furnished to the Lenders contain any
         untrue  statement of a material fact or omit to state any material fact
         or any fact  necessary  to make the  statements  contained  therein not
         misleading in light of the circumstances in which made, and correct any
         defect or error that may be  discovered  therein  or in the  execution,
         acknowledgement or recordation of any Loan Document.

                  (ii)  Promptly  upon  request  by the  Agent or the  Requisite
         Lenders,  execute,  deliver,  acknowledge,  file, re-file, register and
         re-register  any  and  all  such  further  acts,  security  agreements,
         assignments,   estoppel   certificates,    financing   statements   and
         continuations thereof,  termination statements,  notices of assignment,
         transfers,  certificates,  assurances, Federal Reserve Forms U-1 or G-3
         or similar  forms and other  instruments  as the Agent or the Requisite
         Lenders may reasonably  require from time to time in order (A) to carry
         out more  effectively  the purposes of this Agreement or any other Loan
         Document,  (B) to  subject  to the  Liens  created  by any of the


                                       53
<PAGE>

         Loan  Documents  and  the  Orders  any of  the  properties,  rights  or
         interests  described in or intended to be covered by any Loan Document,
         (C) to establish and maintain the validity,  effectiveness,  perfection
         and priority of any Loan  Document or any Liens  intended to be created
         thereby,  or (D) to better assure,  convey,  grant,  assign,  transfer,
         preserve,  protect  and confirm to the Agent and the Lenders the rights
         granted or now or hereafter intended to be granted to the Lenders under
         any Loan Document or under any other instrument  executed in connection
         therewith.

         (m) Delivery of Promissory  Note.  If requested by any Lender,  execute
and deliver a promissory note, in  substantially  the form of Exhibit A, payable
to the  order of such  Lender  in a  principal  amount  equal  to such  Lender's
Commitment, duly executed by the Borrower.

         (n)  Licensure;   Medicaid/Medicare   Cost  Reports.   If  required  by
applicable   law   or   any   Governmental   Authority,    properly   file   all
Medicaid/Medicare  cost reports; and maintain all certificates of need, provider
numbers and licenses that are necessary to conduct such Loan Party's business as
currently conducted,  and take any steps required to comply with any such new or
additional requirements that may be imposed on providers of medical products and
Medical Services.

         SECTION 6.02.  Negative  Covenants.  So long as any Obligation  remains
unpaid,  any Letter of Credit remains  outstanding or any Lender is obligated to
extend credit hereunder,  without the written consent of the Requisite  Lenders,
neither the  Borrower nor any other Loan Party will,  and the Borrower  will not
cause or permit any of its Subsidiaries to:

         (a) Liens.  Directly or indirectly make, create,  incur, permit, assume
or suffer to exist any Lien upon or with  respect to any part of its  properties
or assets, whether now owned or hereafter acquired, or become or remain bound by
any agreement to do so or assign any right to receive income, except:

                  (i) any Lien  existing on the Closing  Date and  described  in
         Schedule 6.02(d) hereto;

                  (ii) any Lien created under any Loan Document;

                  (iii) any Lien for the payment of taxes, fees,  assessments or
         other governmental  charges which are not delinquent and remain payable
         without  penalty  or  which  are  being  contested  in  good  faith  by
         appropriate  proceedings and with respect to which adequate reserves or
         other  appropriate  provisions  are  being  maintained  to  the  extent
         required by GAAP;

                  (iv) any carriers', warehousemen's, mechanics', landlords', or
         materialmen's,  or other  similar  Lien  imposed by law  arising in the
         ordinary  course of business which is not delinquent or remains payable
         without   penalty  or  which  is  being  contested  in  good  faith  by
         appropriate  proceedings and with respect to which adequate reserves or
         other  appropriate  provisions  are  being  maintained  to  the  extent
         required by GAAP;

                  (v) any Lien (other than a Lien  imposed by ERISA) on deposits
         required  by  law  pursuant  to  worker's  compensation,   unemployment
         insurance and other social security benefits;

                  (vi) any easement, right-of-way, restriction and other similar
         encumbrance  with  respect to Real  Property  incurred in the  ordinary
         course of business which does not materially  detract from the value of
         such Real  Property  or  interfere  with the  ordinary  conduct  of the
         business  conducted and proposed to be conducted at such Real Property;
         and



                                       54
<PAGE>

                  (vii)  purchase  money  Liens  granted by the  Borrower or any
         Subsidiary of the Borrower  (including the interest of a lessor under a
         Capital Lease and Liens to which any property is subject at the time of
         the Borrower's or such Subsidiary's  acquisition thereof) securing Debt
         permitted  under  Section  6.01(d)(iii)and  limited in each case to the
         property   purchased   with  the  proceeds  of  such   purchase   money
         Indebtedness or subject to such Capital Lease.

         (b)  Disposition  of  Assets.  Engage  in any Asset  Sale or  otherwise
directly or  indirectly  sell,  assign,  lease,  convey,  transfer or  otherwise
dispose of all or any  portion of its assets,  business or property  (including,
without limitation,  in connection with a sale and leaseback  transaction or the
sale or factoring  at maturity or  collection  of any  accounts) or any interest
therein, or agree to do any of the foregoing, except:

                  (i) the disposition of inventory or used,  worn-out or surplus
         property or equipment in the ordinary course of business;

                  (ii) the sale of equipment in the ordinary  course of business
         for credit against the purchase price of similar replacement  equipment
         or if the proceeds of the sale are reasonably  promptly  applied to the
         purchase price of similar replacement equipment; and

                  (iii) any other  Asset Sale  (other than any Asset Sale of any
         of the Stock of RoTech or all or  substantially  all of the assets,  of
         RoTech)  made  for  fair  market  value;  so long as (A) the sum of the
         aggregate  consideration  received pursuant to such Asset Sale plus the
         aggregate consideration received pursuant to all such other Asset Sales
         in any  Fiscal  Year is less than  $10,000,000,  (B) the  consideration
         received  in such Asset Sale is solely in cash,  and (C) at the time of
         or after  giving  effect to such  Asset  Sale,  no Event of  Default or
         Potential Default exists;

provided,  however,  that the foregoing  limitations are not intended to prevent
the Borrower from rejecting  unexpired leases or executory contracts pursuant to
section 365 of the Bankruptcy Code in connection with the Cases.

         (c)  Investments.  Directly  or  indirectly  make,  acquire,  carry  or
maintain any  Investment,  or become or remain  bound by any  agreement to make,
acquire, carry or maintain any Investment, except:

                  (i) Investments in cash and Cash Equivalents;

                  (ii)  Investments  in  accounts or notes  receivable  or other
         claims  arising  from the sale or  lease  of goods or  services  in the
         ordinary course of business;

                  (iii)  Investments  held on the Closing Date and  described in
         Schedule 6.02(c) hereto; and

                  (iv)  Investments by (A) the Borrower in any Guarantor,  or by
         any Guarantor in the Borrower or any other Guarantor,  (B) a Subsidiary
         that is not a Guarantor  in the Borrower or any other  Subsidiary,  (C)
         the Borrower or any Guarantor in a Subsidiary  that is not a Guarantor;
         provided,  however,  that  the  aggregate  outstanding  amount  of such
         Investments   pursuant  to  this  clause   (iv)(C)   shall  not  exceed
         $20,000,000  at any  time;  provided  further,  however,  that  no such
         Investments  shall be made in Monarch  Properties LP, Lyric Health Care
         LLC or any of their respective Subsidiaries.



                                       55
<PAGE>

         (d) Limitation on Debt. Directly or indirectly create,  incur,  assume,
guarantee  or suffer to  exist,  or  otherwise  become  or  remain  directly  or
indirectly liable with respect to, any Debt, except:

                  (i) the Obligations;

                  (ii)  Debt  existing  on the  Closing  Date and  described  in
         Schedule 6.02(d);

                  (iii)  obligations  in respect of Capital  Leases and purchase
         money Debt incurred by the Borrower or its  Subsidiaries to finance the
         acquisition  of fixed assets in the  ordinary  course of business in an
         aggregate outstanding principal amount not to exceed $25,000,000 at any
         time; provided,  however,  that the Capital Expenditure related thereto
         is otherwise permitted by Section 5.01(b); and

                  (iv)  Debt  arising  from  intercompany  loans  (A)  from  the
         Borrower to any  Guarantor or from any Guarantor to the Borrower or any
         other  Guarantor  and (B) from the  Borrower  or any  Guarantor  to any
         Subsidiary of the Borrower that is not a Guarantor;  provided, however,
         that the  Investment  in the  intercompany  loan to such  Subsidiary is
         permitted under Section 6.02(c)(iv).

         (e)  Transactions  with  Affiliates.  Enter or agree to enter  into any
transaction  with any  Affiliate  of the  Borrower or of any  Subsidiary  of the
Borrower  except (i) under the Loan  Documents,  (ii) in the ordinary  course of
business  and  pursuant to the  reasonable  requirements  of the business of the
Borrower or such Subsidiary and upon fair and reasonable terms no less favorable
to the Borrower or such Subsidiary  than the Borrower or such  Subsidiary  would
obtain in a comparable  arm's-length  transaction with a Person not an Affiliate
of the Borrower or such  Subsidiary;  provided,  that if such Affiliate is not a
Subsidiary of the  Borrower,  the Borrower or such Loan Party shall give written
notice of any such transaction to the Agent and the Lenders and such transaction
shall be subject to the approval of the Requisite  Lenders or (iii) salaries and
other employee  compensation  to officers or directors of the Borrower or any of
its Subsidiaries  commensurate with current compensation levels or as part of an
employee retention or incentive program approved by the Bankruptcy Court.

         (f) Accommodation Obligations. Create, incur, assume or suffer to exist
any Accommodation Obligations except:

                  (i)  endorsements  of checks for  collection or deposit in the
         ordinary course of business;

                  (ii)  Accommodation   Obligations  of  the  Borrower  and  its
         Subsidiaries  existing as of the Closing Date and described in Schedule
         6.02(f) hereto; and

                  (iii) the Obligations.

         (g) Leases of Health Care Facilities. Enter into or become obligated as
lessee under any lease of a Health Care Facility, whether or not it is a Capital
Lease,  unless (i) the lease is free from provisions pursuant to which the lease
is  violated or put into  default by reason of any  breach,  default or event of
default under any  indenture or agreement  governing any Debt of, or other lease
binding on, the Borrower or any of its other Subsidiaries,  except another lease
entered  into by the same  lessor  or by one of its  Affiliates,  (ii) the lease
permits the Borrower and such Subsidiary to comply with this Section 6.01(g) and
does not include any provision that is or would be violated or put in default by
reason of such  compliance  or by reason of the  enforcement  of the  claims and
Liens of the Agent and Lenders arising from such compliance, and (iii) the lease
is free from  provisions  pursuant to which the lease is or


                                       56
<PAGE>

would be violated or put into default,  or any prepayment would be required,  by
reason of any change in control of the Borrower or such  Subsidiary  except,  if
required by the lessor  despite best efforts by the Borrower to the contrary,  a
right to consent to a change of ownership of such Subsidiary if such consent may
not unreasonably be withheld.

         (h)  Subsidiaries.  Directly  or  indirectly,  by  operation  of law or
otherwise, form or acquire any Subsidiary.

         (i) Restricted Payments. Directly or indirectly (A) declare or make any
dividend  payment or other  distribution of assets,  properties,  cash,  rights,
obligations  or  securities on account of any shares of any class of its capital
stock or any other equity, ownership or profit interests;  (B) purchase,  redeem
or otherwise  acquire for value any shares of any class of capital  stock of, or
other  equity,  ownership  or profit  interests  in, the  Borrower or any of its
Subsidiaries  or any  warrants,  rights or options to acquire any such shares or
interests,   now  or  hereafter  outstanding;   (C)  enter  into  any  agreement
restricting the ability of any Subsidiary of the Borrower to declare or make any
dividend  payment or other  distribution of assets,  properties,  cash,  rights,
obligations  or  securities  to its  stockholders;  (D)  except  in  respect  of
Permitted  Prepetition  Claim  Payments,  agree to or permit  any  amendment  or
modification  of, or change in,  any of the terms of  prepetition  Debt;  or (E)
except in respect of Permitted Prepetition Claim Payments,  pay, prepay, redeem,
or purchase or otherwise  acquire any  prepetition  Debt, or make any deposit to
provide for the payment of any  prepetition  Debt,  or exchange any  prepetition
Debt,  or otherwise  make any payment (as adequate  protection  or otherwise) on
account of any Claim  arising  or deemed to have  arisen  prior to the  Petition
Date, or give any notice in respect thereof.

         (j) Capital Structure/Modification of Constituent Documents. Change its
capital  structure  (including the terms of its outstanding  Stock) or otherwise
amend its Constituent Documents,  except for changes and amendments which do not
materially  affect the rights and privileges of any Loan Party, or the interests
of the Agent and the Lenders under the Loan Documents or in the Collateral.

         (k) Mergers,  Etc. Merge or consolidate  with or into or enter into any
agreement  to  merge  or  consolidate  with or into  any  Person  except  that a
wholly-owned  Subsidiary of the Borrower may engage in a merger or consolidation
with any one or more other  wholly-owned  Subsidiaries  of the  Borrower  if the
surviving  corporation  is a  wholly-owned  Subsidiary  of the Borrower and is a
Guarantor.

         (l)  Conduct  of  Business.  Engage  in any  business  other  than  the
businesses of the Loan Parties  described in Section 4.01(q) and any business or
activity substantially similar thereto.

         (m) Compliance with ERISA.  Directly or indirectly (or permit any ERISA
Affiliate  directly or indirectly to) (i) terminate any Plan subject to Title IV
of ERISA so as to result in liability to the Borrower or any ERISA  Affiliate in
excess of  $2,000,000;  (ii)  permit  any ERISA  Event to  exist;  (iii)  make a
complete or partial  withdrawal  (within the meaning of ERISA Section 4201) from
any Multiemployer Plan so as to result in liability to the Borrower or any ERISA
Affiliate in excess of  $2,000,000;  or (iv) permit the total  Unfunded  Pension
Liabilities  (using  the  actuarial  assumptions  utilized  by the PBGC) for all
Pension  Plans  (other  than  Pension  Plans  which  have  no  Unfunded  Pension
Liabilities) to exceed $2,000,000.

         (n) Health Care Permits and Approvals.  Engage in any activity that (i)
is or could  reasonably  be  expected to result in a material  default  under or
violation  of any Health Care  Permit  necessary  for the lawful  conduct of its
business or operations  or (ii) causes or could  reasonably be expected to cause
the loss by any Health  Care  Company or Health  Care  Facility  owned,  leased,
managed or operated by it of the right to  participate  in, and receive  payment
under, the appropriate Medicare,  Medicaid and related  reimbursement  programs,
and any similar state or local  government-sponsored


                                       57
<PAGE>

program to the extent  that it has decided to  participate  in any such state or
local program,  or to receive  reimbursement  from private and commercial payers
and health maintenance organizations to the extent applicable thereto; provided,
that the failure at any one time to maintain Health Care Permits with respect to
any seven Health Care Facilities owned or leased by any Filing  Subsidiary shall
not constitute a failure to comply with this Section 6.02(n).

         (o)  Payment  Restrictions  Affecting  Subsidiaries.  Cause,  permit or
suffer any Subsidiary to become or remain subject to any Contractual  Obligation
that in any  manner  limits  or  restricts  its right to pay  dividends  or make
distributions,  whether in cash or in property,  to its  stockholders or to make
loans or sell assets to the Borrower or any of its Subsidiaries or to enter into
any other  lawful  transaction  with the  Borrower  or any of its  Subsidiaries,
except  limitations  and  restrictions  set forth in this Agreement or the other
Loan Documents.

         (p) The  Orders.  Make or permit to be made any  change,  amendment  or
modification,  or any  application  or  motion  for  any  change,  amendment  or
modification, to either Order without the prior written consent of the Requisite
Lenders.

         (q) Application to Bankruptcy Court.  Apply to the Bankruptcy Court for
the authority to take any action that is prohibited by or inconsistent  with the
terms of this  Agreement  or any of the other Loan  Documents  or  refrain  from
taking any action that is required to be taken by the terms of this Agreement or
any of the other Loan Documents.

         (r) Ownership. Make or permit to be made any change in the ownership or
control of any Guarantor.

         (s)  Accounting  Changes;   Fiscal  Year.  Change  its  (i)  accounting
treatment and reporting practices or tax reporting treatment, except as required
by GAAP or any  Requirement of Law and disclosed to the Lenders and the Agent or
(ii) Fiscal Year.

         (t)  Cancellation of Indebtedness  Owed to It. Cancel any Claim or Debt
owed to it except (i) in the ordinary  course of business  consistent  with past
practice or (ii) as otherwise approved by the Bankruptcy Court.

         (u) No Speculative Transactions.  Engage in any speculative transaction
or in any transaction  involving Hedging Contracts,  except for the sole purpose
of hedging in the normal course of the Loan Parties'  businesses  and consistent
with industry practices.

         (v) Chapter 11 Claims. Incur, create, assume, suffer to exist or permit
any administrative  expense,  unsecured claim, or other  super-priority claim or
lien which is pari passu  with or senior to the  claims of the  Secured  Parties
against  the  Loan  Parties  hereunder,  or apply to the  Bankruptcy  Court  for
authority to do so, except for the Carve-Out.

         (w) Cash  Management.  Make any change in the system or method by which
all funds held in the lockboxes and cash collection accounts of the Loan Parties
are  transferred  on a timely  basis  from such  lockboxes  and cash  collection
accounts into the  Collection  Accounts or the Citibank  Concentration  Account,
without the prior  written  consent of the Agent,  or otherwise  provide for any
such funds to be  transferred  to any other deposit or collection  account other
than the Collection  Accounts,  the Citibank  Collateral Account or the Citibank
Concentration Account.

         (x)  Environmental  Allow a Release of any  Contaminant in violation of
any  Environmental  Law;  provided,  however,  that any Loan Party  shall not be
deemed in violation of this Section  6.02(x) if, as the  consequence of all such
Releases, such Loan Party would not incur Environmental Liabilities and Costs in
excess of $5,000,000 in the aggregate.



                                       58
<PAGE>

                                  ARTICLE VII

                                EVENTS OF DEFAULT

         SECTION  7.01.  Events  of  Default.  If any of  the  following  events
("EVENTS OF DEFAULT") shall occur and be continuing:

         (a)  Non-Payment  of Principal or Interest.  The Borrower  fails to pay
when due (i) any  principal of any Advance,  (ii) any Funded LC Exposure,  (iii)
any interest payable under Section 2.07 or (iv) any additional  interest payable
under Section 2.08; or

         (b)  Non-Payment  of Fees. The Borrower fails to pay when due , any fee
payable under Section 2.04 or any other  Obligation owing hereunder or under any
Loan Document and such failure continues for three Business Days; or

         (c) Representations and Warranties. Any representation or warranty made
by any Loan Party under or in connection  with any Loan Document  proves to have
been incorrect in any material respect when made or deemed made; or

         (d) Covenants. The Borrower or any other Loan Party fails to perform or
observe  any term,  covenant or  agreement  set forth in Section  5.01,  Section
6.01(b), (c), (d), (h) or (j) or Section 6.02; or

         (e) Other  Covenants.  The  Borrower  or any other Loan Party  fails to
perform or observe any term,  covenant or agreement  contained in this Agreement
or any other  Loan  Document  (other  than  those  specifically  referred  to in
subsections  (a),  (b),  (c) and (d) of this  Section  7.01)  and  such  failure
continues for 30 days; or

         (f) Leases. (i) Any Loan Party (A) fails to make any payment within the
period required under any Material Lease, and such failure  continues for longer
than the period of grace,  if any,  specified  for such failure in such Material
Lease, or (B) fails to perform or observe any other term,  covenant or agreement
that (a) is  contained  in any  Material  Lease and (b)  requires the payment of
money or can be performed or observed by the payment of money,  and such failure
continues  for  longer  than the  period of grace,  if any,  specified  for such
failure in such Material  Lease;  or (ii) any Material  Lease is terminated as a
result of any failure by any Loan Party to perform or observe any term, covenant
or agreement contained therein; or

         (g)  Judgments.  Any  judgment  or order  for the  payment  of money is
rendered  against  any of the Loan  Parties or any of their  Subsidiaries  in an
amount in excess of  $500,000  for any single  judgment or order or in excess of
$1,000,000  for  all  such  judgments  or  orders  and  either  (i)  enforcement
proceedings  are  commenced by any creditor  upon such judgment or order and are
not stayed,  or (ii) there is any period of 10  consecutive  days during which a
stay of enforcement of such judgment or order,  by reason of a pending appeal or
otherwise, is not in effect; or

         (h) Loan  Documents.  (x) The Loan Documents and the Orders shall,  for
any reason,  cease to create a valid Lien on any of the Collateral  purported to
be covered  thereby or such Lien shall cease to be a  perfected  Lien having the
priority  provided herein pursuant to section 364 of


                                       59
<PAGE>

the Bankruptcy  Code against each Loan Party,  or any Loan Party shall so allege
in any pleading filed in any court or

                  (y) Any material provision of any Loan Document shall, for any
         reason,  cease to be valid and binding on each Loan Party party thereto
         or any Loan Party shall so state in writing; or

         (i) Material  Adverse Change.  Any Material Adverse Change shall occur;
or

         (j)  ERISA.  (i) The  Borrower  or any ERISA  Affiliate  shall  fail to
satisfy its  contribution  requirements  under  Section  412(c)(11) of the Code,
whether or not it has sought a waiver under Section 4 12(d) of the Code; or (ii)
in the case of an ERISA Event (other than the Cases)  involving  the  withdrawal
from  a  Pension  Plan  of a  "substantial  employer"  (as  defined  in  Section
4001(a)(2)   or  Section   4062(e)  of  ERISA),   the   withdrawing   employer's
proportionate  share of that Pension Plan's Unfunded Pension Liabilities is more
than  $2,000,000;  or (iii) in the case of an ERISA Event (other than the Cases)
involving the complete or partial  withdrawal  from a  Multiemployer  Plan,  the
withdrawing  employer  incurs a  withdrawal  liability  in an  aggregate  amount
exceeding  $2,000,000;  or (iv) a Pension  Plan that is intended to be qualified
under Section  401(a) of the Code loses its  qualification,  and with respect to
such loss of  qualification,  the Borrower or any ERISA Affiliate can reasonably
be  expected  to be required  to pay (for  additional  taxes,  payments to or on
behalf of Pension Plan participants, or otherwise) an aggregate amount exceeding
$2,000,000; or (v) any combination of events listed in clauses (ii) through (iv)
occurs that involves a net increase in aggregate  Unfunded  Pension  Liabilities
and unfunded liabilities in excess of $5,000,000; or

         (k) Trustee. A trustee shall be appointed in any of the Cases; or

         (l) Environmental  Liabilities.  Environmental Liabilities shall exceed
$5,000,000; or

         (m) Cases. Any of the Cases shall be dismissed,  suspended or converted
to a case under chapter 7 of the  Bankruptcy  Code, or any Loan Party shall file
any pleading  requesting any such relief;or an application shall be filed by any
Loan Party for the approval of, or there shall arise, (i) any other Claim having
priority  senior to or pari passu  with the claims of the Agent and the  Lenders
under the Loan  Documents  or any other claim  having  priority  over any or all
administrative  expenses of the kind  specified in sections  503(b) or 507(b) of
the  Bankruptcy  Code  (other  than  the  Carve-Out)  or  (ii)  any  Lien on the
Collateral having a priority senior to or pari passu with the liens and security
interests granted herein, except as expressly provided herein; or

         (n) Prepetition  Claims. Any Loan Party shall file a motion seeking, or
the  Bankruptcy  Court  shall  enter,  an order  (i)  approving  payment  of any
prepetition  Claim  other  than a  Permitted  Prepetition  Claim  Payment,  (ii)
approving a First Day Order not  approved by the Agent,  (iii)  granting  relief
from the automatic stay  applicable  under section 362 of the Bankruptcy Code to
any holder of any security  interest to permit  foreclosure on any assets (other
than  certain  assets  identified  by the  Borrower  and agreed to by the Agent)
having a book value in excess of $1,000,000 in the aggregate,  or (iv) except to
the extent the same would not  constitute  a default  under any of the  previous
clauses,  approving any settlement or other stipulation with any creditor of any
Loan Party,  other than the Agent and the Lenders,  or otherwise  providing  for
payments as adequate protection or otherwise to such creditor individually or in
the aggregate in excess of $100,000 for any and all such creditors; or

         (o) Court Orders. (i) The Interim Order shall cease to be in full force
and  effect  and the  Final  Order  shall not have  been  entered  prior to such
cessation, or (ii) the Final Order shall not have been entered by the Bankruptcy
Court on or before the 45th day  following  the  Closing  Date or (iii) from and
after the date of entry thereof, the Final Order shall cease to be in full force
and  effect,  or (iv) any


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<PAGE>

Loan Party shall fail to comply with the terms of the Interim Order or the Final
Order in any material respect, or (v) the Interim Order or the Final Order shall
be amended,  supplemented,  stayed, reversed,  vacated or otherwise modified (or
any of the Loan Parties  shall apply for authority to do so) without the written
consent of the Requisite Lenders; or

         (p) Examiner.  The Bankruptcy  Court shall enter an order  appointing a
responsible  officer or an examiner with powers  beyond the duty to  investigate
and report,  as set forth in section  1106(a)(3) and (4) of the Bankruptcy Code,
in any of the Cases; or

         (q)  Forfeiture;   Seizure.  The  Agent  or  any  Lender  receives  any
indication or evidence that any Loan Party may have directly or indirectly  been
engaged in any type of activity that the Agent,  in its  reasonable  discretion,
determines  might result in the forfeiture of any material  property of any Loan
Party to any Governmental  Authority,  or any  Governmental  Authority takes any
action to seize or require the turnover of any Health Care  Facility of any Loan
Party;

then, and in any such event, without further order of, application to, or action
by, the Bankruptcy  Court:  (i) with the consent of the Requisite  Lenders,  the
Agent may, or upon the request of the  Requisite  Lenders,  the Agent shall,  by
notice to the  Borrower  declare the  Commitments  to be  terminated  forthwith,
whereupon  such  Commitments  shall  immediately  terminate;  and (ii)  with the
consent of the  Requisite  Lenders,  the Agent may,  or upon the  request of the
Lenders,  the Agent  shall,  by notice to the  Borrower,  declare  the  Advances
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement (including,  without limitation,  all LC Exposure,  whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required  thereunder) to be due and payable  forthwith,  whereupon the
same shall  immediately  become due and payable,  without  presentment,  demand,
protest or further notice of any kind, all of which are expressly  waived by the
Loan Parties.  In addition,  subject solely to any  requirement of the giving of
notice by the terms of the Interim Order or the Final Order,  the automatic stay
provided in section 362 of the  Bankruptcy  Code shall be deemed  automaticallly
vacated  without  further action or order of the Bankruptcy  Court and the Agent
and the Lenders shall be entitled to exercise all of their respective rights and
remedies under the Loan Documents, including, without limitation, all rights and
remedies with respect to the Collateral and the Guarantors.

         SECTION  7.02.  Actions in  Respect  of  Letters  of  Credit.  Upon the
Termination  Date  or as  required  by  Section  2.06  (b)  or  (c)  or  Section
2.11(b)(ii)  or  (iii),  the  Borrower  shall  pay to the  Agent in  immediately
available funds, for deposit in the Citibank  Collateral  Account,  an amount so
that the balance in the Citibank  Collateral Account shall equal 105% of the sum
of all outstanding LC Exposure. The Agent may, from time to time after funds are
deposited  in the  Citibank  Collateral  Account,  apply  funds then held in the
Citibank  Collateral  Account to the payment of any amounts as shall have become
or shall become due and payable by the Borrower to the Lenders in respect of the
LC Exposure or other  Obligations  that become due and payable.  The Agent shall
promptly give written notice of any such application;  provided,  however,  that
the  failure  to  give  such  written  notice  shall  not  invalidate  any  such
application.  Except  as  permitted  under  Section  6.01(h)(iv),   neither  the
Borrower,  any other Loan Party, nor any Person claiming on behalf of or through
the  Borrower  shall  have any right to  withdraw  any of the funds  held in the
Citibank  Collateral  Account  at  any  time  prior  to the  termination  of all
outstanding  Letters of Credit and the  payment in full of all then  outstanding
and payable monetary Obligations.

         SECTION 7.03.  Rights Not  Exclusive.  The rights  provided for in this
Agreement and the other Loan  Documents are  cumulative and are not exclusive of
any other rights, powers or privileges or remedies provided by law or in equity,
or under any other instrument, document or agreement.



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<PAGE>

                                  ARTICLE VIII

                                    GUARANTY

         SECTION  8.01.  The  Guaranty.  In order to induce the Lenders to enter
into this  Agreement and to extend credit  hereunder and in  recognition  of the
direct  benefits  to be  received  by each  Guarantor  from the  proceeds of the
Advances and the issuance of the Letters of Credit, each Guarantor hereby agrees
with the Agent and Lenders as follows: each Guarantor hereby unconditionally and
irrevocably, jointly and severally, guarantees as primary obligor and not merely
as surety  the full and prompt  payment  when due,  whether  upon  maturity,  by
acceleration or otherwise,  of any and all of the Obligations of the Borrower to
the  Lenders.  If any or all of the  Obligations  of the Borrower to the Lenders
become  due and  payable  hereunder,  each  Guarantor,  jointly  and  severally,
unconditionally  promises to pay such  Obligations to the Lenders,  or order, on
demand,  together with any and all reasonable  expenses which may be incurred by
the Agent or the Lenders in collecting any of the Obligations.

         SECTION  8.02.  Nature of Liability.  The  liability of each  Guarantor
hereunder is exclusive and  independent of any security for or other guaranty of
the Obligations of the Borrower  whether  executed by such Guarantor,  any other
Guarantor,  any other guarantor or by any other party, and the liability of each
Guarantor hereunder shall not be affected or impaired by (a) any direction as to
application  of payment by the Borrower or by any other party,  or (b) any other
continuing or other guaranty, undertaking or maximum liability of a guarantor or
of any other party as to the Obligations of the Borrower,  or (c) any payment on
or in  reduction  of  any  such  other  guaranty  or  undertaking,  or  (d)  any
dissolution,  termination  or  increase,  decrease or change in personnel by the
Borrower,  or  (e)  any  payment  made  to  the  Agent  or  the  Lenders  on the
indebtedness  which the Agent or such Lenders repay to the Borrower  pursuant to
court order in any bankruptcy, reorganization,  arrangement, moratorium or other
debtor relief proceeding, and each Guarantor waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding.

         SECTION 8.03. Independent Obligation. The obligations of each Guarantor
hereunder are independent of the obligations of any other  Guarantor,  any other
guarantor or the Borrower,  and a separate  action or actions may be brought and
prosecuted  against each Guarantor  whether or not action is brought against any
other  Guarantor,  any other  guarantor  or the  Borrower and whether or not any
other  Guarantor,  any other  guarantor  or the  Borrower  be joined in any such
action or actions.  Each Guarantor  waives,  to the fullest extent  permitted by
law, the benefit of any statute of limitations affecting its liability hereunder
or the enforcement  thereof.  Any payment by the Borrower or other  circumstance
which  operates  to toll any statute of  limitations  as to the  Borrower  shall
operate to toll the statute of limitations as to the Guarantor.

         SECTION 8.04.  Authorization.  Each Guarantor  authorizes the Agent and
the Lenders  without notice or demand (except as shall be required by applicable
statute and cannot be waived),  and without affecting or impairing its liability
hereunder, from time to time to:

         (a) change the manner,  place or terms of payment of,  and/or change or
extend the time of payment of, renew, increase,  accelerate or alter, any of the
Obligations  (including  any  increase  or  decrease  in the  rate  of  interest
thereon),   any  security  therefor,  or  any  liability  incurred  directly  or
indirectly in respect  thereof,  and the Guaranty herein made shall apply to the
Obligations as so changed, extended, renewed or altered;

         (b) take and hold security for the payment of the Obligations and sell,
exchange, release, surrender,  realize upon or otherwise deal with in any manner
and in any order any property by


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<PAGE>

whomsoever  at any time pledged or mortgaged to secure,  or howsoever  securing,
the Obligations or any liabilities  (including any of those hereunder)  incurred
directly  or  indirectly  in  respect  thereof  or  hereof,  and/or  any  offset
thereagainst;

         (c) exercise or refrain from exercising any rights against the Borrower
or others or otherwise act or refrain from acting;

         (d) release or substitute any one or more  endorsers,  guarantors,  the
Borrower or other obligors;

         (e) settle or compromise any of the Obligations,  any security therefor
or any  liability  (including  any of  those  hereunder)  incurred  directly  or
indirectly in respect  thereof or hereof,  or subordinate  the payment of all or
any part  thereof to the payment of any  liability  (whether  due or not) of the
Borrower to its creditors;

         (f) apply any sums by  whomsoever  paid or  howsoever  realized  to any
liability  or  liabilities  of the  Borrower to the Lenders  regardless  of what
liability or liabilities of such Guarantor or the Borrower remain unpaid; and/or

         (g) consent to or waive any breach of, or any act,  omission or default
under,  this  Agreement  or any of the  instruments  or  agreements  referred to
herein,  or otherwise amend,  modify or supplement this Agreement or any of such
other instruments or agreements.

         SECTION  8.05.  Reliance.  It is not  necessary  for the  Agent  or the
Lenders  to  inquire  into  the  capacity  or  powers  of  the  Borrower  or its
Subsidiaries or the officers, directors, partners or agents acting or purporting
to act on its behalf,  and any Obligations  made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.

         SECTION  8.06.  Subordination.  Any of the Debt of the  Borrower now or
hereafter  owing to any Guarantor is hereby  subordinated  to the Obligations of
the Borrower; provided that payment may be made by the Borrower on any such Debt
owing to such  Guarantor so long as the same is not prohibited by this Agreement
and provided,  further, that if the Agent so requests at a time when an Event of
Default  exists,  all  such  Debt of the  Borrower  to such  Guarantor  shall be
collected,  enforced and  received by such  Guarantor as trustee for the Lenders
and be paid  over to the  Agent on  behalf  of the  Lenders  on  account  of the
Obligations  of the Borrower to Lenders,  but without  affecting or impairing in
any manner the liability of such  Guarantor  under the other  provisions of this
Guaranty.  Prior to the  transfer  by any  Guarantor  of any note or  negotiable
instrument  evidencing any of the Debt of the Borrower to such  Guarantor,  such
Guarantor  shall mark such note or negotiable  instrument with a legend that the
same is subject to this subordination.

         SECTION 8.07.  Waiver.  (a) Each Guarantor  waives any right (except as
shall be  required  by  applicable  statute and cannot be waived) to require the
Agent or the Lenders to (i) proceed against the Borrower,  any other  Guarantor,
any other  guarantor  or any other party,  (ii)  proceed  against or exhaust any
security held from the Borrower, any other Guarantor, any other guarantor or any
other  party or (iii)  pursue any other  remedy in the  Agent's or the  Lenders'
power  whatsoever.  Each  Guarantor  waives  (except  as  shall be  required  by
applicable  statute and cannot be waived) any defense based on or arising out of
any defense of the Borrower,  any other  Guarantor,  any other  guarantor or any
other party other than payment in full of the  Obligations,  including,  without
limitation,  any  defense  based  on or  arising  out of the  disability  of the
Borrower,  any other  Guarantor,  any other guarantor or any other party, or the
unenforceability  of the  Obligations or any part thereof from any cause, or the
cessation  from any cause of the liability of the Borrower other than payment in
full of the  Obligations.  Subject  to the giving


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<PAGE>

of three Business Days prior written notice in accordance  with the Orders,  the
Agent and the Lenders may, at their election,  foreclose on any security held by
the Agent or the Lenders by one or more judicial or nonjudicial  sales,  whether
or not every aspect of any such sale is  commercially  reasonable (to the extent
such sale is permitted by applicable law), or exercise any other right or remedy
the Agent and the Lenders may have against the  Borrower or any other party,  or
any  security,  without  affecting or impairing in any way the  liability of any
Guarantor  hereunder  except to the extent the Obligations  have been paid. Each
Guarantor  waives any defense  arising out of any such election by the Agent and
the Lenders,  even though such  election  operates to impair or  extinguish  any
right of reimbursement or subrogation or other right or remedy of such Guarantor
against the Borrower or any other party or any security.

         (b) Each Guarantor  waives all  presentments,  demands for performance,
protests and notices,  including without  limitation  notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and  notices  of the  existence,  creation  or  incurring  of new or  additional
Obligations.  Each Guarantor  assumes all  responsibility  for being and keeping
itself  informed of the Borrower's  financial  condition and assets,  and of all
other  circumstances  bearing upon the risk of nonpayment of the Obligations and
the  nature,  scope and extent of the risks  which such  Guarantor  assumes  and
incurs  hereunder,  and agrees that the Agent and the Lenders shall have no duty
to  advise  such  Guarantor  of   information   known  to  them  regarding  such
circumstances or risks.

         SECTION 8.08.  Limitation on  Enforcement.  The Lenders agree that this
Guaranty  may be enforced  only by the action of the Agent,  in each case acting
upon the  instructions of the Requisite  Lenders,  and that no Lender shall have
any right  individually  to seek to enforce or to enforce this Guaranty it being
understood  and agreed that such rights and  remedies  may be  exercised  by the
Agent for the benefit of the Lenders upon the terms of this Agreement.

                                   ARTICLE IX

                                    SECURITY

         SECTION 9.01. Security. (a) To induce the Lenders to make the Revolving
Credit Advances, the LC Bank to issue Letters of Credit, and the Swing Line Bank
to make the Swing Line Advances, each Loan Party hereby grants to the Agent, for
itself and for the ratable benefit of the Secured  Parties,  as security for the
full and prompt payment when due (whether at stated maturity, by acceleration or
otherwise) of the Obligations of such Loan Party (including, without limitation,
all Obligations of the Guarantors  hereunder),  a continuing first priority Lien
and security  interest  (subject only to (i) valid,  perfected,  enforceable and
nonavoidable  Liens of record existing  immediately  prior to the Petition Date,
(ii) the Carve-Out,  and (iii) Liens  permitted under Section  6.02(a)(vii))  in
accordance with sections  364(c)(2) and (3) of the Bankruptcy Code in and to all
Collateral of such Loan Party. "Collateral" means all of the property and assets
of each Loan Party and its estate,  real and personal,  tangible and intangible,
whether now owned or existing or hereafter acquired or arising and regardless of
where located, including, but not limited to:

                  (i) all Accounts;

                  (ii) all Chattel Paper;

                  (iii) all  Contracts and any and all claims of such Loan Party
         for  damages  arising  out of or for  breach of or a default  under any
         Contract  and the  right of such  Loan  Party to  perform  or to compel
         performance under any Contract and to exercise all remedies thereunder

                  (iv) all Documents;



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<PAGE>

                  (v) all Equipment;

                  (vi) all General Intangibles;

                  (vii) all Instruments;

                  (viii) all Inventory;

                  (ix) all Real Property;

                  (x) all bank accounts, deposit accounts,  securities accounts,
         commodities  accounts and other similar  accounts,  including,  without
         limitation, the Collection Accounts, the Citibank Concentration Account
         and the  Citibank  Collateral  Account  and all  cash,  deposits,  Cash
         Equivalents and other  instruments from time to time on deposit or held
         therein;

                  (xi) all Investment Property,  including,  without limitation,
         shares of Stock owned by such Loan Party and any and all  dividends  or
         distributions, in respect thereof;

                  (xii) all other goods, real and personal property of such Loan
         Party, whether tangible or intangible or whether now owned or hereafter
         acquired by such Loan Party and wherever located;

                  (xiii) to the extent not  otherwise  included,  all monies and
         other property of any kind which is, after the Petition Date,  received
         by such Loan Party in  connection  with  refunds with respect to taxes,
         assessments and governmental  charges imposed on such Loan Party or any
         of its property or income;

                  (xiv) to the  extent  not  otherwise  included,  all causes of
         action (other than claims of the Loan Parties under  sections 544, 545,
         547 and 548 of the  Bankruptcy  Code) and all monies and other property
         of any kind received  therefrom,  and all monies and other  property of
         any kind recovered by any Loan Party; and

                  (xv) to the extent not  otherwise  included,  all  Proceeds of
         each  of  the  foregoing  and  all  accessions  to,  substitutions  and
         replacements  for,  and  rents,  profits  and  products  of each of the
         foregoing  including,  without  limitation,  proceeds  in the  form  of
         Accounts,  Chattel  Paper,  Contracts,  Documents,  Equipment,  General
         Intangibles, Instruments and Investment Property.

         (b) In  addition,  as  collateral  security for the prompt and complete
payment  when  due  of  the  Obligations  (including,  without  limitation,  all
Obligations of the Guarantors  hereunder) and in order to induce Lenders and the
LC Bank as aforesaid,  each Loan Party hereby further  grants to the Agent,  for
itself and for the ratable benefit of the Secured Parties, a first priority lien
on and security interest in all property of such Loan Party held by the Agent or
any other  Secured  Party or any  Affiliate  of the  Agent or any other  Secured
Party, including,  without limitation, all property of every description, now or
hereafter  in the  possession  or  custody of or in transit to the Agent or such
Secured  Party or Affiliate of the Agent or other Secured Party for any purpose,
including safekeeping,  collection or pledge, for the account of such Loan Party
or as to which such Loan Party may have any right or power.

         (c) The  Citibank  Collateral  Account and the  Citibank  Concentration
Account shall be under the sole dominion and control of the Agent.  No Person or
entity  claiming by, through or under the Borrower or any other Loan Party shall
have any control over the use of, or any right to effect a


                                       65
<PAGE>

withdrawal from, the Citibank  Collateral Account or the Citibank  Concentration
Account, except as expressly permitted in Section 2.11(b)(iii) or Section 7.02.

         SECTION  9.02.  Perfection of Security  Interests.  (a) Each Loan Party
shall,  at its expense,  perform any and all steps requested by the Agent at any
time to perfect,  maintain,  protect, and enforce the Lenders' security interest
in the  Collateral  of such  Loan  Party,  including,  without  limitation,  (i)
executing  and filing  financing  or  continuation  statements,  and  amendments
thereof,  in form and  substance  satisfactory  to the Agent,  (ii)  maintaining
complete and accurate stock records,  (iii) using its best efforts in delivering
to the Agent  negotiable  warehouse  receipts,  if any,  and,  upon the  Agent's
request therefor,  non-negotiable warehouse receipts covering any portion of the
Collateral  located in warehouses and for which  warehouse  receipts are issued,
(iv) placing  notations  on such Loan  Party's  books of account to disclose the
Agent's  security  interest  therein,  (v) delivering to the Agent all documents
necessary or desirable to perfect the Agent's Lien in letters of credit on which
such Loan Party is named as beneficiary and all acceptances issued in connection
therewith,  (vi) after the occurrence and during the continuation of an Event of
Default,  transferring  Inventory  maintained in warehouses to other  warehouses
designated  by the  Agent  and  (vii)  taking  such  other  steps as are  deemed
necessary  or  desirable  to  maintain  the  Agent's  security  interest  in the
Collateral.

         (b) Each Loan Party  hereby  authorizes  the Agent to execute  and file
financing  statements or  continuation  statements  on such Loan Party's  behalf
covering the  Collateral.  The Agent may file one or more  financing  statements
disclosing  the  Agent's  security  interest  under this  Agreement  without the
signature of such Loan Party  appearing  thereon.  Each Loan Party shall pay the
costs of, or incidental to, any recording or filing of any financing  statements
concerning the Collateral.  Each Loan Party agrees that a carbon,  photographic,
photostatic, or other reproduction of this Agreement or of a financing statement
is sufficient as a financing statement.  If any Collateral is at any time in the
possession or control of any warehouseman, bailee or such Loan Party's agents or
processors,  such Loan Party shall notify such warehouseman,  bailee,  agents or
processors of the Agent's security  interest,  which  notification shall specify
that such Person shall,  upon the  occurrence  and during the  continuance of an
Event of Default,  hold all such  Collateral for the Agent's  account subject to
the Agent's  instructions.  From time to time,  each Loan Party shall,  upon the
Agent's request,  execute and deliver written instruments  pledging to the Agent
the Collateral  described in any such instruments or otherwise,  but the failure
of such Loan Party to execute and deliver such  confirmatory  instruments  shall
not affect or limit the Agent's security  interest or other rights in and to the
Collateral.  Until all Obligations have been fully satisfied and the Commitments
shall have been terminated, the Agent's security interest in the Collateral, and
all Proceeds and products thereof, shall continue in full force and effect.

         (c)  Notwithstanding  subsections  (a) and (b) of this Section 9.02, or
any  failure  on the  part of any  Loan  Party  or the  Agent to take any of the
actions set forth in such subsections,  the Liens and security interests granted
herein shall be deemed valid,  enforceable and perfected by entry of the Interim
Order and the Final Order,  as  applicable.  No financing  statement,  notice of
lien,  mortgage,  deed of trust or similar  instrument  in any  jurisdiction  or
filing  office need be filed or any other  action taken in order to validate and
perfect  the  Liens  and  security  interests  granted  by or  pursuant  to this
Agreement, the Interim Order or the Final Order.

         SECTION 9.03.  Rights of Lender;  Limitations on Lenders'  Obligations.
(a) Subject to each Loan  Party's  rights and duties under the  Bankruptcy  Code
(including  section 365 of the Bankruptcy  Code), it is expressly agreed by each
Loan Party that,  anything  herein to the  contrary  notwithstanding,  such Loan
Party shall  remain  liable  under its  Contracts to observe and perform all the
conditions  and  obligations  to be observed  and  performed  by it  thereunder.
Neither the Agent nor any Secured  Party shall have any  obligation or liability
under any  Contract  by reason of or  arising  out of this  Agreement,  the Loan
Documents,  or the granting to the Agent of a security  interest  therein or the
receipt


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<PAGE>

by the Agent or any Lender of any  payment  relating  to any  Contract  pursuant
hereto, nor shall the Agent be required or obligated in any manner to perform or
fulfill  any of the  obligations  of any Loan  Party  under or  pursuant  to any
Contract, or to make any payment, or to make any inquiry as to the nature or the
sufficiency of any payment  received by it or the sufficiency of any performance
by any party under any Contract, or to present or file any claim, or to take any
action to collect or enforce any performance or the payment of any amounts which
may have  been  assigned  to it or to which  it may be  entitled  at any time or
times.

         (b) Subject to Section  9.05  hereof,  the Agent  authorizes  each Loan
Party to collect its  Accounts,  provided  that such  collection is performed in
accordance with such Loan Party's customary procedures,  and the Agent may, upon
the occurrence and during the  continuation  of any Event of Default and without
notice,  other than any requirement of notice  provided in the Orders,  limit or
terminate said authority at any time.

         (c) Subject to any  requirement of notice  provided in the Orders,  the
Agent may at any time,  upon the occurrence and during the  continuation  of any
Event of Default,  after first notifying the Borrower of its intention to do so,
notify  Account  Debtors,  notify  the other  parties  to the  Contracts  of the
Borrower  or any Loan  Party,  notify  obligors of  Instruments  and  Investment
Property  of the  Borrower  or any Loan Party and notify  obligors in respect of
Chattel Paper of the Borrower that the right, title and interest of the Borrower
or such Loan Party in and under such Accounts, such Contracts, such Instruments,
such Investment  Property and such Chattel Paper have been assigned to the Agent
and  that  payments  shall  be  made  directly  to  the  Agent.  Subject  to any
requirement of notice provided in the Orders, upon the request of the Agent, the
Borrower or any Loan Party will so notify such Account Debtors,  such parties to
Contracts,  obligors of such Instruments and Investment Property and obligors in
respect of such Chattel Paper.  Subject to any requirement of notice provided in
the  Orders,  upon the  occurrence  and during the  continuation  of an Event of
Default,  the Agent may in its own name,  or in the name of others,  communicate
with such parties to such  Accounts,  such  Contracts,  such  Instruments,  such
Investment  Property and such  Chattel  Paper to verify with such Persons to the
Agent's  reasonable  satisfaction  the  existence,  amount and terms of any such
Accounts, such Contracts, Instruments, Investment Property or Chattel Paper.

         (d) The Agent  shall  have the right to make test  verification  of the
Accounts in any manner and through any medium that it considers  advisable,  and
each Loan Party agrees to furnish all such  assistance  and  information  as the
Agent may require in connection therewith. Each Loan Party, at its expense, will
cause certified  independent  public  accountants  satisfactory to the Requisite
Lenders to prepare  and  deliver to the Agent at any time and from time to time,
promptly upon the Agent's request,  the following reports:  (i) a reconciliation
of all  Accounts of such Loan Party,  (ii) an aging of all Accounts of such Loan
Party,  (iii) trial balances,  and (iv) a test  verification of such Accounts as
the Agent may  request.  The Agent  shall  have the right at any time to conduct
periodic  audits  of the  Accounts  of any  Loan  Party  at the  expense  of the
Borrower.

         SECTION 9.04. Covenants of the Loan Parties with Respect to Collateral.
Each Loan Party hereby  covenants  and agrees with the Agent that from and after
the date of this Agreement and until the Obligations are fully satisfied:

         (a) Maintenance of Records.  Each Loan Party will keep and maintain, at
its own cost and expense,  satisfactory  and complete records of the Collateral,
in all  material  respects,  including,  without  limitation,  a  record  of all
payments received and all credits granted with respect to the Collateral and all
other dealings concerning the Collateral. For the Agent's further security, each
Loan Party  agrees that the Agent shall have a property  interest in all of such
Loan  Party's  books and records  pertaining  to the  Collateral  and,  upon the
occurrence and during the  continuation of an Event of Default,  such Loan


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Party shall  deliver and turn over any such books and records to the Agent or to
its representatives at any time on demand of the Agent.

         (b) Indemnification With Respect to Collateral. In any suit, proceeding
or action brought by the Agent relating to any Account, Chattel Paper, Contract,
General Intangible,  Investment Property, Instrument or other Collateral for any
sum owing thereunder or to enforce any provision of any Account,  Chattel Paper,
Contract,  General  Intangible,   Investment  Property,   Instrument,  or  other
Collateral,  each Loan Party will save,  indemnify and keep the Secured  Parties
harmless  from and against all expense,  loss or damage  suffered by the Secured
Parties by reason of any defense, setoff, counterclaim,  recoupment or reduction
of liability  whatsoever of the obligor  thereunder,  arising out of a breach by
such  Loan  Party of any  obligation  thereunder  or  arising  out of any  other
agreement,  indebtedness or liability at any time owing to, or in favor of, such
obligor or its successors from such Loan Party, and all such obligations of such
Loan Party shall be and remain  enforceable  against and only  against such Loan
Party and shall not be enforceable against the Agent.

         (c) Limitation on Liens on Collateral. Each Loan Party will not create,
permit or suffer to exist, and will defend the Collateral  against and take such
other  action as is  necessary  to  remove,  any Lien on the  Collateral  except
Permitted  Liens and will defend the right,  title and  interest of the Agent in
and to any of such Loan Party's  rights under the Chattel  Paper,  Leases,  Real
Estate,  Contracts,  Documents,  General  Intangibles,  Instruments,  Investment
Property and to the Equipment  and Inventory and in and to the Proceeds  thereof
against the claims and demands of all  Persons  whomsoever  other than claims or
demands arising out of Permitted Liens.

         (c) Limitations on Modifications of Accounts. Each Loan Party will not,
without the Agent's  prior written  consent,  grant any extension of the time of
payment  of any of the  Accounts,  Chattel  Paper  or  Instruments,  compromise,
compound  or settle  the same for less than the full  amount  thereof,  release,
wholly or partly, any Person liable for the payment thereof, or allow any credit
or discount whatsoever thereon other than any of the foregoing which are done in
the  ordinary  course of  business,  consistent  with past  practices  and trade
discounts granted in the ordinary course of business of such Loan Party.

         (d)  Notices.  Each Loan Party will  advise the  Lenders  promptly,  in
reasonable  detail, (i) of any Lien asserted against any of the Collateral other
than Permitted  Liens, and (ii) of the occurrence of any other event which would
result in a Material  Adverse Change with respect to the aggregate  value of the
Collateral or on the security interests created hereunder.

         (e)  Maintenance  of Equipment.  Each Loan Party will keep and maintain
the Equipment in good operating condition sufficient for the continuation of the
business conducted by such Loan Party on a basis consistent with past practices,
ordinary wear and tear excepted.

         SECTION 9.05. Performance by Agent of the Loan Parties' Obligations. If
any Loan Party fails to perform or comply with any of its  agreements  contained
herein and the Agent,  as  provided  for by the terms of this  Agreement,  shall
itself perform or comply,  or otherwise  cause  performance or compliance,  with
such  agreement,  the  expenses of the Agent  incurred in  connection  with such
performance  or compliance,  together with interest  thereon at the rate then in
effect in respect of the Revolving Credit Advance, shall be payable by such Loan
Party to the Agent on demand  and shall  constitute  Obligations  secured by the
Collateral. Performance of such Loan Party's obligations as permitted under this
Section  9.05 shall in no way  constitute  a  violation  of the  automatic  stay
provided by section 362 of the Bankruptcy Code and each Loan Party hereby waives
applicability  thereof.  Moreover,  the Agent shall in no way be responsible for
the payment of any costs incurred in connection  with


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<PAGE>

preserving  or  disposing  of  Collateral  pursuant  to  section  506(c)  of the
Bankruptcy  Code and the Collateral may not be charged for the incurrence of any
such cost.

         SECTION  9.06.  Limitation  on Agent's  Duty in Respect of  Collateral.
Neither the Agent nor any Lender shall have any duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of
it or any  income  thereon or as to the  preservation  of rights  against  prior
parties or any other  rights  pertaining  thereto,  except that the Agent shall,
with respect to the Collateral in its possession or under its control, deal with
such Collateral in the same manner as the Agent deals with similar  property for
its own account. Upon request of any Loan Party, the Agent shall account for any
moneys  received by it in respect of any  foreclosure  on or  disposition of the
Collateral of such Loan Party.

         SECTION  9.07.  Remedies,  Rights  Upon  Default.  (a) If any  Event of
Default shall occur and be continuing, the Agent may exercise in addition to all
other rights and remedies  granted to it in this Agreement and in any other Loan
Document,  all rights and  remedies of a secured  party  under the UCC.  Without
limiting the generality of the foregoing,  each Loan Party expressly agrees that
in any such event the Agent,  without  demand of  performance  or other  demand,
advertisement  or notice of any kind (except the notice  required by the Interim
Order or Final Order or the notice  specified  below of time and place of public
or private sale) to or upon such Loan Party or any other Person (all and each of
which demands,  advertisements and/or notices are hereby expressly waived to the
maximum  extent  permitted by the UCC and other  applicable  law), may forthwith
collect,  receive,  appropriate  and realize  upon the  Collateral,  or any part
thereof,  and/or may forthwith sell, lease, assign, give an option or options to
purchase,  or sell or  otherwise  dispose of and  deliver  said  Collateral  (or
contract to do so),  or any part  thereof,  in one or more  parcels at public or
private  sale or  sales,  at any  exchange  or  broker's  board or at any of the
Agent's  offices or elsewhere at such prices at it may deem best, for cash or on
credit or for future delivery  without  assumption of any credit risk. The Agent
shall have the right upon any such public sale or sales to purchase the whole or
any part of said  Collateral so sold, free of any right or equity of redemption,
which  equity of  redemption  each Loan Party hereby  releases.  Each Loan Party
further  agrees,  at the Agent's  request,  to assemble the  Collateral  make it
available  to the Agent at  places  which the  Agent  shall  reasonably  select,
whether at such Loan Party's  premises or  elsewhere.  The Agent shall apply the
proceeds of any such collection,  recovery, receipt, appropriation,  realization
or sale (net of all  expenses  incurred  by the Agent in  connection  therewith,
including, without limitation, attorney's fees and expenses), to the Obligations
in any order deemed  appropriate by the Agent,  such Loan Party remaining liable
for any deficiency  remaining unpaid after such  application,  and only after so
paying  over such net  proceeds  and after the payment by the Agent of any other
amount required by any provision of law,  including  Section  9-504(l)(c) of the
UCC, need the Agent account for the surplus,  if any, to such Loan Party. To the
maximum extent  permitted by applicable  law, each Loan Party waives all claims,
damages,  and  demands  against  the Agent and the  Lenders  arising  out of the
repossession,  retention or sale of the  Collateral  except such as arise out of
the gross negligence or willful  misconduct of the Agent. Each Loan Party agrees
that the Agent  need not give more than seven (7) days'  notice to the  Borrower
(which  notification  shall be  deemed  given  when  mailed or  delivered  on an
overnight  basis,  postage  prepaid,  addressed  to the  Borrower at its address
referred to in Section 11.02) of the time and place of any public sale or of the
time  after  which a  private  sale  may take  place  and that  such  notice  is
reasonable notification of such matters. The Borrower and the other Loan Parties
shall  remain  liable  for  any  deficiency  if  the  proceeds  of any  sale  or
disposition of the Collateral are  insufficient  to pay all amounts to which the
Agent is entitled, the Borrower and the other Loan Parties also being liable for
the fees and  expenses of any  attorneys  employed by the Agent to collect  such
deficiency.

         (b) Each Loan Party hereby waives presentment,  demand,  protest or any
notice  (to the  maximum  extent  permitted  by  applicable  law) of any kind in
connection with this Agreement or any Collateral.



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<PAGE>

         SECTION 9.08.  The Agent's  Appointment as  Attorney-in-Fact.  (a) Each
Loan Party hereby irrevocably constitutes and appoints the Agent and any officer
or agent thereof,  with full power of substitution,  as its and its Subsidiaries
true and lawful  attorney-in-fact  with full irrevocable  power and authority in
the place and stead of such Loan Party and in the name of such Loan Party, or in
its own name,  from time to time in the Agent's  discretion,  for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action
and to execute and deliver any and all  documents and  instruments  which may be
necessary  and desirable to  accomplish  the purposes of this  Agreement and the
transactions  contemplated  hereby,  and, without limiting the generality of the
foregoing,  hereby  give the Agent the power and  right,  on behalf of such Loan
Party, without notice to or assent by such Loan Party to do the following:

                  (i) to ask, demand, collect, receive and give acquittances and
         receipts  for any and  all  moneys  due and to  become  due  under  any
         Collateral  and,  in the  name  of such  Loan  Party,  its own  name or
         otherwise,  to take  possession  of and endorse and collect any checks,
         drafts,  notes,  acceptances  or other  Instruments  for the payment of
         moneys  due under any  Collateral  and to file any claim or to take any
         other action or  proceeding  in any court of law or equity or otherwise
         deemed  appropriate  by the Agent for the purpose of collecting any and
         all such moneys due under any Collateral  whenever  payable and to file
         any claim or to take any other action or proceeding in any court of law
         or equity or otherwise deemed  appropriate by the Agent for the purpose
         of collecting any and all such moneys due under any Collateral whenever
         payable;

                  (ii) to pay or discharge taxes,  liens,  security interests or
         other  encumbrances  levied  or  placed on or  threatened  against  the
         Collateral,  to effect any repairs or any  insurance  called for by the
         terms  of this  Agreement  and to pay all or any  part of the  premiums
         therefor and the costs thereof; and

                  (iii) (A) to direct any party liable for any payment under any
         of the  Collateral  to make  payment of any and all moneys due,  and to
         become  due  thereunder,  directly  to the Agent or as the Agent  shall
         direct;  (B) to receive  payment of and receipt for any and all moneys,
         claims and other amounts due, and to become due at any time, in respect
         of or  arising  out of any  Collateral;  (C) to sign  and  indorse  any
         invoices,  freight  or  express  bills,  bills of  lading,  storage  or
         warehouse receipts, drafts against debtors, assignments,  verifications
         and  notices  in   connection   with   accounts  and  other   documents
         constituting  or  relating  to  the  Collateral;  (D) to  commence  and
         prosecute  any suits,  actions or  proceedings  at law or equity in any
         court of competent  jurisdiction  to collect the Collateral or any part
         thereof and to enforce  any other  right in respect of any  Collateral;
         (E) to defend any suit,  action or proceeding  brought against any Loan
         Party with respect to any Collateral of such Loan Party; (F) to settle,
         compromise  or adjust any suit,  action or proceeding  described  above
         and, in connection  therewith,  to give such  discharges or releases as
         the Agent  may deem  appropriate;  (G) to  license  or,  to the  extent
         permitted  by  an  applicable  license,  sublicense,  whether  general,
         special or  otherwise,  and whether on an  exclusive  or  non-exclusive
         basis, any trademarks,  throughout the world for such term or terms, on
         such  conditions,  and in such  manner,  as the Agent shall in its sole
         discretion determine; and (H) generally to sell, transfer, pledge, make
         any  agreement  with  respect  to or  otherwise  deal  with  any of the
         Collateral  as fully  and  completely  as  though  the  Agent  were the
         absolute  owner  thereof  for all  purposes,  and to do, at the Agent's
         option  and such Loan  Party's  expense,  at any time,  or from time to
         time, all acts and things which the Agent reasonably deems necessary to
         protect,  preserve or realize upon the  Collateral and the Agent's Lien
         therein, in order to effect the intent of this Agreement,  all as fully
         and effectively as such Loan Party might do.

         (b) The Agent agrees that it will forbear from  exercising the power of
attorney  or any rights  granted to the Agent  pursuant  to this  Section  9.08,
except upon the  occurrence or during the  continuation  of an Event of Default.
The Borrower and the other Loan Parties hereby ratify,  to the extent  permitted
by law, all that said attorneys  shall lawfully do or cause to be done by virtue
hereof. Exercise


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by the Agent of the powers granted hereunder is not a violation of the automatic
stay provided by section 362 of the  Bankruptcy  Code and each Loan Party waives
applicability  thereof.  The power of attorney  granted pursuant to this Section
9.08 is a power  coupled  with an interest  and shall be  irrevocable  until the
Obligations are indefeasibly paid in full.

         (c) The powers  conferred on the Agent  hereunder are solely to protect
the Agent's and the Lenders'  interests in the  Collateral  and shall not impose
any duty upon it to exercise  any such  powers.  The Agent shall be  accountable
only for amounts  that it actually  receives as a result of the exercise of such
powers and neither it nor any of its  officers,  directors,  employees or agents
shall be responsible to any Loan Party for any act or failure to act, except for
its own gross negligence or willful misconduct.

         (d) Each Loan Party  also  authorizes  the Agent,  at any time and from
time to time upon the  occurrence  and during the  continuation  of any Event of
Default  or  as  otherwise  expressly  permitted  by  this  Agreement,   (i)  to
communicate  in its own name or the name of its  Subsidiaries  with any party to
any Contract with regard to the  assignment of the right,  title and interest of
such Loan Party in and under the Contracts  hereunder and other matters relating
thereto and (ii) to execute any  endorsements,  assignments or other instruments
of conveyance or transfer with respect to the Collateral.

         (e)  All  Obligations,  including  all  Obligations  of the  Guarantors
hereunder,  shall  constitute,  in  accordance  with  section  364(c)(1)  of the
Bankruptcy  Code,  claims  against  each  Loan  Party  in  its  Case  which  are
administrative  expense  claims  having  priority  over  any all  administrative
expenses of the kind  specified in sections  503(b) or 507(b) of the  Bankruptcy
Code.

         SECTION 9.09. Modifications.

         (a) The liens and security  interests,  lien  priority,  administrative
priorities and other rights and remedies granted to the Agent for the benefit of
the Lenders pursuant to this Agreement, the Interim Order and/or the Final Order
(specifically,  including,  but not limited to, the  existence,  perfection  and
priority of the Liens and security interests provided herein and therein and the
administrative  priority  provided  herein and  therein)  shall not be modified,
altered or impaired in any manner by any other  financing or extension of credit
or incurrence of Debt by any of the Loan Parties (pursuant to section 364 of the
Bankruptcy  Code or otherwise),  or by any dismissal or conversion of any of the
Cases,  or  by  any  other  act  or  omission  whatsoever.  Without  limitation,
notwithstanding any such order,  financing,  extension,  incurrence,  dismissal,
conversion, act or omission:

                  (i)  except  for  the  Carve-Out   having  priority  over  the
         Obligations,  no costs or expenses of administration which have been or
         may be incurred in any of the Cases or any conversion of the same or in
         any other proceedings  related thereto,  and no priority claims, are or
         will be  prior to or on a parity  with  any  claim of the  Agent or the
         Lenders against the Loan Parties in respect of any Obligation;

                  (ii) the liens and  security  interests  granted  herein shall
         constitute  valid and  perfected  first  priority  liens  and  security
         interests,  (subject only to (A) the Carve-Out,  (B) valid,  perfected,
         enforceable and nonavoidable Liens of record existing immediately prior
         to  the  Petition   Date  and  (C)  Liens   permitted   under   Section
         6.02(a)(vii))  in  accordance  with  sections  364(c)(2) and (3) of the
         Bankruptcy  Code,  and shall be prior to all other  liens and  security
         interests,  now  existing or hereafter  arising,  in favor of any other
         creditor or any other Person whatsoever; and



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<PAGE>

                  (iii) the liens and security interests granted hereunder shall
         continue  valid and  perfected  without the  necessity  that  financing
         statements be filed or that any other action be taken under  applicable
         nonbankruptcy law.

         (b)  Notwithstanding  any  failure on the part of any Loan Party or the
Agent or the  Lenders to  perfect,  maintain,  protect or enforce  the liens and
security interests in the Collateral  granted  hereunder,  the Interim Order and
the Final Order (when entered) shall  automatically,  and without further action
by any Person, perfect such liens and security interests against the Collateral.

                                   ARTICLE X

                  THE AGENT, THE OTHER AGENTS AND THE ARRANGER

         SECTION 10.01.  Authorization  and Action.  Each Lender hereby appoints
and  authorizes  the Agent to take such  action  as agent on its  behalf  and to
exercise  such powers under this  Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto. As
to  any  matters  not  expressly  provided  for  by  this  Agreement  (including
enforcement  or  collection  of the  Notes),  the Agent shall not be required to
exercise any  discretion or take any action,  but shall be required to act or to
refrain  from acting (and shall be fully  protected  in so acting or  refraining
from  acting)  upon  the  instructions  of  the  Requisite  Lenders,   and  such
instructions  shall be  binding  upon all  Lenders  and all  holders  of  Notes;
provided, however, that the Agent shall not be required to take any action which
exposes the Agent to personal  liability or which is contrary to this  Agreement
or applicable law. The Agent shall not be liable to any Lender if, in accordance
with the terms of this Agreement,  it takes or omits to take any action pursuant
to the instructions of the Requisite  Lenders.  The Agent agrees to give to each
Lender prompt notice of each notice given to it by the Borrower  pursuant to the
terms of this  Agreement.  The Agent agrees to perform and  discharge the duties
and powers  delegated to it under this Agreement and the other Loan Documents in
accordance with the terms hereof and thereof.

         SECTION  10.02.  Agent  Not  Liable.  Neither  the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted  to be  taken  by it or any of them  under or in  connection  with  this
Agreement,  except for its or their own gross negligence or willful  misconduct.
Without  limiting the generality of the  foregoing,  the Agent (i) may treat the
payee of any Note as the holder thereof until the Agent receives  written notice
of the  assignment  or transfer  thereof  signed by such payee and including the
agreement of the assignee or transferee to be bound hereby as it would have been
if it had been an original  Lender party  hereto,  in form  satisfactory  to the
Agent; (ii) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not be
liable  for any  action  taken or  omitted  to be  taken in good  faith by it in
accordance with the advice of such counsel,  accountants or experts; (iii) makes
no warranty or  representation to any Lender and shall not be responsible to any
Lender for any statements,  warranties or  representations  (whether  written or
oral) made in or in connection with this Agreement; (iv) shall not have any duty
to ascertain or to inquire as to the  performance  or  observance  of any of the
terms,  covenants or conditions of this Agreement on the part of the Borrower or
to inspect the property  (including the books and records) of the Borrower;  (v)
shall  not be  responsible  to any  Lender  for  the  due  execution,  legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any other Loan Document or any other instrument or document  furnished  pursuant
to any Loan Document or for the creation, validity, enforceability, sufficiency,
value,  perfection or priority of any Lien purported to be granted to the Agent,
whether pursuant to any of the Loan Documents or otherwise; and (vi) shall incur
no  liability  under or in respect of this  Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier)
believed  by it in good  faith to be  genuine  and  signed or sent by the proper
party or parties.



                                       72
<PAGE>

         SECTION 10.03. Rights as Lender. With respect to its commitment and the
Advances  and  Notes  held by it and all  other  rights,  claims  and  interests
accorded  it as Lender,  CUSA shall have the same  rights and powers  under this
Agreement  as any other  Lender and may  exercise the same as though it were not
the  Agent;  and the  term  "Lender"  or  "Lenders"  shall  include  CUSA in its
individual  capacity.  CUSA and its  Affiliates may accept  deposits from,  lend
money to, act as trustee under  indentures of, and generally  engage in any kind
of business with, the Borrower,  any of its  Subsidiaries and any Person who may
do business with or own securities of the Borrower or any such  Subsidiary,  all
as if CUSA were not the Agent and  without  any duty to account  therefor to the
Lenders. Any Lender and its respective Affiliates may accept deposits from, lend
money to, act as trustee under  indentures of, and generally  engage in any kind
of business with, the Borrower,  any of its  Subsidiaries and any Person who may
do business with or own securities of the Borrower or any such  Subsidiary,  all
as if such  Lender were not a Lender  hereunder  and without any duty to account
therefor to the other Lenders.

         SECTION 10.04. Lender Credit Decision. Each Lender acknowledges that it
has,  independently  and without reliance upon the Agent or any other Lender and
based on the financial  statements referred to in Section 4.01(i) and such other
documents  and  information  as it has deemed  appropriate,  made its own credit
analysis  and  decision  to  enter  into  this   Agreement.   Each  Lender  also
acknowledges that it will,  independently and without reliance upon the Agent or
any  other  Lender  and  based on such  documents  and  information  as it deems
appropriate at the time,  continue to make its own credit decisions in taking or
not taking action under this Agreement.

         SECTION  10.05.  Indemnification.  The Lenders  agree to indemnify  the
Agent and the Other  Agents  (to the  extent  not  reimbursed  by the  Borrower)
ratably  according  to  their  Pro Rata  Shares  from  and  against  any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or disbursements of any kind or nature  whatsoever which may be
imposed on, incurred by, or asserted against the Agent in any way relating to or
arising out of this Agreement or the other Loan Documents or any action taken or
omitted by the Agent under this Agreement or the other Loan Documents;  provided
that no Lender shall be liable for any portion of such liabilities, obligations,
losses,  damages,  penalties,  actions,  judgments,  suits,  costs,  expenses or
disbursements resulting from the Agent's gross negligence or willful misconduct.
Without  limiting  the  foregoing,  each Lender  agrees to  reimburse  the Agent
promptly  upon  demand  for its Pro Rata Share of any  reasonable  out-of-pocket
expenses  (including  reasonable  fees and expenses of counsel)  incurred by the
Agent in connection with the  preparation,  execution,  delivery,  modification,
amendment,  protection or enforcement  (whether through  negotiations,  by legal
proceedings,  in  bankruptcy  or  otherwise)  of, or legal  advice in respect of
rights or responsibilities under, this Agreement or the other Loan Documents, to
the extent that the Agent is not reimbursed for such expenses by the Borrower.

         SECTION  10.06.  Successor  Agent.  The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower and may be removed
at any time  with or  without  cause  by the  Requisite  Lenders.  Upon any such
resignation  or removal,  the Requisite  Lenders  shall,  subject to the written
consent  of the  Borrower,  which  consent  shall  not be  required  during  the
continuance  of an Event of  Default  and shall not  otherwise  be  unreasonably
withheld  or  delayed,  have the  right to  appoint  a  successor  Agent.  If no
successor Agent shall have been so appointed by the Requisite Lenders, and shall
have accepted such appointment, within 30 days after the retiring Agent's giving
of notice of  resignation  or the  Requisite  Lenders'  removal of the  retiring
Agent,  then the  retiring  Agent  may,  on  behalf  of the  Lenders,  appoint a
successor  Agent,  which shall be a commercial  bank organized under the laws of
the United States of America or of any State and having total assets of at least
$20,000,000,000.  Upon the acceptance of any appointment as Agent hereunder by a
successor  Agent,  such successor  Agent shall  thereupon  succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement.  After any retiring Agent's  resignation or removal hereunder as
Agent,  the  provisions  of this


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Article X shall inure to its  benefit as to any  actions  taken or omitted to be
taken by it while it was Agent under this Agreement.

         SECTION 10.07.  Release of Collateral.  The Agent is hereby irrevocably
authorized  to release any Lien granted to or held by the Agent upon (i) any and
all Collateral  when the Facility Amount has been  permanently  reduced to zero,
all Letters of Credit  issued  hereunder  have expired or been  discharged,  all
outstanding Advances and LC Exposure have been repaid, and all other Obligations
that are then due and  payable  and of which the Agent then has  written  notice
demanding  payment  prior to release  of  Collateral  have been  paid,  (ii) any
Collateral constituting property sold or to be sold or disposed of as part of or
in connection with any disposition  permitted under Section 6.02(b) or consented
to by the Requisite Lenders, or (iii) any Collateral consisting of an instrument
evidencing Debt or other debt instrument,  if the indebtedness evidenced thereby
has been paid in full.  Upon  request by the Agent or the  Borrower at any time,
each  Lender  shall  confirm  in  writing  the  Agent's   authority  to  release
Collateral,  or particular  types or items of  Collateral,  as set forth in this
Section 10.07. The Agent shall not be obligated to release any Collateral unless
it receives such written confirmation from the Requisite Lenders.

         SECTION  10.08.  The Other Agents and the Arranger.  Each Lender hereby
appoints First Union National Bank as "Syndication  Agent" and Foothill  Capital
Corporation  and  Goldman  Sachs  Credit  Partners,  L.P.  as  "Co-Documentation
Agents".  Notwithstanding  anything to the contrary contained in this Agreement,
the  Syndication  Agent is a Lender  designated as  "Syndication  Agent" and the
Co-Documentation  Agents  are  each a  Lender  designated  as  "Co-Documentation
Agent", in each case for title purposes only and, in such capacity,  neither the
Syndication Agent nor the Co-Documentation  Agents shall have any obligations or
duties  whatsoever  under this  Agreement or any other Loan Document to any Loan
Party,  any Lender or the LC Bank or shall have any rights  separate  from their
respective  rights as Lenders,  except as expressly  provided in this Agreement.
The Arranger  shall have no  obligations  or duties  whatsoever in such capacity
under this  Agreement  or any other Loan  Document  and shall incur no liability
hereunder or thereunder in such capacity.

                                   ARTICLE XI

                                  MISCELLANEOUS

         SECTION 11.01.  Amendments.  No amendment or waiver of any provision of
this Agreement or the Notes, nor consent to any departure by the Borrower or any
other Loan  Party  therefrom,  shall be  effective  unless it is in writing  and
signed by the  Requisite  Lenders  (and any such waiver or consent  shall in any
case be effective only in the specific instance and for the specific purpose for
which given), except that

         (a) no amendment, waiver or consent shall, unless in writing and signed
by each Lender, do any of the following:

                  (i)  change  the  obligation  of any  Lender to extend  credit
         hereunder or subject any Lender to any additional obligations;

                  (ii) reduce the principal of or interest on any Advance or any
         fees or other  amounts  payable  to any Lender  hereunder  or under any
         other Loan Document;

                  (iii)  postpone any date fixed for any payment  (including any
         mandatory prepayment) of principal of or interest on any Advances or LC
         Exposure held by any Lender or any fees or other amounts payable to any
         Lender under any Loan Document;



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<PAGE>

                  (iv) waive, reduce or postpone any Facility Reduction required
         hereunder;

                  (v) amend  the  definition  of  "Facility  Amount,"  "Pro Rata
         Share," or "Requisite Lenders";

                  (vi)  waive  any Event of  Default  that is  continuing  under
         Section 7.01(a) or 7.01(b) in respect of a payment due to any Lender;

                  (vii) release any substantial  portion of the Collateral other
         than in accordance with the terms of this Agreement;

                  (viii)  release or limit the liability of any Guarantor  under
         the Guaranty other than in accordance with the terms of the Guaranty;

                  (ix) amend Section 2.13, Section 2.17 or Section 7.01(a);

                  (x) increase the advance rates in the definition of "Borrowing
         Base" above the rates set forth in such definition;

                  (xi)  create any Lien or  super-priority  claim  senior to the
         Liens and claims of the Lenders under this  Agreement or any other Loan
         Document; or

                  (xii) amend this Section 11.01;

         (b) no amendment, waiver or consent shall, unless in writing and signed
by the Agent in  addition  to the Lenders  required  above to take such  action,
affect  the  rights  or duties of the Agent  under  this  Agreement  or any Loan
Document;

         (c) no amendment, waiver or consent shall, unless in writing and signed
by the LC Bank in addition to the Lenders  required  above to take such  action,
affect the rights or duties of the LC Bank under this Agreement.

         SECTION 11.02.  Notices. All notices and other communications  provided
for  hereunder  shall be in writing  (including  telecopier  communication)  and
mailed,  telecopied,  or  delivered,  if to the Borrower,  at Integrated  Health
Services,  Inc., 910 Ridgehook Road, Sparks, Maryland 21152, Attention:  General
Counsel and Attention:  Marshall Elkins,  Executive Vice President,  with a copy
to: Kaye, Scholer,  Fierman, Hays & Handler, LLP, 425 Park Avenue, New York, New
York 10022,  Attention:  A.J.  Bianco,  Esq.; if to any Lender,  at its Domestic
Lending Office specified  opposite its name on Schedule I hereto;  and if to the
Agent,  at Citicorp  USA,  Inc.,  399 Park Avenue,  - New York,  New York 10043,
Attention:  Shawn  Hendrickson,  with a copy to: Weil, Gotshal & Manges LLP, 767
Fifth Avenue, New York, New York 10153, Attention: Daniel S. Dokos, Esq., or, as
to each party,  at such other  address as shall be designated by such party in a
written notice to the other parties. All such notices and communications  shall,
when  mailed  or  telecopied,  be  effective  when  deposited  in the  mails  or
telecopied,  respectively,  except that notices and  communications to the Agent
pursuant  to  Article II or VII shall not be  effective  until  received  by the
Agent.

         SECTION  11.03.  No  Waiver;  Remedies.  No  failure on the part of any
Lender,  the LC Bank or the Agent to exercise,  and no delay in exercising,  any
right under any Loan Document shall operate as a waiver  thereof;  nor shall any
single or  partial  exercise  of any such  right  preclude  any other or further
exercise  thereof  or the  exercise  of any other  right.  The  remedies  herein
provided are cumulative and not exclusive of any remedies provided by law.



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<PAGE>

         SECTION 11.04. Costs and Expenses. The Borrower agrees to pay on demand
all  reasonable  costs and  expenses  incurred by the Agent and the  Arranger in
connection  with  (a)  the  preparation,   negotiation,   execution,   delivery,
modification  and amendment of the Loan Documents and the other  documents to be
delivered  under  the  Loan   Documents,   including  the  reasonable  fees  and
out-of-pocket  expenses and  disbursements of counsel for the Agent with respect
thereto  and  with   respect  to  advising  the  Agent  as  to  its  rights  and
responsibilities under the Loan Documents, (b) the funding of all Advances under
the Facility,  including,  without  limitation,  all due diligence,  syndication
(including printing, distribution and bank meetings), transportation,  computer,
duplication,  messenger,  audit, appraisal and consultant costs and expenses and
all search, filing and recording fees, incurred or sustained by the Agent or the
Arranger in connection with the Facility, the Loan Documents or the transactions
contemplated  thereby,  the  administration of the Facility and any amendment or
waiver of any provision of any Loan  Documents,  and (c) any review of pleadings
and documents  related to the Cases,  attendance  at meetings or court  hearings
related  to the Cases and  general  monitoring  of the Cases and any  subsequent
chapter  7 cases of the Loan  Parties.  The  Borrower  further  agrees to pay on
demand (i) all  reasonable  costs and expenses,  including  reasonable  fees and
expenses  of  attorneys   (including   allocable  costs  of  in-house  counsel),
accountants, advisors and other experts, incurred by the Agent or the Lenders in
respect of any Event of Default or while any Event of Default is  continuing  or
in connection with the protection,  resolution or enforcement  (whether  through
negotiations,   by  legal  proceedings,  in  bankruptcy  or  otherwise)  of  the
Obligations or the Collateral or any right, remedy,  power, interest or claim of
the Agent or any Lender under any Loan  Document and (ii) all costs and expenses
of the  Lenders  (including  reasonable  fees,  expenses  and  disbursements  of
counsel) in connection with the enforcement or protection of any of their rights
and remedies under the Loan Documents.

         SECTION  11.05.  Right of  Set-off.  Whenever  any Event of  Default is
continuing,  each Lender may at any time or from time to time,  with the consent
of the  Requisite  Lenders but without any prior  notice to the  Borrower or any
other Person,  set off and apply any and all deposits (general or special,  time
or  demand,  provisional  or final) at any time held and other  debt at any time
owing by such  Lender  to or for the  credit  or the  account  of the  Borrower,
whether or not then due, and whether or not then fully secured,  against any and
all  Advances,  LC Exposure  and other  Obligations  then owing to such  Lender,
whether or not then due.  After any such set-off and  application  is made,  the
Lender that made it shall promptly notify the Borrower thereof,  but the failure
to do so shall not affect the validity of the set-off and  application and shall
not expose such Lender to any liability. The Lenders' right of setoff under this
Section 11.05 is cumulative with and additional to all other rights and remedies
(including other rights of set-oft) of the Lenders.

         SECTION 11.06. Indemnity.

         (a) General Indemnity.  The Borrower shall pay, defend,  indemnify, and
hold the Arranger,  each Lender,  the Agent, the Other Agents,  their respective
Affiliates and each of their respective officers, directors, employees, counsel,
agents,  advisors,  representatives and attorneys-in-fact (each, an "INDEMNIFIED
PERSON") harmless from and against any and all liabilities, obligations, losses,
damages,  penalties,  actions,  judgments,  suits, costs,  charges,  expenses or
disbursements  (including reasonable fees, disbursements and expenses of counsel
and allocated costs of internal counsel incurred in defending any such action or
incurred in enforcing  this  Section  11.06(a)),  joint or several,  that may be
incurred by or asserted or awarded against any Indemnified  Person,  of any kind
or nature  whatsoever with respect to the execution,  delivery,  enforcement and
performance  of this  Agreement and any other Loan Document or the  transactions
contemplated  herein,  and with  respect  to any  investigation,  litigation  or
proceeding or the  preparation  of any defense  related to this Agreement or the
Advances or the Letters of Credit or the use of the proceeds thereof, whether or
not any Indemnified Person is a party thereto (all the foregoing,  collectively,
the "INDEMNIFIED LIABILITIES") and whether or not such investigation, litigation
or proceeding is brought by the Borrower, any Guarantor, any of their respective
shareholders or creditors,


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<PAGE>

an Indemnified  Person, or any other person,  except that no Indemnified  Person
shall have any  liability  (whether  direct or indirect,  in  contract,  tort or
otherwise)  to  the  Borrower,   any  Guarantor  or  any  of  their   respective
shareholders   or  creditors  for  or  in  connection   with  the   transactions
contemplated  hereby,  except to the extent  that such  liability  is found in a
final  non-appealable  judgment  by a count of  competent  jurisdiction  to have
resulted  from the gross  negligence or willful  misconduct of such  Indemnified
Person.  In no event  shall any  Indemnified  Person be liable on any  theory of
liability for any special, indirect, consequential or punitive damages.

         (b) Environmental Indemnity. The Borrower shall pay, defend, indemnify,
and  hold  harmless  each  Indemnified  Person  from  and  against  any  and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  charges,  expenses  or  disbursements  (including  reasonable  fees  and
expenses of counsel and the allocated  cost of internal  counsel),  which may be
incurred by or asserted  against any  Indemnified  Person in connection  with or
arising out of any pending or threatened  investigation or  Environmental  Claim
arising  out of or  related  to any acts or  omissions  or any  property  of the
Borrower  or any  of  its  Subsidiaries.  In no  event  shall  any  site  visit,
observation,  or  testing by the Agent or any  Lender be a  representation  that
Contaminants are or are not present in, on, or under the site, or that there has
been or shall be compliance with any Environmental Law. Neither the Borrower nor
any other party is entitled to rely on any site visit,  observation,  or testing
by the Agent or any  Lender.  Neither  the Agent nor any Lender owes any duty of
care to protect  the  Borrower  or any other  Person  against,  or to inform the
Borrower or any other  Person of, any adverse  condition  affecting  any site or
property.

         SECTION 11.07. Assignments and Participations.

         (a)  Permitted  Assignment.  Each  Lender  may  assign,  subject to the
Agent's approval (such approval not to be unreasonably  withheld or delayed), to
one or more banks,  financial  institutions or other entities  acceptable to the
Arranger all or a portion of its rights and  obligations  under this  Agreement,
but (i)  each  such  assignment  shall  be of a  constant,  and  not a  varying,
percentage of all of the assigning  Lender's rights and  obligations  under this
Agreement,  unless otherwise  consented to by the Agent;  (ii) the amount of the
commitment,  if any,  and  outstanding  Advances of the  assigning  Lender being
assigned  pursuant  to each such  assignment  (determined  as of the date of the
Assignment and  Acceptance  with respect to such  assignment)  shall not be less
than  $5,000,000  or the total amount of the remaining  commitment,  if any, and
outstanding  Advances of such Lender,  except that an  assignment to an existing
Lender or an  Affiliate  of a Lender or a Related  Fund may be in an amount less
than $5,000,000, (iii) each such assignment shall be to an Eligible Assignee and
(iv) the parties to each such assignment shall execute and deliver to the Agent,
for its acceptance and recording in the Register,  an Assignment and Acceptance,
together with any Note or Notes subject to such  assignment and a processing and
recordation  fee  payable to the Agent of $3,500;  provided,  that  unless  such
assignee is one of the seven  institutions  previously  identified in writing to
the  Borrower  by the  Arranger  or an  Event of  Default  has  occurred  and is
continuing,  such assignee shall be reasonably  acceptable to the Borrower (such
acceptance not to be  unreasonably  withheld or delayed).  Upon such  execution,
delivery,  acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance,  (A) the assignee thereunder shall be a party
hereto  and,  to the extent  that  rights and  obligations  hereunder  have been
assigned to it pursuant to such Assignment and  Acceptance,  have the rights and
obligations of a Lender hereunder and (B) the Lender assignor  thereunder shall,
to the extent that rights and  obligations  hereunder  have been  assigned by it
pursuant  to such  Assignment  and  Acceptance,  relinquish  its  rights  and be
released  from its  obligations  under this  Agreement  (and,  in the case of an
Assignment and Acceptance  covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).

         (b) Effect of Assignment. By executing and delivering an Assignment and
Acceptance,  the Lender assignor  thereunder and the assignee thereunder confirm
to and agree with each


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<PAGE>

other and the other  parties  hereto  that (i) other  than as  provided  in such
Assignment and  Acceptance,  such assigning  Lender makes no  representation  or
warranty  and  assumes  no  responsibility   with  respect  to  any  statements,
warranties or  representations  made in or in connection  with this Agreement or
the execution, legality, validity, enforceability,  genuineness,  sufficiency or
value of this Agreement or any other instrument or document  furnished  pursuant
hereto or as to the  Collateral or the validity,  enforceability,  perfection or
priority of any Lien upon the  Collateral;  (ii) such assigning  Lender makes no
representation  or warranty  and assumes no  responsibility  with respect to the
financial  condition of the Borrower or the  performance  or  observance  by the
Borrower of any of its obligations  under this Agreement or any other instrument
or document furnished pursuant hereto;  (iii) such assignee confirms that it has
received  a copy  of this  Agreement,  together  with  copies  of the  financial
statements  referred  to  in  Section  4.01(i)  and  such  other  documents  and
information  as it has deemed  appropriate  to make its own credit  analysis and
decision to enter into such Assignment and Acceptance;  (iv) such assignee will,
independently  and without reliance upon the Agent, such assigning Lender or any
other  Lender  and based on such  documents  and  information  as it shall  deem
appropriate at the time,  continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee confirms that it is an
Eligible Assignee;  (vi) such assignee appoints and authorizes the Agent to take
such  action as agent on its  behalf  and to  exercise  such  powers  under this
Agreement as are delegated to the Agent by the terms hereof,  together with such
powers as are reasonably incidental thereto;  (vii) such assignee agrees that it
will perform in accordance with their terms all of the obligations  which by the
terms of this  Agreement  are required to be  performed  by it as a Lender;  and
(viii)  such  assignee  confirms  and  agrees  that it  shall  have  no  greater
indemnification rights pursuant to Section 2.16(c) than its Lender assignor.

         (c) Maintenance of Agreements.  The Agent, acting for this purpose (but
only for  this  purpose)  as the  agent of the  Borrower  (and in such  capacity
neither the Agent nor any of its directors,  officers, agents or employees shall
be liable for any action taken or omitted to be taken by it or any of them under
or in connection with this Section  11.07(c),  except for its or their own gross
negligence or willful misconduct),  shall maintain at its address referred to in
Section 11.02 a copy of each Assignment and Acceptance delivered to and accepted
by it and a  register  for the  recordation  of the names and  addresses  of the
Lenders and the commitments and Pro Rata Shares of, and principal  amount of the
Advances owing to, each Lender from time to time (the  "REGISTER").  The entries
in the  Register  shall be  conclusive  and  binding  for all  purposes,  absent
manifest  error,  and the  Borrower,  the Agent and the Lenders shall treat each
Person  whose name is recorded in the  Register  as a Lender  hereunder  for all
purposes of this  Agreement.  The Register  shall be available for inspection by
the  Borrower  or any Lender at any  reasonable  time and from time to time upon
reasonable prior notice.

         (d)  Procedure.  Upon  its  receipt  of an  Assignment  and  Acceptance
executed by an assigning Lender and an assignee Lender  representing  that it is
an  Eligible  Assignee,  together  with  any  Note  or  Notes  subject  to  such
assignment,  the  Agent  shall,  if such  Assignment  and  Acceptance  has  been
completed  and is in  substantially  the form of Exhibit  E-2,  (i) accept  such
Assignment and Acceptance,  (ii) record the information contained therein in the
Register  and (iii) give  prompt  notice  thereof to the  Borrower.  Within five
Business  Days  after its  receipt  of such  notice,  the  Borrower,  at its own
expense,  shall execute and deliver to the Agent in exchange for the surrendered
Note or Notes a new Note or Notes to the order of such  Eligible  Assignee in an
aggregate amount equal to the interest in the surrendered Note or Notes assigned
to it pursuant to such  Assignment and Acceptance  and, if the assigning  Lender
has retained an interest in the  surrendered  Note or Notes, a new Note or Notes
to the  order  of the  assigning  Lender  in an  aggregate  amount  equal to the
interest so retained.  Such new Note or Notes shall be in an aggregate principal
amount  equal to the  aggregate  principal  amount of such  surrendered  Note or
Notes,  shall be dated the effective date of such  Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit A.



                                       78
<PAGE>

         (e) Participations.  Each Lender may sell participations to one or more
banks or other  entities  in all or a portion of its rights  (other  than voting
rights) and obligations under this Agreement,  but (i) such Lender's obligations
under this Agreement  (including its commitment to the Borrower hereunder) shall
remain unchanged,  (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations,  (iii) such Lender shall
remain the holder of any such Note or Notes for all purposes of this  Agreement,
and (iv) the Borrower,  the Agent and the other  Lenders shall  continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations  under  this  Agreement;  provided,  that to the  extent  any matter
requires  the  consent of 100% of the  Lenders,  such  purchasing  bank or other
entity may vote upon such matter.

         (f)  Additional  Information.  Any Lender may, in  connection  with any
assignment or participation or proposed assignment or participation  pursuant to
this Section 11.07, disclose to the assignee or participant or proposed assignee
or  participant  or  to  any  Person  who  evaluates,  approves,  structures  or
administers  the loans on behalf of a Lender,  any  information  relating to the
Borrower  furnished to such Lender by or on behalf of the Borrower,  but only if
such Person,  the assignee or participant or proposed assignee or participant is
obligated  to  preserve  the  confidentiality  of any  confidential  information
relating to the Borrower received by it from such Lender.

         (g) Affiliated  Assignments Any Lender may assign any of its rights and
obligations  under this Agreement to any of its Affiliates  without notice to or
consent of the Borrower or the Agent,  and such Lender or any of its  Affiliates
may assign any of its rights (including,  without limitation,  rights to payment
of  principal  and/or  interest  under the Notes)  under this  Agreement  to any
Federal Reserve Bank without notice to or consent of the Borrower or the Agent.

         (h) Subsequent  Lenders.  Each of the parties hereto agrees that on the
Entry  Date and upon the  prior  written  consent  of the  Agent,  any  Eligible
Assignee may become party to this Agreement as a Lender and be subject to all of
the  obligations  and  entitled to all of the rights of a Lender  under the Loan
Documents upon such Eligible Assignee's  execution and delivery of a counterpart
of this Agreement containing the amount of its Commitment;  provided, that in no
event  shall the maximum  amount of the  Commitments  of all the Lenders  exceed
$300,000,000  after giving effect to the  Commitment of each  additional  Lender
becoming a party to this Agreement  pursuant to this Section 11.07(h);  provided
further, however, that such Eligible Assignee shall not become a Lender party to
this Agreement  unless (x) all fees and expenses  provided for in the fee letter
dated the Closing Date and referred to in Section  2.04(e)  shall have been paid
and (y) the payment of such fees and expenses shall have been  approved,  to the
extent required, by the Bankruptcy Court. The Agent shall be authorized to amend
or supplement  Schedule I to set forth the Commitment of each Lender  becoming a
party to this Agreement pursuant to this Section 11.07(h). Any Lender becoming a
party to this Agreement  pursuant to this Section  11.07(h) shall be required on
the Entry Date to purchase a portion of the then  outstanding  Revolving  Credit
Advances such that after giving effect to such purchase,  each Lender shall have
its Pro Rata Share (adjusted to give effect to the increased Commitments) of the
Revolving  Credit  Advances on such date.  In  addition,  on the Entry Date each
Lender's  participation  in the LC  Exposure  shall be  adjusted  to reflect any
adjustment in such Lender's Pro Rata Share.

         SECTION 11.08.  Binding Effect.  This Agreement shall become  effective
when it has been executed by the parties  hereto and the conditions set forth in
Section 3.01 have been satisfied and thereafter  shall be binding upon and inure
to the benefit of the Borrower,  the Agent and each Lender and their  respective
successors  and assigns,  except that the  Borrower  shall not have the right to
assign its rights  hereunder or any interest  herein  without the prior  written
consent of each of the Lenders and the Agent.



                                       79
<PAGE>

         SECTION  11.09.  Governing  Law.  This  Agreement  and the  other  Loan
Documents  shall be governed by, and construed in accordance  with,  the laws of
the State of New York.

         SECTION 11.10. Waiver of Jury Trial. THE BORROWER,  THE LENDERS AND THE
AGENT WAIVE THEIR RESPECTIVE  RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION  BASED UPON OR ARISING OUT OF OR RELATED TO THIS  AGREEMENT  OR ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS  CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR PARTIES, WHETHER BASED ON CONTRACT, TORT, STATUTORY LIABILITY
OR OTHERWISE.  THE BORROWER, THE LENDERS AND THE AGENT AGREE THAT ANY SUCH CLAIM
OR CAUSE OF ACTION SHALL BE TRIED BY THE COURT WITHOUT A JURY. THIS WAIVER SHALL
APPLY TO EACH FUTURE AMENDMENT,  RENEWAL, SUPPLEMENT OR MODIFICATION OF ANY LOAN
DOCUMENT AND TO EACH FUTURE LOAN DOCUMENT.

         SECTION  11.11.  Limitation of  Liability.  No claim may be made by the
Borrower,  any  Subsidiary of the Borrower,  any Lender,  the Agent or any other
Person  against  the Agent or any other  Lender  or the  Affiliates,  directors,
officers,  employees,  attorneys  or  agents  of any of them  for  any  special,
indirect or  consequential  damages or, to the fullest extent  permitted by law,
for any  punitive  damages in  respect of any claim or cause of action  (whether
based on contract,  tort,  statutory  liability,  or any other ground) based on,
arising out of or related to any Loan Document or the transactions  contemplated
hereby or any act, omission or event occurring in connection therewith,  and the
Borrower (for itself and on behalf of each of its  Subsidiaries),  the Agent and
each Lender hereby waive,  release and agree never to sue upon any claim for any
such damages,  whether such claim now exists or hereafter  arises and whether or
not it is now known or suspected to exist in its favor.

         SECTION 11.12.  Entire  Agreement.  This  Agreement,  together with the
other Loan Documents,  embodies the entire Agreement and understanding among the
Borrower,  the Lenders and the Agent and supersedes all prior or contemporaneous
agreements and  understandings of such persons,  verbal or written,  relating to
the subject  matter hereof and thereof  except for the Fee Letters and any prior
arrangements  made  with  respect  to the  payment  by the  Borrower  of (or any
indemnification  for) any fees,  costs or expenses payable to or incurred (or to
be incurred) by or on behalf of the Agent or any Lender.

         SECTION  11.13.  Survival.  The  Borrower's  liability  for any and all
additional  interest,   fees,  taxes,   compensation,   costs,  losses,  expense
reimbursements,  indemnification and other similar Obligations arising under any
Loan Document shall survive the expiration or termination of the  commitments of
the Lenders to extend credit  hereunder,  the  repayment  and  retirement of all
Advances and LC Exposure at any time outstanding hereunder and the assignment by
a Lender of all or the  remaining  portion of its rights and  obligations  under
this Agreement.

         SECTION  11.14.  Execution  in  Counterparts.  This  Agreement  may  be
executed  in any  number of  counterparts  and by  different  parties  hereto in
separate  counterparts,  each of which when so executed shall be deemed to be an
original  and all of which  taken  together  shall  constitute  one and the same
agreement.

         SECTION 11.15. Acknowledgements.  The Borrower hereby acknowledges that
(i) it has been advised by counsel in the negotiation, execution and delivery of
this  Agreement  and the other Loan  Documents,  (ii)  neither the Agent nor any
Lender has any  fiduciary  relationship  with or fiduciary  duty to the Borrower
arising  out of or in  connection  with  this  Agreement  or  any  of  the  Loan
Documents,  and the  relationship  between the Agent and the Lender,  on the one
hand, and the Borrower,  on the other


                                       80
<PAGE>

hand, in connection  herewith or therewith is solely that of debtor and creditor
and (iii) no joint venture is created  hereby or by the other Loan  Documents or
otherwise by virtue of the transaction  contemplated hereby among the Lenders or
among the Borrower and the Lenders or among the Borrower and the Agent.


                                       81
<PAGE>

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.


                                   INTEGRATED HEALTH SERVICES, INC.,
                                       as Borrower

                                   By:
                                       -------------------------------
                                       Name:
                                       Title:



                                   CITICORP USA, INC.,
                                       as Agent, Swing Line Bank and Lender


                                   By:
                                       -------------------------------
                                       Name:
                                       Title:



                                  EACH OF THE GUARANTORS LISTED ON SCHEDULE II
                                  HERETO,
                                       as Guarantors


                                  By:
                                       -------------------------------
                                       Name:
                                       Title:


<PAGE>

                                  FOOTHILL CAPITAL CORPORATION,
                                       as Lender

                                  By:
                                       -------------------------------
                                       Name:
                                       Title:

<PAGE>


                                  BANKERS TRUST COMPANY,
                                       as Lender

                                  By:
                                       -------------------------------
                                       Name:
                                       Title:


<PAGE>




                                  FIRST UNION NATIONAL BANK,
                                       as Lender

                                  By:
                                       -------------------------------
                                       Name:
                                       Title:

<PAGE>



                                  BANK OF AMERICA, N.A.,
                                       as Lender

                                  By:
                                       -------------------------------
                                       Name:
                                       Title:

<PAGE>



                                  TORONTO DOMINION (TEXAS) INC.,
                                       as Lender

                                  By:
                                       -------------------------------
                                       Name:
                                       Title:

<PAGE>



                                  THE BANK OF NOVA SCOTIA,
                                       as Lender

                                  By:
                                       -------------------------------
                                       Name:
                                       Title:

<PAGE>



                                  GOLDMAN SACHS CREDIT PARTNERS, L.P.,
                                       as Lender

                                  By:
                                       -------------------------------
                                       Name:
                                       Title:

<PAGE>

<TABLE>
<S>                                                                                                    <C>
ARTICLE I             DEFINITIONS AND ACCOUNTING TERMS..................................................1

         SECTION 1.01.     Certain Defined Terms........................................................1

         SECTION 1.02.     Accounting Terms............................................................23

         SECTION 1.03.     Other Definitional Provisions...............................................23

ARTICLE II            AMOUNTS AND TERMS OF THE ADVANCES................................................24

         SECTION 2.01.     Revolving Facility and Swing Line Facility..................................24

                  (a)      Advances....................................................................24

                  (b)      Amount of Revolving Credit Advances.........................................24

                  (c)      Notice of Borrowing.........................................................25

                  (d)      Telephonic Notice of Borrowing..............................................25

                  (e)      Funding of Advances.........................................................25

                  (f)      Assumption of Funding.......................................................25

                  (g)      Failure of Lender to Fund...................................................25

                  (h)      Swing Line Advances.........................................................25

         SECTION 2.02.     Letter of Credit Subfacility................................................26

                  (a)      Issuance of Letters of Credit...............................................26

                  (b)      LC Application..............................................................26

                  (c)      Reimbursement...............................................................26

                  (d)      Reimbursement Obligation Absolute...........................................27

                  (e)      Lender Participation........................................................27

                  (f)      Commercial Practices........................................................28

         SECTION 2.03.     Evidence of Debt............................................................28

         SECTION 2.04.     Fees........................................................................29

                  (a)      Unused Commitment Fees......................................................29

                  (b)      Facing Fees.................................................................29

                  (c)      Letter of Credit Fee........................................................29

                  (d)      Letter of Credit Administration.............................................29

                  (e)      Fees........................................................................29

         SECTION 2.05.     Voluntary and Mandatory Facility Reductions.................................29

                  (a)      Voluntary...................................................................29

                  (b)      RoTech Asset Sale...........................................................30

         SECTION 2.06.     Principal Payments and Swing Line Payments..................................30

                  (a)      Final Maturity..............................................................30

                  (b)      Excess Credit Exposure......................................................30
</TABLE>
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                  (c)      Excess LC Exposure..........................................................30

                  (d)      Swing Line Payments.........................................................30

         SECTION 2.07.     Interest....................................................................30

                  (a)      Base Rate Advances..........................................................30

                  (b)      Eurodollar Rate Advances....................................................30

                  (c)      Default Interest............................................................31

         SECTION 2.08.     Additional Interest on Eurodollar Rate Advances.............................31

         SECTION 2.09.     Interest Rate Determination and Protection..................................31

                  (a)      Determination of Eurodollar Rate............................................31

                  (b)      Notice of Eurodollar Rate...................................................31

                  (c)      Failure to Provide Information..............................................31

                  (d)      Suspension of Eurodollar Rate Advances......................................31

                  (e)      Failure to Specify Duration.................................................32

                  (f)      Agent's Determination Conclusive............................................32

         SECTION 2.10.     Voluntary Conversion of Advances............................................32

                  (a)      Notice of Continuance/Conversion............................................32

                  (b)      Telephonic Notice...........................................................32

                  (c)      Requirements................................................................32

                  (d)      Base Rate Advances..........................................................32

         SECTION 2.11.     Prepayments.................................................................32

                  (a)      Voluntary Prepayments.......................................................32

                  (b)      Mandatory Prepayments.......................................................33

         SECTION 2.12.     Funding Losses..............................................................34

         SECTION 2.13.     Increased Costs.............................................................34

                  (a)      Increase in Cost............................................................34

                  (b)      Increase in Capital Requirements............................................34

                  (c)      Replacement Lenders and Participants........................................35

         SECTION 2.14.     Illegality..................................................................35

         SECTION 2.15.     Payments and Computations...................................................35

                  (a)      Payments....................................................................36

                  (b)      Charging of Accounts........................................................36

                  (c)      Computations................................................................36
</TABLE>

                                       ii

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                  (d)      Payment on Business Day.....................................................36

                  (e)      Presumption of Payment......................................................36

         SECTION 2.16.     Taxes.......................................................................36

                  (a)      Net Payments................................................................36

                  (b)      Payment of Other Taxes......................................................37

                  (c)      Indemnification.............................................................37

                  (d)      Evidence of Payments........................................................37

                  (e)      Withholding Tax Exemption...................................................37

                  (f)      Withholding Taxes...........................................................38

                  (g)      Subsequent Lenders..........................................................38

                  (h)      Refund, Deduction or Credit of Taxes........................................38

                  (i)      Exclusion of Certain Taxes..................................................38

                  (j)      Additional Cooperation......................................................39

         SECTION 2.17.     Sharing of Payments.........................................................39

ARTICLE III           CONDITIONS OF LENDING............................................................39

         SECTION 3.01.     Conditions Precedent on the Closing Date....................................39

                  (a)      Bankruptcy Court Order......................................................39

                  (b)      Loan Documents..............................................................39

                  (c)      Governmental Consents.......................................................40

                  (d)      No Injunction...............................................................40

                  (e)      Material Adverse Change.....................................................41

                  (f)      Security....................................................................41

                  (g)      Payment of Fees.............................................................41

         SECTION 3.02.     Conditions Precedent to Each Extension of Credit............................41

                  (a)      Notice......................................................................41

                  (b)      Borrowing Base..............................................................41

                  (c)      Borrowing Base Certificate..................................................41

                  (d)      Bankruptcy Court Approval...................................................41

                  (e)      Statements..................................................................41

ARTICLE IV            REPRESENTATIONS AND WARRANTIES...................................................42

         SECTION 4.01.     Representations and Warranties of the Loan Parties..........................42
                  (a)      Organization................................................................42
</TABLE>

                                      iii

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                  (b)      Power and Authority.........................................................42

                  (c)      Due Authorization...........................................................42

                  (d)      Subsidiaries and Ownership of Capital Stock and Ownership Interests.........42

                  (e)      Health Care Facilities......................................................42

                  (f)      Governmental Approval.......................................................43

                  (g)      Binding and Enforceable.....................................................43

                  (h)      Government Regulation.......................................................43

                  (i)      Financial Information.......................................................43

                  (j)      Material Adverse Change.....................................................43

                  (k)      Compliance..................................................................43

                  (l)      Litigation..................................................................43

                  (m)      No Conflict.................................................................43

                  (n)      No Default..................................................................44

                  (o)      Payment of Taxes............................................................44

                  (p)      Margin Regulations..........................................................44

                  (q)      Conduct of Business.........................................................44

                  (r)      Health Care Permits.........................................................44

                  (s)      Environmental Matters.......................................................45

                  (t)      ERISA Compliance............................................................45

                  (u)      Title to Assets.............................................................46

                  (v)      Loan Documents..............................................................46

                  (w)      Security....................................................................46

                  (x)      Priority....................................................................46

                  (y)      Orders......................................................................46

                  (z)      Accounts Receivable.........................................................46

                  (aa)     Year 2000 Compliance........................................................47

                  (bb)     Full Disclosure.............................................................47

                  (cc)     Liens.......................................................................47

                  (dd)     Debt........................................................................47

                  (ee)     Depositary Banks............................................................47

ARTICLE V             FINANCIAL COVENANTS OF THE BORROWER..............................................47
</TABLE>

                                       iv
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         SECTION 5.01.     Financial Covenants.........................................................47

                  (a)      Minimum Adjusted EBITDA.....................................................47

                  (b)      Maximum Capital Expenditures................................................48

ARTICLE VI            COVENANTS OF THE BORROWER........................................................48

         SECTION 6.01.     Affirmative Covenants.......................................................48

                  (a)      Compliance with Laws........................................................48

                  (b)      Inspection of Property and Books and Records................................48

                  (c)      Reporting Requirements......................................................49

                  (d)      Preservation of Corporate Existence, Etc....................................51

                  (e)      Maintenance of Property.....................................................51

                  (f)      Bankruptcy Court............................................................51

                  (g)      Insurance...................................................................52

                  (h)      Cash Management.............................................................52

                  (i)      Environmental Laws..........................................................53

                  (j)      Use of Proceeds.............................................................53

                  (k)      Health Care Permits and Approvals...........................................53

                  (l)      Further Assurances..........................................................53

                  (m)      Delivery of Promissory Note.................................................54

                  (n)      Licensure; Medicaid/Medicare Cost Reports...................................54

         SECTION 6.02.     Negative Covenants..........................................................54

                  (a)      Liens.......................................................................54

                  (b)      Disposition of Assets.......................................................55

                  (c)      Investments.................................................................55

                  (d)      Limitation on Debt..........................................................56

                  (e)      Transactions with Affiliates................................................56

                  (f)      Accommodation Obligations...................................................56

                  (g)      Leases of Health Care Facilities............................................56

                  (h)      Subsidiaries................................................................57

                  (i)      Restricted Payments.........................................................57

                  (j)      Capital Structure/Modification of Constituent Documents.....................57

                  (k)      Mergers, Etc................................................................57

                  (l)      Conduct of Business.........................................................57
</TABLE>

                                       v

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                  (m)      Compliance with ERISA.......................................................57

                  (n)      Health Care Permits and Approvals...........................................57

                  (o)      Payment Restrictions Affecting Subsidiaries.................................58

                  (p)      The Orders..................................................................58

                  (q)      Application to Bankruptcy Court.............................................58

                  (r)      Ownership...................................................................58

                  (s)      Accounting Changes; Fiscal Year.............................................58

                  (t)      Cancellation of Indebtedness Owed to It.....................................58

                  (u)      No Speculative Transactions.................................................58

                  (v)      Chapter 11 Claims...........................................................58

                  (w)      Cash Management.............................................................58

                  (x)      Environmental...............................................................58

ARTICLE VII           EVENTS OF DEFAULT................................................................59

         SECTION 7.01.     Events of Default...........................................................59

                  (a)      Non-Payment of Principal or Interest........................................59

                  (b)      Non-Payment of Fees.........................................................59

                  (c)      Representations and Warranties..............................................59

                  (d)      Covenants...................................................................59

                  (e)      Other Covenants.............................................................59

                  (f)      Leases......................................................................59

                  (g)      Judgments...................................................................59

                  (h)      Loan Documents..............................................................59

                  (i)      Material Adverse Change.....................................................60

                  (j)      ERISA.......................................................................60

                  (k)      Trustee.....................................................................60

                  (l)      Environmental Liabilities...................................................60

                  (m)      Cases.......................................................................60

                  (n)      Prepetition Claims..........................................................60

                  (o)      Court Orders................................................................60

                  (p)      Examiner....................................................................61

                  (q)      Forfeiture; Seizure.........................................................61

         SECTION 7.02.     Actions in Respect of Letters of Credit.....................................61
</TABLE>

                                       vi

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         SECTION 7.03.     Rights Not Exclusive........................................................61

ARTICLE VIII          GUARANTY.........................................................................62

         SECTION 8.01.     The Guaranty................................................................62

         SECTION 8.02.     Nature of Liability.........................................................62

         SECTION 8.03.     Independent Obligation......................................................62

         SECTION 8.04.     Authorization...............................................................62

         SECTION 8.05.     Reliance....................................................................63

         SECTION 8.06.     Subordination...............................................................63

         SECTION 8.07.     Waiver......................................................................63

         SECTION 8.08.     Limitation on Enforcement...................................................64

ARTICLE IX            SECURITY.........................................................................64

         SECTION 9.01.     Security....................................................................64

         SECTION 9.02.     Perfection of Security Interests............................................66

         SECTION 9.03.     Rights of Lender; Limitations on Lenders' Obligations.......................66

         SECTION 9.04.     Covenants of the Loan Parties with Respect to Collateral....................67

         SECTION 9.05.     Performance by Agent of the Loan Parties' Obligations.......................68

         SECTION 9.06.     Limitation on Agent's Duty in Respect of Collateral.........................69

         SECTION 9.07.     Remedies, Rights Upon Default...............................................69

         SECTION 9.08.     The Agent's Appointment as Attorney-in-Fact.................................70

         SECTION 9.09.     Modifications...............................................................71

ARTICLE X             THE AGENT, THE OTHER AGENTS AND THE ARRANGER.....................................72

         SECTION 10.01     Authorization and Action....................................................72

         SECTION 10.02     Agent Not Liable............................................................72

         SECTION 10.03     Rights as Lender............................................................73

         SECTION 10.04     Lender Credit Decision......................................................73

         SECTION 10.05     Indemnification.............................................................73

         SECTION 10.06     Successor Agent.............................................................73

         SECTION 10.07     Release of Collateral.......................................................74

         SECTION 10.08     The Other Agents and the Arranger...........................................74

ARTICLE XI            MISCELLANEOUS....................................................................74

         SECTION 11.01     Amendments..................................................................74

         SECTION 11.02     Notices.....................................................................75
</TABLE>

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         SECTION 11.03 No Waiver; Remedies.............................................................75

         SECTION 11.04 Costs and Expenses..............................................................76

         SECTION 11.05 Right of Set-off................................................................76

         SECTION 11.06 Indemnity.......................................................................76

                  (a)      General Indemnity...........................................................76

                  (b)      Environmental Indemnity.....................................................77

         SECTION 11.07 Assignments and Participations..................................................77

                  (a)      Permitted Assignment........................................................77

                  (b)      Effect of Assignment........................................................77

                  (c)      Maintenance of Agreements...................................................78

                  (d)      Procedure...................................................................78

                  (e)      Participations..............................................................79

                  (f)      Additional Information......................................................79

                  (g)      Affiliated Assignments......................................................79

                  (h)      Subsequent Lenders..........................................................79

         SECTION 11.08 Binding Effect..................................................................79

         SECTION 11.09 Governing Law...................................................................79

         SECTION 11.10 Waiver of Jury Trial............................................................79

         SECTION 11.11 Limitation of Liability.........................................................80

         SECTION 11.12 Entire Agreement................................................................80

         SECTION 11.13 Survival........................................................................80

         SECTION 11.14 Execution in Counterparts.......................................................80

         SECTION 11.15 Acknowledgements................................................................80
</TABLE>

                                      viii







<PAGE>


                                    EXHIBITS

         Exhibit A             Form of Revolving Credit Note

Forms of Loan Administration Documents

         Exhibit B-1           Form of Notice of Borrowing
         Exhibit B-2           Form of Notice of Continuance/Conversion
         Exhibit B-3           Form of LC Application
         Exhibit B-4           Form of Notice of Swing Line Advance
         Exhibit B-5           Form of Borrowing Base Certificate

Forms of Certain Loan Documents

         Exhibit C             Form of Blocked Account Letter

Forms of Opinion of Counsel

         Exhibit D             Form of Opinion of Counsel for the Loan Parties

Other Forms

         Exhibit E-1           Form of Compliance Certificate
         Exhibit E-2           Form of Assignment and Acceptance
         Exhibit E-3           Form of Interim Order

<PAGE>


                                    SCHEDULES

Schedule I                     List of Lenders, Commitments and Pro Rata Shares
Schedule II                    List of Guarantors
Schedule 1.01                  List of Depositary Banks
Schedule 4.01(d)               List of Subsidiaries
Schedule 4.01(e)               List of Health Care Facilities
Schedule 4.01(f)               List of Government Approvals
Schedule 4.01(s)               List of Environmental Matters
Schedule 4.01(t)               List of ERISA Matters
Schedule 6.02(c)               List of Loans and Investments
Schedule 6.02(d)               List of Liens and Debt
Schedule 6.02(f)               List of Accommodation Obligations



<PAGE>





                             SECURED SUPER-PRIORITY
                              DEBTOR IN POSSESSION
                           REVOLVING CREDIT AGREEMENT


                          DATED AS OF FEBRUARY 3, 2000

                                      AMONG

                        INTEGRATED HEALTH SERVICES, INC.,

                       A DEBTOR AND DEBTOR IN POSSESSION,

                                  AS BORROWER,


                  THE SUBSIDIARIES PARTY HERETO AS GUARANTORS,

                      AS DEBTORS AND DEBTORS IN POSSESSION,


                   THE LENDERS FROM TIME TO TIME PARTY HERETO,

                                       AND

                               CITICORP USA, INC.,

             AS COLLATERAL MONITORING AGENT AND ADMINISTRATIVE AGENT


                                      * * *


                           SALOMON SMITH BARNEY INC.,

                      AS LEAD ARRANGER AND SOLE BOOK RUNNER


                           FIRST UNION NATIONAL BANK,

                              AS SYNDICATION AGENT


                          FOOTHILL CAPITAL CORPORATION
                                       AND
                      GOLDMAN SACHS CREDIT PARTNERS, L.P.,

                           AS CO-DOCUMENTATION AGENTS